<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended October 2, 1999
------------
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
incorporation or organization) Identification Number)
POST OFFICE BOX 26777
4620 GRANDOVER PARKWAY
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 October 27, 1999 there were 7,833,518 shares of Common Stock ($.30 par
value) of the registrant outstanding.
================================================================================
-1-
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The third paragraph of Management's Discussion and Analysis of Financial
Condition and Results of Operations is amended by inserting after the first
sentence the following:
The Company's backlog of unshipped orders believed to be firm at October 2,
1999, January 2, 1999 and October 3, 1998 was $104.0 million, $96.5 million and
$105.5 million, respectively.
The revised Management's Discussion and Analysis of Financial Condition and
Results of Operations is attached hereto.
-2-
<PAGE> 3
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 39 Weeks Ended
---------------- ----------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 80.2 80.6 80.2 80.8
------- ------- ------- -------
Gross profit 19.8 19.4 19.8 19.2
Selling, general and administrative expenses 13.9 13.9 14.3 14.1
------- ------- ------- -------
Operating income 5.9 5.5 5.5 5.1
------- ------- ------- -------
Other deductions:
Interest expense 1.1 1.6 1.2 1.7
Other expense (income), net 0.1 0.1 0.0 0.1
------- ------- ------- -------
1.2 1.7 1.2 1.8
------- ------- ------- -------
Earnings before income taxes 4.7 3.8 4.3 3.3
Income tax expense 1.7 1.5 1.6 1.3
------- ------- ------- -------
Net earnings 3.0 % 2.3 % 2.7 % 2.0 %
======= ======= ======= =======
</TABLE>
Total net sales for the third quarter of 1999 increased 5.4%, to $150.7
million, as compared to $142.9 million in the third quarter of 1998. The
following table compares third quarter net sales by segment:
Oct. 2, Oct. 3, Percent
1999 1998 Increase Change
-------- ------- -------- -------
Residential $115,764 111,831 3,933 3.5 %
Contract 34,887 31,065 3,822 12.3 %
-------- ------- ----- ------
$150,651 142,896 7,755 5.4 %
======== ======= ===== ======
Total net sales for the first nine months of 1999 increased 8.2%, to $460.8
million, as compared to $425.8 million in the same period of 1998. The following
table compares first nine months net sales by segment:
-3-
<PAGE> 4
Oct. 2, Oct. 3, Percent
1999 1998 Increase Change
-------- ------- -------- -------
Residential $349,169 329,996 19,173 5.8 %
Contract 111,641 95,814 15,827 16.5 %
-------- ------- -------- -------
$460,810 425,810 35,000 8.2 %
======== ======= ======== =======
The Company's order backlog increased 3.8% during the third quarter and
rose 7.8% for the first nine months of 1999. The Company's backlog of unshipped
orders believed to be firm at October 2, 1999, January 2, 1999 and October 3,
1998 was $104.0 million, $96.5 million and $105.5 million, respectively.
Residential and contract backlogs increased 6.7% and 0.3%, respectively, for the
third quarter and 12.5% and 2.2%, respectively, for the first nine months. The
increased net sales of the residential segment for the third quarter and first
nine months of 1999 were due largely to the success of recent residential
product introductions, as well as improved retail furniture sales for the
industry overall. The third quarter sales growth for the residential segment was
negatively impacted by the flooded highways and weather-related plant downtime
resulting from the two hurricanes that battered the eastern United States during
September. The contract segment sales growth in the 1999 periods was due
primarily to continued hotel refurbishment and expansion and increased sales to
assisted-living facilities, trends that the Company anticipates will continue
into the year 2000. The Company believes that its capacity will be sufficient to
accommodate the contract sales growth anticipated for the foreseeable future
through: (i) existing production capacity; (ii) the addition of a new contract
manufacturing facility which will commence operations in the fourth quarter of
1999; and (iii) production from other LADD manufacturing plants and/or outside
contractors.
Cost of sales as a percentage of net sales was 80.2% for the third
quarter of 1999, compared to 80.6% for the third quarter of 1998, which resulted
in a gross margin of 19.8% and 19.4%, respectively. For the first nine months of
1999, cost of sales as a percentage of net sales was 80.2%, down from 80.8% for
the comparable 1998 period. The resulting increase in gross margin to 19.8% for
the first nine months of 1999, from 19.2% in 1998, was due to improved
manufacturing efficiencies, along with the production and shipment of new
products with higher margins. In addition, improved 1999 margins were due to
aggressive price discounting in the 1998 first nine months, principally for the
sales of discontinued product, which did not recur in 1999. Gross margins were
negatively impacted during the most recent quarter due to weather-related plant
downtime and delayed shipments resulting from the above-mentioned hurricanes.
Although recent reductions in hardwood lumber prices (except for cherry species)
have been beneficial to the Company, price increases in certain other raw
materials have somewhat offset these savings.
Selling, general and administrative (SG&A) expenses as a percent of net
sales for the third quarter of 1999 were the same as in the third quarter of
1998, while first nine months SG&A expenses increased slightly to 14.3% from
14.1% in 1998. The Company believes that its SG&A expense as a percentage of net
sales will be in the range of 14.0% to 14.5% for all of 1999.
Other deductions (principally interest expense) represented 1.2% of net
sales for both the 1999 third quarter and first nine months, down from 1.7% and
1.8%, respectively, in 1998. Average outstanding borrowings were $17.6 million
less for the third quarter of 1999 and $14.2 million less for the first nine
-4-
<PAGE> 5
months of 1999, than in the year-earlier periods, and the overall effective
interest rate was approximately 0.75% and 1.00% lower for the respective 1999
periods. As a result, interest expense in the 1999 third quarter and first nine
months declined by $525,000 and $1.6 million, respectively, or 23.6% and 22.4%,
as compared to the same periods of 1998. The decline in the effective interest
rate was primarily due to reductions in the Company's interest rate margin, as
provided for in the Company's bank credit facility, resulting from improved
operating performance. As a result of the improved 1999 first quarter operating
results, effective April 15, 1999, the Company's interest rate margin was
reduced 0.125% by its bank lending group. Effective July 1, 1999 and August 25,
1999, the Federal Reserve Board raised short-term U.S. interest rates 0.25%,
which resulted in comparable increases in the Company's prime and LIBOR bank
lending rates. Based on outstanding borrowings at October 2, 1999, these rate
increases will raise the Company's interest expense by approximately $500,000 on
an annual basis. As discussed further in footnote 4, the Company terminated its
interest rate swap agreement effective September 27, 1999 for a gain of
$672,000, which will be amortized against interest expense over the remaining
term of its bank lending arrangement.
The Company's estimated annual effective income tax rate was 37.0% for
the third quarter and first nine months of 1999, compared to 39% for the
comparable 1998 periods. The decrease in the effective income tax rate resulted
from the implementation of state tax planning strategies and state tax incentive
projects, and the successful conclusion of an IRS audit covering the years
1993-1996, with no adjustments affecting financial statement earnings. The
Company anticipates that its combined effective Federal and state income tax
rate will continue to approximate 37% over the remainder of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.5 to 1 at October 2, 1999, compared to
2.6 to 1 at January 2, 1999. Net working capital totaled $126.8 million at
October 2, 1999 and $122.7 million at January 2, 1999. As a result of the
Company's continued sales growth and increased backlog, inventories increased
$7.6 million and trade accounts receivable increased $5.8 million from January
2, 1999 levels. The increase in inventories was due to production demands in the
first nine months of 1999 to service the increased order backlog. In addition,
the Company's trade accounts payable and accrued expenses also increased during
the first nine months of 1999, largely due to higher production levels.
The Company generated $18.8 million in cash from operating activities
during the first nine months of 1999, compared to $14.0 million in the 1998
period. This increase was largely attributable to higher net earnings.
During this year's first nine months, capital spending totaled $8.4
million, compared to $6.3 million during the year-earlier period. Total capital
expenditures for all of 1999 are expected to approximate $11.0 million, as
compared to $9.1 million for all of 1998. The increase in the Company's
anticipated capital expenditures is due in part to capacity expansions planned
at its contract manufacturing facilities. In addition to the capital
expenditures noted above, a significant quantity of machinery and equipment
acquisitions is being financed through the Company's existing operating lease
lines.
The Company's total debt ratio (total debt as a percentage of total debt
plus shareholders' equity) was 39.4% at October 2, 1999, compared to 43.5% at
January 2, 1999. The decrease resulted from improved
-5-
<PAGE> 6
operating performance, which allowed the Company to continue repaying debt while
simultaneously increasing its equity base.
On March 26, 1999, the Company purchased and retired 17,000 shares of
its common stock for approximately $271,000. Additionally, on May 12, 1999, the
Company purchased and retired 10,000 shares of its common stock for
approximately $178,000. The stock purchases were authorized by the Company's
Board of Directors and financed through the Company's revolving credit line.
(See footnote 3).
At October 2, 1999, $41.2 million was available for future borrowings
under the Company's revolving credit loan. 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, planned capital expenditures and lease commitments, and any future
purchases of the Company's common stock.
On September 28, 1999, the Company entered into an Agreement and Plan of
Merger with La-Z-Boy. Under the terms of the agreement, each share of LADD
common stock will be converted into 1.18 shares of La-Z-Boy common stock, and
LADD will become a wholly-owned subsidiary of La-Z-Boy. Following the merger,
former LADD shareholders will own approximately 15 percent of La-Z-Boy. The
merger is subject to shareholder and regulatory approval.
YEAR 2000 COMPLIANCE
The Company is substantially complete in its effort to ensure Year 2000
("Y2K") compliancy. The Company continues to monitor and address the business
issues associated with the expected impact of the Year 2000 on information
technology systems and non-information technology systems (i.e., embedded
technology) both internally and in relation to the Company's external customers
and suppliers. Factors involved in assessing such business issues include the
evaluation and testing of the Company's systems; evaluation, upgrading and
certifying of automated plant machinery and equipment; and assessing the
compliance strategies of significant customers and vendors.
The Company created a corporate-wide Y2K Steering Committee with
subcommittees located at each of the Company's business units for the purpose of
directing the Company's compliance efforts and identifying and addressing the
impact of non-compliance on information technology systems and non-information
technology systems. An inventory of all the Company's equipment containing date
sensitive embedded technology has been completed, and at the present time,
substantially all of this equipment has been either tested and/or deemed to be
Y2K compliant. Since the fourth quarter of 1994, the Company has been upgrading
its information systems technology with Y2K compliant software to support its
manufacturing, sales and order entry, and financial reporting systems. As a
result, a significant portion of the Company's information technology systems
were Y2K compliant prior to 1998. At the present time, the Company believes it
has substantially completed all of the necessary internal software and hardware
implementation required for Y2K compliance. The Company does not believe any
material exposures or contingencies exist with respect to its internal
information systems.
The Company has received Y2K compliancy assurances from its major
suppliers and business partners. Based on these assurances, the Company believes
that all material third-party suppliers and business partners
-6-
<PAGE> 7
will be sufficiently prepared for the Year 2000. Although the Company is
currently unaware of any material exposures or contingencies related to the Y2K
compliance efforts of its significant vendors and business partners, if a
significant vendor or business partner should be non-compliant, there can be no
assurance such an event will not have a material adverse effect on the Company's
consolidated financial position, results of operations and cash flows. The
Company believes the actions it is taking (including the continued monitoring of
third-party compliance and the development of appropriate contingency plans)
will minimize these risks and believes it is taking responsible steps to prevent
any major disruptions of its business units.
The Company believes the actions it has taken since late 1994 with
regard to Y2K issues have minimized Y2K related capital costs and expenses
incurred to date and estimates that it has already incurred a majority of the
required Y2K compliance expenditures. These amounts exclude funds invested in
the purchase and lease of personal computers and the implementation of other
computer system upgrades. While such investments were made primarily to resolve
technological obsolescence and capacity constraints, they also resulted in the
new equipment and upgraded systems being Y2K compliant. Anticipated expenditures
and lease commitments relating the Y2K compliance are expected to be less than
$100,000 for the remainder of 1999. However, new developments may subsequently
occur that could affect the Company's estimates of the costs for Y2K compliance.
FORWARD-LOOKING STATEMENTS
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," "forecasts,"
"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, interest
costs and Y2K compliance, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward-looking statements. This uncertainty is due to several important factors
herein identified, including without limitation: anticipated growth in sales;
success of new product introductions; increased cash flow from operations;
anticipated selling, general and administrative expenses; projected capital
spending, including lease commitments; decreased interest expense; the
completion of the planned merger into La-Z-Boy Incorporated, Y2K preparedness
(particularly with respect to third-party vendor compliance); and other risks
and factors identified from time to time in the Company's reports filed with the
Securities and Exchange Commission.
-7-
<PAGE> 8
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: December 13, 1999 By: s/William S. Creekmuir
---------------------------------
William S. Creekmuir
Executive Vice President
and Chief Financial Officer
-8-
