SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------
FORM 10-Q
---------
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 11, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
COMMISSION FILE NUMBER 0-314
Pulaski Furniture Corporation
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of incorporation)
54-0594965
(IRS employer identification number)
P.O. Box 1371, Pulaski, Virginia
(Address of principal executive offices)
24301
(Zip Code)
540-980-7330
(Registrant's telephone number)
Indicate by checkmark 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 issuer's classes
of common stock as of the latest practicable date:
2,829,656 shares of common stock outstanding as of July 11, 1999
<PAGE>
Pulaski Furniture Corporation
Index
PART I: Financial Statements
Consolidated Condensed Balance Sheets as of
July 11, 1999 and November 1, 1998 . . . . . . . . . . . . . . . 2
Consolidated Condensed Statements of Income
Three 4-week periods ended July 11, 1999
and July 12, 1998 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statements of Income
Nine 4-week periods ended July 11, 1999
and July 12, 1998 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
Nine 4-week periods ended July 11, 1999
and July 12, 1998 . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . . . 6
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income . . . . . . . . . . . 8
PART II: Other Information . . . . . . . . . . . . . . . . . . . . .11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
Pulaski Furniture Corporation
Consolidated Condensed Balance Sheets
(in thousands)
July 11, November 1,
1999 1998
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents $ 1,032 $ 1,452
Accounts receivable, net 31,350 38,411
---------- ----------
32,382 39,863
Inventories:
Raw materials 18,219 17,824
Work-in-process 8,452 8,253
Finished goods 40,216 29,024
---------- ----------
66,887 55,101
Less LIFO reserve (16,810) (16,111)
---------- ----------
50,077 38,990
Prepaid expenses 1,001 803
Deferred income taxes 687 687
---------- ----------
Total current assets 84,147 80,343
Property, plant and equipment, net 39,558 35,225
Cash surrender value of life insurance 836 2,049
Excess purchase price over fair value of
assets acquired, net 6,747 0
Other 11 11
---------- ----------
Total assets $ 131,299 $ 117,628
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses:
Accounts payable $ 5,907 $ 7,685
Wages and commissions 2,100 3,948
Taxes withheld from employees 547 355
Other accrued liabilities 1,977 2,096
---------- ----------
10,531 14,084
Notes payable 12,000 12,000
Federal and state income taxes 893 754
Current portion of long-term debt 2,000 2,000
---------- ----------
Total current liabilities 25,424 28,838
Long-term notes payable 39,502 23,765
Deferred income taxes 3,532 3,532
Deferred compensation 2,866 2,875
Shareholders' equity
Common stock 5,502 6,328
Retained earnings 55,087 52,956
Unamortized restricted stock (614) (666)
---------- ----------
Total shareholders' equity 59,975 58,618
Total liabilities and shareholders' equity $ 131,299 $ 117,628
========== ==========
See accompanying notes to financial statements.
<PAGE>
Pulaski Furniture Corporation
Consolidated Condensed Statements of Income
(in thousands, except for per share data)
Three 4-week periods ended
July 11, July 12, Incr
1999 1998 (Decr) %
--------- --------- -------- ----
Net sales $ 39,872 $ 32,687 $ 7,185 22.0 %
Costs and expenses
Cost of sales 31,721 25,878 5,843 22.6
Selling & administrative 6,176 5,227 949 18.2
---------- ---------- --------
Total 37,897 31,105 6,792 21.8
---------- ---------- --------
Operating income 1,975 1,582 393 24.8
Other income and expenses
Interest expense 705 387 318 82.2
Interest income (14) (40) 26 65.0
Miscellaneous (income) expense 47 406 (359) 88.4
---------- ---------- --------
Total 738 753 (15) (2.0)
Income before income taxes 1,237 829 408 49.2
Provision for taxes on income 437 296 141 47.6
---------- ---------- --------
Net income $ 800 $ 533 $ 267 50.1
========== ========== ========
Weighted average number
of shares outstanding:
Basic 2,829,656 2,823,339
Diluted 2,851,914 2,846,945
Earnings per share:
Basic $0.28 $0.19
Diluted $0.28 $0.19
Cash dividends per share: $0.17 $0.17
See accompanying notes to financial statements.
<PAGE>
Pulaski Furniture Corporation
Consolidated Condensed Statements of Income
(in thousands, except for per share data)
Nine 4-week periods ended
July 11, July 12, Incr
1999 1998 (Decr) %
--------- --------- -------- ----
Net sales $124,515 $108,265 $16,250 15.0 %
Costs and expenses
Cost of sales 100,152 86,599 13,553 15.7
Selling & administrative 17,620 16,027 1,593 9.9
---------- ---------- --------
Total 117,772 102,626 15,146 14.8
---------- ---------- --------
Operating income 6,743 5,639 1,104 19.6
Other income and expenses
Interest expense 1,700 1,175 525 44.7
Interest income (92) (55) (37) (67.3)
Miscellaneous (income) expense (426) 334 (760) 227.5
---------- ---------- --------
Total 1,182 1,454 (272) (18.7)
Income before income taxes 5,561 4,185 1,376 32.9
Provision for taxes on income 1,964 1,494 470 31.5
---------- ---------- --------
Net income $ 3,597 $ 2,691 $ 906 33.7
========== ========== ========
Weighted average number
of shares outstanding:
Basic 2,865,406 2,818,270
Diluted 2,881,046 2,834,590
Earnings per share:
Basic $1.25 $0.95
Diluted $1.25 $0.95
Cash dividends per share: $0.51 $0.51
See accompanying notes to financial statements.
<PAGE>
Pulaski Furniture Corporation
Consolidated Statements of Cash Flows
Nine 4-week periods ended
July 11, July 12,
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net income $ 3,596,691 $ 2,691,075
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation/amortization 3,299,803 3,477,523
Provision for deferred income taxes 0 (67,500)
Provision for deferred compensation (8,544) 35,253
Changes in operating assets and liabilities:
Decrease in trade receivables 9,915,585 12,777,414
Increase in inventories (8,720,681) (10,361,327)
Increase in prepaid expenses (198,910) (413,320)
Decrease in recoverable
income taxes 0 1,473,577
Decrease in accounts payable and
accrued expenses (5,013,189) (568,033)
Increase in federal and state
income taxes payable 138,675 335,195
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,009,430 9,379,857
INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,361,726) (3,047,339)
Decrease (increase) in cash surrender value 1,213,468 (16,674)
Purchase of Dawson Heritage Furniture (14,726,336) 0
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (16,874,594) (3,064,013)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 662,573 540,591
Repurchase of common stock (1,489,510) (96,250)
Payment of dividends (1,465,409) (1,438,742)
Decrease in notes payable 0 (7,000,000)
Increase in long-term debt 17,000,000 0
Payments on long-term debt (1,262,903) (886,995)
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 13,444,751 (8,881,396)
------------ ------------
Decrease in cash and cash equivalents (420,413) (2,565,552)
Cash and cash equivalents at beginning of period 1,452,166 2,702,339
------------ ------------
Cash and cash equivalents at end of period $ 1,031,753 $ 136,787
============ ============
See accompanying notes to financial statements.
<PAGE>
Pulaski Furniture Corporation
Notes to Consolidated Condensed Financial Statements
The consolidated financial statements include the accounts of Pulaski
Furniture Corporation (the "Corporation") and its wholly owned subsidiaries.
Intercompany transactions have been eliminated in consolidation. See notes
to financial statements included in the Corporation's 10-K for the year
ended November 1, 1998, for information concerning accounting policies,
long-term debt, stock options and other financial matters. Except for the
acquisition discussed below, there have been no material changes in financial
matters since November 1, 1998.
On February 28, 1999, Dawson Furniture Corporation, Inc. ("Dawson"), a newly
formed and wholly owned subsidiary of the Corporation, acquired substantially
all of the assets of Dawson Heritage Furniture Company, Inc. ("DHFC"). Dawson
borrowed approximately $16 million to finance the acquisition, which was
accounted for as an asset purchase transaction. In connection with the
purchase, Dawson acquired assets with a fair value of approximately $10.7
million and assumed liabilities of approximately $1.5 million. All preliminary
allocations of the purchase price have been made and Dawson has recorded
goodwill of approximately $6.8 million for the excess purchase price
(including assumed liabilities) over the fair value of assets acquired. The
consolidated financial statements reflect the operations of the acquired
business from the date of acquisition.
The following unaudited pro forma results of operations assumes the
acquisition of DHFC had occurred at the beginning of fiscal 1998. These
pro forma results contain certain adjustments resulting from the acquisition
and the related financing. The pro forma results have been prepared for
comparative results only and do not purport to indicate the results that
would have actually occurred had the acquisition been in effect on the dates
indicated or which may occur in the future.
Nine 4-week periods ended
July 11, July 12,
1999 1998
------------ ------------
(thousands, except per share)
Net sales $131,932 $120,917
Net income 4,030 3,067
Earnings per share $1.42 $1.09
Prior to the completion of the acquisition, the Corporation had entered into
a short-term agreement with Dawson Heritage Furniture Company, Inc. which
compensated the Corporation for marketing related services. Under the terms
of this agreement, the Corporation has recognized miscellaneous other income
in the amount of $484,183 in the current fiscal year.
In the opinion of the Corporation, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the financial position as of
July 11, 1999 and November 1, 1998, and the results of operations and
cash flows for the three and nine 4-week periods ended July 11, 1999 and
July 12, 1998.
<PAGE>
Pulaski Furniture Corporation
Notes to Consolidated Condensed Financial Statements (cont.)
The results of operations for the three and nine 4-week periods ended
July 11, 1999 and July 12, 1998 are not necessarily indicative of the
results to be expected for the full year. See Management's Discussion and
Analysis for a detailed discussion on the cyclical nature of the
Corporation's operating results.
The following table sets forth the computation of earnings per share:
Three 4-week periods ended Nine 4-week periods ended
Jul 11, 1999 Jul 12, 1998 Jul 11, 1999 Jul 12, 1998
------------ ------------ ------------ ------------
Numerator:
Net income $ 800,080 $ 533,450 $ 3,596,691 $ 2,691,075
Denominator:
Denominator for basic
earnings per share -
weighted average
shares 2,829,656 2,823,339 2,865,406 2,818,270
Dilutive securities:
Stock options 4,746 10,481 4,995 7,702
Stock purchase plan 17,512 13,125 10,645 8,618
Denominator for diluted
earnings per share -
adjusted weighted
average shares 2,851,914 2,846,945 2,881,046 2,834,590
Basic earnings per share $0.28 $0.19 $1.25 $0.95
Diluted earnings per share $0.28 $0.19 $1.25 $0.95
<PAGE>
Pulaski Furniture Corporation
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income
Comparison of Third Quarter 1999 to Third Quarter 1998 (See page 3 and 4
for dollar and percent changes.)
- -----------------------------------------------------------------------------
Overall demand for the Corporation's product among furniture retailers
continues to be strong. The third quarter and three quarters of 1999, compared
to their respective periods of 1998, primarily reflect volume growth in same
division sales and the additional volume resulting from the Dawson acquisition.
Same division sales increased approximately $3,403,000 in the third quarter,
and approximately $10,972,000 in the first three quarters. The newly acquired
Dawson operations added net sales volume of approximately $3,782,000 in the
Third quarter and approximately $5,278,000 for the year to date.
Cost of sales, as a percentage of sales, increased from 79.2% to 79.6% during
the third quarter and from 80.0% to 80.4% during the first three quarters.
Management believes the increase was due primarily to changes in the product
mix. Selling and Administrative expenses, as a percentage of sales, decreased
from 17.1% to 16.1% in the third quarter and from 15.3% to 14.8% during the
first three quarters of 1999 as compared to 1998. The decrease was related
mainly to the higher sales volume compared to relatively stable expenses. The
overall increase in operating profit was related primarily to the increased
sales volume, while the relative percentage of operating profit to net sales
remained basically the same over the comparative periods.
Interest expense increased as a result of higher levels of debt related to
the acquisition financing and short-term working capital requirements. The
increase in miscellaneous income was due to marketing related services as
discussed in the notes. Net income, as a percentage of sales, rose from 1.6%
to 2.0% during the third quarter and from 2.5% to 2.9% during the three
quarters of 1999, reflecting the reduction in other income and expenses.
Seasonality
- -----------
Historically, the quarterly results of the Corporation have reflected a cyc-
lical pattern, as indicated below:
QTR 1 QTR 2 QTR 3 QTR 4
4-year average of net sales volume 22.30% 22.88% 18.37% 36.46%
This pattern reveals that the Corporation's first quarter, ending in January,
has accounted for approximately 22% of net sales volume. The second quarter,
ending in April, is roughly equivalent in sales volume to the first quarter,
while the third quarter, ending in July, shows a drop in volume to 18%. The
remainder, or 36% of sales volume, is recorded in the fourth quarter, which
comprises four 4-week reporting periods and which also includes the strongest
selling season for certain product lines. However, due to a number of risks
and uncertainties beyond the Corporation's control, including economic condi-
tions and consumer confidence, historical trends should not be viewed as an
accurate predictor of future results. The Corporation believes the results
of the third quarter ended July 11, 1999, are reasonable in relation to
the historical pattern, considering the retail environment for household
furniture.
<PAGE>
Pulaski Furniture Corporation
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income (cont.)
Year 2000
- ---------
The Corporation realizes that the year 2000 presents many challenges for
information systems and the overall exchange of business related information.
To address this event, management has embarked on a strategic plan to ensure
that the needs of the Year 2000 are met and that the costs are understood.
Based on the assessments made pursuant to the strategic plan, the Corporation
determined that it would be required to modify or replace significant portions
of its software so that its computer systems would properly reflect dates
beyond December 31, 1999. The Corporation realizes that if such modifications
were not made, or in the event they are not completed in a timely manner, the
Year 2000 issue could have a material impact on the operations of the Corp-
oration. The Corporation's Year 2000 remediation efforts progressed through
the selection phase into the testing phase in the beginning of the fourth
fiscal quarter of 1998, where both internal and external resources were
employed to modify and test new enterprise software. These efforts culminated
in the recent installation, as of the 1998 fiscal year end, of the necessary
equipment and software to assure that the computer systems are Year 2000
compliant. Additionally, the Corporation has undertaken to identify critical
areas outside of the information systems were the Year 2000 issue could have
an adverse impact on the Corporation.
The principal cost associated with the Year 2000 issue has been the purchase
of compliant enterprise software and the requisite hardware over which it
operates. Additional support applications have been purchased or developed
in-house as needed, and the total software costs to date have not exceeded,
nor are expected to exceed, $700,000. Compliant hardware was put into service
over the past three years in conjunction with the Corporation's migration to
a client-server network, which was a planned upgrade unrelated to the Year
2000 issue. Additional hardware has been purchased in 1998 relating specif-
ically to the Year 2000 enterprise software at a cost not exceeding $100,000.
No further hardware requirements have been identified with the Year 2000
issue. User education and training costs to date have amounted to less than
$100,000 and are not expected to exceed that amount in total. At the present
time, the Corporation believes there are no other material costs which relate
to the Year 2000 issue. Funding for the Year 2000 project has been provided
by cash generated from operations. The project expenditures are being cap-
italized or expensed as appropriate, and are not expected to have a material
effect on the results of operations.
The Corporation cannot fully assess the risks of the Year 2000 problem due to
numerous uncertainties surrounding the issue. Management believes that the
primary risks are external to the Corporation and relate solely to the Year
2000 readiness of the Corporation's business partners. Formal communications
with all significant suppliers, customers and financial service organizations
of the Corporation is currently underway to determine the extent to which the
Corporation might be made vulnerable by those third parties' failure to
remediate their own Year 2000 issue. The Corporation has determined that it
has no exposure to contingencies related to the Year 2000 issue for products
already sold.
The failure to correct a material Year 2000 problem could result in an inter-
ruption, or failure of certain normal business activities or operations, which
could materially and adversely affect the Corporation's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
<PAGE>
Pulaski Furniture Corporation
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income (cont.)
Year 2000(continued)
- --------------------
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Corporation is unable at
this time whether the consequences of the Year 2000 problems will have a
material impact on the Corporation's results of operations, liquidity or
financial condition.
This discussion of the Corporation's readiness for the Year 2000, including
statements regarding anticipated completion dates for various phases of the
Corporation's Year 2000 strategic plan, estimated costs for the Year 2000
readiness, the determination of likely worst case scenarios, actions to be
taken in the event of such worst case scenarios and the impact on the
Corporation of any delays or problems in the implementation of Year 2000
initiatives by the Corporation and/or any suppliers, service providers, and
customers involve forward looking information which is subject to known and
unknown risks, uncertainties, and contingencies which could cause actual
results, performance or achievements to differ materially from those which
are anticipated. Such risks, uncertainties and contingencies, many of which
are beyond the control of the Corporation, include but are not limited to,
government regulations and/or legislative initiative, variation in costs or
expenses relating to the implementation of the Year 2000 initiatives, changes
in the scope of improvements to Year 2000 initiatives and delays or problems
in the implementation of Year 2000 initiatives by the Corporation and/or any
public or private sector suppliers and service providers and customers.
Capital Resources and Liquidity
- --------------------------------
Working capital provided by operations was $6,888,000 for the three quarters
ended July 11, 1999 compared to $6,136,000 for the three quarters ended
July 12, 1998. Net working capital increased by $7,218,000 during the first
three quarters of 1999 compared with an increase of $1,191,000 in the first
three quarters of 1998.
During the first three quarters of 1999, the Corporation's average amount of
outstanding indebtedness for borrowed money was $46,228,793. The weighted
average rate of interest on such indebtedness was approximately 5.32% per
annum.
Cautionary Factors
- ------------------
Some of the information presented in this report, constitutes forward looking
comments within the meaning of the Private Securities Litigation Reform Act
of 1995. Although the Corporation believes its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, without limitation, the timing of orders
received from customers, the gain or loss of significant customers, comp-
etition from other manufacturers, changes in the demand for the Corporation's
products, increases in the cost of the product, changes in the market in
general, fluctuations in currencies, and possible problems incurred in the
Year 2000 strategic plan.
<PAGE>
Pulaski Furniture Corporation
Part II - Other Information
Item 5. Other Information
All other information called for by other items of Part II of the Form 10-Q
is either inapplicable or the response to the items would be negative.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule*
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended July 11, 1999.
* Filed herewith.
<PAGE>
Pulaski Furniture Corporation
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.
PULASKI FURNITURE CORPORATION
Date: August 20, 1999 /s/ John G. Wampler
---------------------------------------
John G. Wampler
President and Chief Executive Officer
(Principal Accounting Officer)
/s/ Carl W. Hoffman
---------------------------------------
Carl W. Hoffman
Treasurer
<PAGE>
Pulaski Furniture Corporation
Exhibit Index
Exhibit
Number Description
27 Financial Data Schedule
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-11-1999
<CASH> 1032
<SECURITIES> 0
<RECEIVABLES> 31350
<ALLOWANCES> 0
<INVENTORY> 50077
<CURRENT-ASSETS> 84147
<PP&E> 102319
<DEPRECIATION> 62761
<TOTAL-ASSETS> 131299
<CURRENT-LIABILITIES> 25424
<BONDS> 39502
0
0
<COMMON> 5502
<OTHER-SE> 54473
<TOTAL-LIABILITY-AND-EQUITY> 131299
<SALES> 124515
<TOTAL-REVENUES> 124515
<CGS> 100152
<TOTAL-COSTS> 117772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 350
<INTEREST-EXPENSE> 1700
<INCOME-PRETAX> 5561
<INCOME-TAX> 1964
<INCOME-CONTINUING> 3597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3597
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.25
</TABLE>
