<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Quarter Ended July 4, 1998
--------------
Commission File No. 0-11577
--------------
LADD FURNITURE, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1311320
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
POST OFFICE BOX 26777
GREENSBORO, NORTH CAROLINA 27417-6777
(Address of principal executive offices) (Zip Code)
(336) 294-5233
(Registrants' telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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 July 31, 1998 there were 7,830,330 shares of Common Stock ($.30 par
value) of the registrant outstanding.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the thirteen weeks and twenty-six weeks ended June 28, 1997 and July 4, 1998
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
----------------------- ------------------------
June 28, July 4, June 28, July 4,
1997 1998 1997 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 125,572 135,505 248,940 282,914
Cost of sales 101,393 108,173 202,830 228,906
---------- ---------- ----------- -----------
Gross profit 24,179 27,332 46,110 54,008
Selling, general and administrative expenses 18,561 19,947 36,113 40,297
---------- ---------- ----------- -----------
Operating income 5,618 7,385 9,997 13,711
---------- ---------- ----------- -----------
Other deductions:
Interest expense 2,719 2,371 5,724 4,955
Other expense, net 194 310 715 184
---------- ---------- ----------- -----------
2,913 2,681 6,439 5,139
---------- ---------- ----------- -----------
Earnings before income taxes 2,705 4,704 3,558 8,572
Income tax expense 1,055 1,835 1,388 3,343
---------- ---------- ----------- -----------
Net earnings $ 1,650 2,869 2,170 5,229
========== ========== =========== ===========
Net earnings per common share - basic $ 0.21 0.37 0.28 0.67
========== ========== =========== ===========
Net earnings per common share - diluted $ 0.21 0.35 0.28 0.65
========== ========== =========== ===========
Weighted average number of
common shares outstanding - basic 7,737 7,812 7,728 7,786
========== ========== =========== ===========
Weighted average number of
common shares outstanding - diluted 7,795 8,165 7,805 8,056
========== ========== =========== ===========
</TABLE>
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<PAGE> 3
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, 1998 and July 4, 1998
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
July 4,
January 3, 1998
1998 * (Unaudited)
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 75 89
Trade accounts receivable, less allowances for
doubtful receivables, discounts, returns and
allowances of $2,735 and $2,890, respectively 83,297 85,253
Inventories 93,189 102,129
Prepaid expenses and other current assets 8,016 9,514
------------- -------------
Total current assets 184,577 196,985
------------- -------------
Property, plant and equipment, net 67,530 66,406
Intangible and other assets, net 77,083 74,431
------------- -------------
$ 329,190 337,822
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,807 6,590
Trade accounts payable 29,488 36,317
Accrued expenses and other current liabilities 31,952 35,252
------------- -------------
Total current liabilities 68,247 78,159
------------- -------------
Long-term debt, excluding current installments 118,586 109,629
Deferred and other liabilities 11,432 12,657
------------- -------------
Total liabilities 198,265 200,445
------------- -------------
Shareholders' equity:
Preferred stock of $100 par value. Authorized
500,000 shares; no shares issued -- --
Common stock of $.30 par value. Authorized
50,000,000 shares; issued 7,759,683 shares
and 7,830,330 shares, respectively 2,328 2,349
Additional paid-in capital 50,102 51,304
Retained earnings 78,495 83,724
------------- ---------------
130,925 137,377
------------- ---------------
$ 329,190 337,822
============= ===============
</TABLE>
* Derived from the Company's 1997 audited Consolidated Financial Statements.
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<PAGE> 4
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the twenty-six weeks ended June 28, 1997 and July 4, 1998
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended
---------------------------
June 28, July 4,
1997 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,170 5,229
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of property, plant and equipment 5,088 5,072
Amortization 2,107 1,939
Provision for losses on trade accounts receivable 154 603
Gain on sales of assets (95) (98)
Provision for deferred income taxes 777 899
Forgiveness of debt -- (217)
Increase in deferred and other liabilities 69 295
Change in assets and liabilities:
Increase in trade accounts receivable (4,440) (2,559)
Increase in inventories (11,171) (8,940)
(Increase) decrease in prepaid expenses and other
current assets 1,593 (1,498)
Increase in trade accounts payable 2,449 6,829
Increase in accrued expenses and other
current liabilities 1,800 3,680
------------ -----------
Total adjustments (1,669) 6,005
------------ -----------
Net cash provided by operating activities 501 11,234
------------ -----------
Cash flows from investing activities:
Additions to property, plant and equipment (2,577) (3,977)
Proceeds from sales of property, plant and equipment 16 39
(Additions to) reductions in intangible and other assets (272) 763
------------ -----------
Net cash used in investing activities (2,833) (3,175)
------------ -----------
Cash flows from financing activities:
Proceeds from borrowings 8,501 37
Principal payments on borrowings (11,589) (8,994)
Other 5,142 912
------------ -----------
Net cash provided by (used in) financing activities 2,054 (8,045)
------------ -----------
Net increase (decrease) in cash (278) 14
Cash at beginning of period 469 75
------------ -----------
Cash at end of period $ 191 89
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 5,888 4,920
Cash paid (net of refunds received) during the period for income taxes (2,945) 1,454
============ ===========
</TABLE>
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<PAGE> 5
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Number Additional Total
of shares Common paid-in Retained shareholders'
issued stock capital earnings equity
----------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996 7,719,567 $ 2,316 49,401 72,183 123,900
Purchase of restricted
stock (3,273) (1) - - (1)
Shares issued in connection
with incentive stock
option plan 4,500 2 51 - 53
Shares issued in connection
with employee defined
contribution plan 38,889 11 536 - 547
Amortization of employee
restricted stock awards - - 114 - 114
Net earnings - - - 6,312 6,312
---------- -------- ---------- ---------- ------------
BALANCE AT JANUARY 3, 1998 7,759,683 2,328 50,102 78,495 130,925
Shares issued in connection
with incentive stock
option plan 74,997 22 977 - 999
Retirement of stock and purchase
of restricted stock (4,350) (1) (86) - (87)
Amortization of employee
restricted stock awards - - 50 - 50
Non-qualified stock options - - 261 - 261
Net earnings - - - 5,229 5,229
---------- -------- ---------- ---------- ------------
BALANCE AT JULY 4, 1998
(UNAUDITED) 7,830,330 $ 2,349 51,304 83,724 137,377
========== ======== ========== ========== ===========
</TABLE>
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<PAGE> 6
Notes:
(1) Quarterly Financial Statements
The quarterly consolidated financial statements of LADD Furniture,
Inc. (referred to as "LADD" or the "Company") are unaudited and have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). In the opinion of
management, these statements include 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.
Certain information and footnote disclosures prepared in accordance
with generally accepted accounting principles have been either
condensed or omitted pursuant to SEC rules and regulations. However,
management believes that the disclosures made are adequate for a fair
presentation of results of operations and financial position. It is
suggested that these financial statements be read in conjunction with
the financial statements and accompanying notes included in the
Company's latest annual report on Form 10-K.
(2) Inventories
A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
January 3, July 4,
1998 1998
--------------- ---------------
<S> <C> <C>
Inventories on the FIFO cost method:
Finished goods $ 49,329 57,690
Work in process 15,697 14,122
Raw materials and supplies 38,170 41,353
--------------- --------------
Total inventories on the FIFO cost method 103,196 113,165
Less adjustments of certain inventories to the
LIFO cost method (10,007) (11,036)
--------------- --------------
$ 93,189 102,129
=============== ==============
</TABLE>
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<PAGE> 7
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 Earnings:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------------------- -------------------------
June 28, July 4, June 28, July 4,
1997 1998 1997 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 80.7 79.8 81.5 80.9
-------- ------- -------- --------
Gross profit 19.3 20.2 18.5 19.1
Selling, general and administrative expenses 14.8 14.7 14.5 14.3
-------- ------- -------- --------
Operating income 4.5 5.5 4.0 4.8
-------- ------- -------- --------
Other deductions
Interest expense 2.2 1.8 2.3 1.7
Other expense, net 0.1 0.2 0.3 0.1
-------- ------- -------- --------
2.3 2.0 2.6 1.8
-------- ------- -------- --------
Earnings before income taxes 2.2 3.5 1.4 3.0
Income tax expense 0.9 1.4 0.5 1.2
-------- ------- -------- --------
Net earnings 1.3 % 2.1 % 0.9 % 1.8 %
======== ======= ======== ========
</TABLE>
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as, "forward-looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. These statements can be identified
by the use of forward-looking terminology such as "believes," "expects," "may,"
"should," or "anticipates." The Company cautions readers that these
forward-looking statements, including without limitation, those relating to
sales, operating costs, working capital, liquidity, capital needs and interest
costs, are subject to certain risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward-looking
statements. This is due to several important factors herein identified,
including without limitation, anticipated growth in sales; success of product
introductions; increased cash flow from operations; anticipated selling,
general and administrative expenses; projected capital spending; decreased
interest expense; and other risks and factors identified from time to time in
the Company's reports filed with the Securities and Exchange Commission.
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<PAGE> 8
Total net sales for the second quarter of 1998 increased 7.9%, to
$135.5 million, as compared to $125.6 million in the second quarter of 1997.
The following table compares net sales by operating group:
<TABLE>
<CAPTION>
June 28, July 4, Percent
1997 1998 Increase Change
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Residential Casegoods $ 67,622 73,678 6,056 9.0 %
Residential Upholstery 29,141 29,782 641 2.2 %
Contract Sales 28,809 32,045 3,236 11.2 %
------------ ---------- ---------- -------
$ 125,572 135,505 9,933 7.9 %
============ ========== ========== =======
</TABLE>
Total net sales for the first six months of 1998 increased 13.6%, to $282.9
million, as compared to $248.9 million in the first six months of 1997. The
following table compares net sales by operating group:
<TABLE>
<CAPTION>
June 28, July 4, Percent
1997 1998 Increase Change
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Residential Casegoods $ 136,172 154,260 18,088 13.3 %
Residential Upholstery 60,714 63,905 3,191 5.3 %
Contract Sales 52,054 64,749 12,695 24.4 %
------------ ------------ ----------- -------
$ 248,940 282,914 33,974 13.6 %
============ ============ =========== =======
</TABLE>
The increases in residential casegoods and upholstery net sales for the
second quarter and first six month's of 1998 compared to the same periods of
1997 were primarily due to an improvement in overall industry conditions at
retail, as well as the Company's recent successful market introductions. The
contract sales growth in both 1998 periods is due to continued hotel expansion
and refurbishment which is a trend the Company anticipates will continue for
the balance of 1998. The Company believes that production capacity available at
its various casegoods manufacturing facilities will be sufficient to
accommodate anticipated contract sales growth over the second half of 1998.
However, because of the very strong growth rate in contract sales since the
1996 fourth quarter, the comparative year-over-year growth rate is expected to
decelerate during the second half of 1998.
Cost of sales as a percentage of net sales decreased to 79.8% for the
second quarter of 1998 and 80.9% for the year-to-date, from 80.7% and 81.5%,
respectively, in 1997. This decrease resulted in an increase in gross profit
margins to 20.2% for the 1998 second quarter and 19.1% for the year-to-date,
from 19.3% and 18.5%, respectively, in 1997. The 1998 first half gross margin
was negatively impacted by higher raw material costs (primarily lumber), a $1.0
million increase in the Company's LIFO reserve, and price discounts offered to
customers to liquidate discontinued products. The increase in the second
quarter gross margin was a result of improved manufacturing efficiencies, along
with the manufacturing and shipping of a number of recent product introductions
which have higher margins.
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<PAGE> 9
Selling, general and administrative (SG&A) expenses decreased to 14.7%
of net sales for the second quarter of 1998 from 14.8% for the same period in
1997, while first half SG&A expenses decreased to 14.3% from 14.5% in 1997. The
second quarter SG&A expenses of both years were greater than the first quarter
expenses, due principally to costs incurred in conjunction with the Spring
furniture market product introductions in both years. The Company believes that
the SG&A expense as a percent of net sales will continue at an annualized rate
approximating 14.0% over the remainder of 1998.
Other deductions represented 2.0% of net sales for the second quarter
and 1.8% for the first six months of 1998, compared to 2.3% and 2.6%,
respectively, in 1997. Average outstanding borrowings were down approximately
$2.0 million for both the second quarter and first half of 1998, and the
effective interest rate was approximately 1.0% lower for both 1998 periods. As
a result, interest expense declined by $348,000, or 12.8%, in the second
quarter and by 769,000, or 13.4%, for the first half of 1998. The decline in
the effective interest rate was primarily due to improved operating
performance, which reduced the Company's interest rate margin on its bank debt
by 0.25% as of April 21, 1998 and 0.25% as of July 21, 1998, as provided in the
Company's bank credit facility. Also, the Company's loan agreement was amended
to reduce its interest rate margin an additional 0.25% effective May 15, 1998
due to continued improvement in the Company's operating performance. "Other
expense, net" decreased for the first half of 1998 as compared to 1997 due to
increased profits from the Company's transportation operations, and a $217,000
forgiveness of debt during 1998 from a state Industrial Development Authority
under the terms of the financing.
For the first six months of 1998, the Company's net earnings was $5.2
million, compared to $2.2 million in the year-earlier period. The Company's
estimated annual effective income tax rate for the first half of 1998 and 1997
was 39%. The Company anticipates that its combined effective Federal and state
tax rate will continue to approximate 39.0% over the remainder of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.5 to 1 at July 4, 1998 and 2.7 to 1
at January 3, 1998. Net working capital totaled $118.8 million at July 4, 1998,
compared to $116.3 million at January 3, 1998. As a result of the Company's
sales growth and increased backlog, trade accounts receivable and inventories
have increased over the 1997 fiscal year end amounts. The increase in
inventories was largely due to production scheduled during the second quarter
to meet anticipated third quarter sales demands. In addition, the Company's
trade accounts payable and accrued expenses also increased during the first six
months of 1998, largely due to the Company's sales growth.
During the first six months of 1998, the Company generated $11.2
million in cash from operating activities, compared to $0.5 million in the 1997
period. The increase in cash provided by operations is attributable to higher
net earnings and the change in working capital needs.
During the first six months of 1998, capital spending totaled $4.0
million, compared to $2.6 million during the year-earlier period. The Company's
total capital expenditures for all of 1998 are expected to approximate $8.0 -
$9.0 million.
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<PAGE> 10
The total debt ratio (total debt as a percentage of total debt plus
shareholders' equity) was 45.8% at July 4, 1998, compared to 48.9% at January
3, 1998. The decrease resulted from improved operating performance, which
reduced debt and increased equity. At July 4, 1998, availability for future
borrowings under the Company's revolving credit loan totaled $33.6 million.
Management believes that unused credit lines available under the Company's
revolving credit loan, in addition to cash generated from operations, will be
adequate to fund the Company's future operations and planned capital
expenditures.
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<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held in
Greensboro, North Carolina on May 7, 1998. Of the 7,760,433
shares of common stock outstanding on the record date,
6,447,344 shares were present in person or by proxy. Those
shares were voted on the following matters as set forth
below:
<TABLE>
<S> <C> <C> <C>
A. Election of Directors:
Richard R. Allen Fred L. Schuermann, Jr.
For: 6,423,265 For: 6,423,421
Abstentions: 24,079 Abstentions: 23,923
Broker Non-Votes: 0 Broker Non-Votes: 0
Zenon S. Nie J. Patrick Danahy
For: 6,423,755 For: 6,422,089
Abstentions: 23,589 Abstentions: 25,255
Broker Non-Votes: 0 Broker Non-Votes: 0
David A. Jones Thomas F. Keller
For: 6,421,755 For: 6,422,603
Abstentions: 25,589 Abstentions: 24,741
Broker Non-Votes: 0 Broker Non-Votes: 0
Ian J. McCarthy L. Glenn Orr, Jr.
For: 6,422,089 For: 6,419,588
Abstentions: 25,255 Abstentions: 27,756
Broker Non-Votes: 0 Broker Non-Votes: 0
Charles R. Eitel
For: 6,423,021
Abstentions: 24,323
Broker Non-Votes: 0
B. Proposal to ratify the election of KPMG Peat Marwick LLP as independent auditors of the
Company for 1998:
For: 6,441,166
Against: 2,944
Abstentions: 3,234
Broker Non-votes: 0
</TABLE>
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<PAGE> 12
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
Exhibit 27-1 (edgar version only)
(b)Reports on Form 8-K
On April 21, 1998, the Company filed with the
Commission a Form 8-K dated April 20, 1998 which
reported under Item 5 the Press Release dated April
20, 1998 reporting the Company's first quarter 1998
results of operations.
On May 21, 1998, the Company filed with the
Commission a Form 8-K dated May 15, 1998 which
reported under Item 5 the Amendment No. 6 and
Consent to Loan and Security Agreement dated as of
July 12, 1996 and the related Press Release dated
May 19, 1998.
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<PAGE> 13
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: August 6, 1998 By: /s/William S. Creekmuir
----------------------
William S. Creekmuir
Executive Vice President
and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LADD FURNITURE, INC. FOR THE SIX MONTHS ENDED JULY 4,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 85,253
<ALLOWANCES> 2,890
<INVENTORY> 102,129
<CURRENT-ASSETS> 196,985
<PP&E> 66,406
<DEPRECIATION> 0
<TOTAL-ASSETS> 337,822
<CURRENT-LIABILITIES> 78,159
<BONDS> 109,629
0
0
<COMMON> 2,349
<OTHER-SE> 135,028
<TOTAL-LIABILITY-AND-EQUITY> 337,822
<SALES> 282,914
<TOTAL-REVENUES> 282,914
<CGS> 228,906
<TOTAL-COSTS> 228,906
<OTHER-EXPENSES> 40,481
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 4,955
<INCOME-PRETAX> 8,572
<INCOME-TAX> 3,343
<INCOME-CONTINUING> 5,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,229
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.65
</TABLE>
