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 April 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)
One Plaza Center, Box HP-3, High Point, North Carolina 27261 - 1500
(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 May 12, 1998 there were 7,827,205 shares of Common Stock ($.30 par value)
of the registrant outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the thirteen weeks ended March 29, 1997 and April 4, 1998
(Amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------
March 29, April 4,
1997 1998
----------- ---------
<S> <C>
Net sales $ 123,368 147,409
Cost of sales 101,437 120,733
---------- ----------
Gross profit 21,931 26,676
Selling, general and administrative expenses 17,552 20,350
---------- ----------
Operating income 4,379 6,326
---------- ----------
Other deductions:
Interest expense 3,005 2,584
Other, net 521 (126)
---------- ----------
3,526 2,458
---------- ----------
Earnings before income taxes 853 3,868
Income tax expense 333 1,508
---------- ----------
Net earnings $ 520 2,360
========== ==========
Net earnings per common share - basic $ 0.07 0.30
========== ==========
Net earnings per common share - diluted $ 0.07 0.30
========== ==========
Weighted average number of
common shares outstanding 7,719,567 7,759,955
========== ==========
</TABLE>
-2-
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 3, 1998 and
April 4, 1998 (Amounts in
thousands, except share
data)
<TABLE>
<CAPTION>
ASSETS
April 4,
January 3, 1998
1998 * (Unaudited)
------------ ----------
<S> <C>
Current assets:
Cash $ 75 114
Trade accounts receivable, less allowances for
doubtful receivables, discounts, returns and
allowances of $2,735 and $2,538, respectively 83,297 91,709
Inventories 93,189 95,101
Prepaid expenses and other current assets 8,016 8,646
-------- --------
Total current assets 184,577 195,570
-------- --------
Property, plant and equipment, net 67,530 66,255
Intangible and other assets, net 77,083 76,333
-------- --------
$329,190 338,158
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,807 11,476
Trade accounts payable 29,488 37,217
Accrued expenses and other current liabilities 31,952 33,925
-------- --------
Total current liabilities 68,247 82,618
-------- --------
Long-term debt, excluding current installments 118,586 109,390
Deferred and other liabilities 11,432 12,826
-------- --------
Total liabilities 198,265 204,834
-------- --------
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 7,760,433 shares, respectively 2,328 2,328
Additional paid-in capital 50,102 50,141
Retained earnings 78,495 80,855
-------- --------
130,925 133,324
-------- --------
$329,190 338,158
======== ========
</TABLE>
* Derived from the Company's 1997 audited Consolidated Financial Statements.
-3-
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the thirteen weeks ended March 29, 1997 and April 4, 1998
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------
March 29, April 4,
1997 1998
------------ ----------
<S> <C>
Cash flows from operating activities:
Net earnings $ 520 2,360
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 2,568 2,544
Amortization 1,066 1,008
Provision for losses on trade accounts receivable (35) 259
Gain on sales of assets (40) (45)
Provision for deferred income taxes 203 1,057
Forgiveness of debt -- (217)
Increase in deferred and other liabilities 7 85
Change in assets and liabilities:
Increase in trade accounts receivable (6,021) (8,671)
Increase in inventories (3,341) (1,912)
Increase in prepaid expenses and other
current assets (1,063) (630)
Increase in trade accounts payable 762 7,729
Increase in accrued expenses and other
current liabilities 2,606 2,269
------- -------
Total adjustments (3,288) 3,476
------- -------
Net cash provided by (used in) operating activities (2,768) 5,836
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (989) (1,269)
Proceeds from sales of property, plant and equipment 12 1
Additions to intangible and other assets (143) (227)
------- -------
Net cash used in investing activities (1,120) (1,495)
------- -------
Cash flows from financing activities:
Proceeds from borrowings 8,242 --
Principal payments on borrowings (9,825) (4,310)
Other 5,153 8
------- -------
Net cash provided by (used in) financing activities 3,570 (4,302)
------- -------
Net increase (decrease) in cash (318) 39
Cash at beginning of period 469 75
------- -------
Cash at end of period $ 151 114
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,062 2,554
Cash paid during the period for income taxes 11 40
======= =======
</TABLE>
-4-
<PAGE>
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>
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 750 -- 8 -- 8
Amortization of employee
restricted stock awards -- -- 31 -- 31
Net earnings -- -- -- 2,360 2,360
---------- ---------- ---------- ---------- ----------
BALANCE AT APRIL 4, 1998
(UNAUDITED) 7,760,433 $ 2,328 50,141 80,855 133,324
========== ========== ========== ========== ==========
</TABLE>
-5-
<PAGE>
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):
January 3, April 4,
1998 1998
----------- -------------
Inventories on the FIFO cost method:
Finished goods $ 49,329 50,654
Work in process 15,697 14,464
Raw materials and supplies 38,170 41,019
--------- ---------
Total inventories on the FIFO cost method 103,196 106,137
Less adjustments of certain inventories to the
LIFO cost method (10,007) (11,036)
--------- ---------
$ 93,189 95,101
========= =========
-6-
<PAGE>
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:
13 Weeks Ended
---------------------
Mar. 29, Apr. 4,
1997 1998
-------- -------
Net sales 100.0% 100.0%
Cost of sales 82.2 81.9
----- -----
Gross profit 17.8 18.1
Selling, general and administrative expenses 14.2 13.8
----- -----
Operating Income 3.6 4.3
Other deductions
Interest expense 2.5 1.8
Other, net 0.4 (0.1)
----- -----
2.9 1.7
----- -----
Earnings before income taxes 0.7 2.6
Income tax expense 0.3 1.0
----- -----
Net earnings 0.4% 1.6%
===== =====
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 Exchange Commission.
-7-
<PAGE>
Total net sales for the first quarter of 1998 increased 19.5%, to $147.4
million, as compared to $123.4 million in the first quarter of 1997. The
following table compares net sales by operating group:
March 29, April 4, Percent
1997 1998 Increase Change
---------- ---------- ---------- -----------
Residential Casegoods $ 68,550 80,582 12,032 17.6 %
Residential Upholstery 31,573 34,123 2,550 8.1 %
Contract Sales 23,245 32,704 9,459 40.7 %
-------- -------- -------- ------
$123,368 147,409 24,041 19.5 %
======== ======== ======== ======
The increase in first quarter 1998 residential casegoods and upholstery
net sales compared to the same period of 1997 was primarily due to an
improvement in overall industry conditions at retail, as well as the Company's
recent successful market introductions. In addition to the sales growth, the
Company's first quarter 1998 residential furniture orders increased 25.0% over
the 1997 comparable quarter, resulting in a 35.0% increase in the residential
order backlog. The contract sales growth in 1998 relates to continued hotel
expansion and refurbishment, and the Company anticipates that this trend will
extend well into 1998. The Company believes that production capacity available
at its various casegoods manufacturing facilities will be sufficient to
accommodate this anticipated contract sales growth in 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, as compared with that of recent quarters.
Cost of sales increased by $19.3 million to $120.7 million in the first
quarter of 1998 and represented 81.9% of net sales, down from 82.2% of net sales
in the first quarter of 1997. This cost reduction increased the Company's first
quarter's gross profit margin to 18.1% in 1998 from 17.8% in 1997. The 1998
first quarter gross margins were 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
Company anticipates that gross margins will increase in subsequent quarters as a
result of manufacturing and shipping the above-mentioned new product orders.
Selling, general and administrative (SG&A) expenses were 13.8% of net
sales for the first quarter of 1998 compared to 14.2% in the first quarter of
1997. 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 1.7% of net sales for the first quarter of
1998, compared to 2.9% of net sales for the comparable 1997 quarter. While the
average outstanding borrowings during the respective quarters were comparable,
the effective interest rate was approximately 1.0% lower during the 1998 first
quarter, which decreased interest expense $421,000, or 14.0%. The decline in the
effective interest rate was primarily due to reductions in the Company's
interest rate margin on its bank debt resulting from improved operating
performance. Based on the operating performance of the Company in the first
quarter of 1998, the Company received an additional 0.25% reduction of its
interest rate margin as of April 21, 1998 as provided in the Company's bank
credit facility. "Other, net" decreased due to increased profits from the
Company's transportation operations, and a $217,000 forgiveness of debt from a
state Industrial Development Authority under the terms of the financing.
-8-
<PAGE>
For the first quarter of 1998, the Company's net earnings were $2.4
million, compared to $520,000 in the year-earlier period. The Company's
estimated annual effective income tax rate for the first quarter of 1997 and
1998 was 39%. The Company anticipates that its combined effective Federal and
state tax rate for 1998 will continue to approximate 39.0%.
Liquidity and Capital Resources
The Company's current ratio at April 4, 1998 was 2.4 to 1 and at January
3, 1998 was 2.7 to 1. Net working capital totaled $113.0 million at April 4,
1998, compared to $116.4 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. In addition,
the Company's trade accounts payable during first quarter 1998 increased
significantly in line with the Company's sales growth. Further, approximately
$4.9 million of long-term debt became currently payable and is included in
current installments of long-term debt due to a provision for "excess cash flow
recapture," included in the Company's bank credit facility, which was triggered
based upon the Company's improved operating performance.
During the first three months of 1998, the Company generated $5.8
million in cash from operating activities, compared to a use of $2.8 million
in the 1997 period. The increase in cash provided by operations is attributable
to higher net earnings and the above-mentioned decrease in working capital.
During the first three months of 1998, capital spending totaled $1.3
million, compared to $1.0 million during the year-earlier period. The Company's
capital expenditures for all of 1998 are expected to approximate $8.0 - $9.0
million.
The total debt ratio (total debt as a percentage of total debt plus
shareholders' equity) was 47.5% at April 4, 1998, compared to 48.9% at January
3, 1998. The decrease resulted from improved operating performance, reducing
debt and increasing equity, and a reduction in working capital. At April 4,
1998, availability for future borrowings under the Company's revolving credit
loan totaled $29.2 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.
-9-
<PAGE>
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
On February 19, 1998, the Company filed with the
Commission a Form 8-K dated February 10, 1998 which
reported under Item 5 the Press Release dated February
10, 1998 reporting the Company's fourth quarter 1997
earnings and fiscal 1997 full year operating results.
-10-
<PAGE>
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 18, 1998 By: s/William S. Creekmuir
----------------------
William S. Creekmuir
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 114
<SECURITIES> 0
<RECEIVABLES> 91,709
<ALLOWANCES> 2,538
<INVENTORY> 95,101
<CURRENT-ASSETS> 195,570
<PP&E> 66,255
<DEPRECIATION> 0
<TOTAL-ASSETS> 338,158
<CURRENT-LIABILITIES> 82,618
<BONDS> 109,390
0
0
<COMMON> 2,328
<OTHER-SE> 130,996
<TOTAL-LIABILITY-AND-EQUITY> 338,158
<SALES> 147,409
<TOTAL-REVENUES> 147,409
<CGS> 120,733
<TOTAL-COSTS> 120,733
<OTHER-EXPENSES> 20,224
<LOSS-PROVISION> 259
<INTEREST-EXPENSE> 2,584
<INCOME-PRETAX> 3,868
<INCOME-TAX> 1,508
<INCOME-CONTINUING> 2,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,360
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
