SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 1, 1998
OR
[ ] 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 54-0594965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 1371 24301
Pulaski, Virginia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (540) 980-7330
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Preferred Stock Purchase Rights*
(Title of Class)
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 twelve 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the Common Stock held by non-affiliates of the
registrant as of December 18, 1998: $47,647,900.**
Number of shares of Common Stock outstanding as of December 18, 1998: 2,894,597
<PAGE>
* On December 3, 1987 the Board of Directors of the registrant approved a Rights
Agreement pursuant to which a special dividend consisting of Preferred Stock
Purchase Rights (the "Original Rights") was distributed to the holders of record
of the registrant as of December 15, 1987. The Original Rights expired on
December 14, 1997. On December 12, 1997, the Board of Directors of the
registrant approved a Rights Agreement pursuant to which a special dividend
consisting of Preferred Stock Purchase Rights was distributed to the holders of
record of the registrant as of December 19, 1997.
** In determining this figure, the registrant has assumed that all of its
officers, directors and persons known to the registrant to be the beneficial
owners of more than five percent of the registrant's Common Stock are
affiliates. Such assumption shall not be deemed to be conclusive for any other
purpose. The aggregate market value has been computed based on the last sale
price for December 18, 1998, as reported by Nasdaq Amex Online.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Pulaski Furniture Corporation's 1998 Annual Report to Security
Holders are incorporated by reference into Parts II and IV of this Form
10-K.
2. Portions of Pulaski Furniture Corporation's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders (filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934) are incorporated by reference into Part III of this
Form 10-K.
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<PAGE>
PART I
Item 1. Business
General
Since its organization in 1955, Pulaski Furniture Corporation (the
"Company") has engaged exclusively in the production and sale of furniture
products. The Company presently manufactures medium-priced wooden bedroom,
dining room and occasional furniture (in plants located in Pulaski, Dublin and
Martinsville, Virginia), and grandfather, mantel and wall clocks (in its plant
in Ridgeway, Virginia). The Company's furniture is predominately in the
traditional style. Furniture and clock styles are periodically updated, revised
or discontinued by the Company in anticipation of the April and October markets
in High Point, North Carolina. Also, the Company imports some specialized
furniture items and furniture parts. The Company currently anticipates that its
demand for these imports will increase in the future as some of the Company's
product lines utilizing these imports mature.
Over the course of the past several years the Company has increased
substantially its production capacity, which has permitted increased sales when
market conditions are favorable. This has resulted in a significant increase in
the overall size of the Company. In 1973, the Company began operating its plant
in Dublin and completed a renovation of the Pulaski plant. In 1975, the Company
completed an expansion and renovation of the Martinsville plant. The Company
acquired substantially all of the assets of Coleman Furniture Corporation in
1983. In 1985, the Company completed the renovation of a portion of the former
Coleman plant and the construction of a new facility connecting the former
Coleman plant to the existing Pulaski facility. Also, in 1985, the Company
acquired Gravely Furniture Company, Incorporated (currently, Ridgeway Clock
Company) of Ridgeway, Virginia. Ridgeway Clock Company manufactures grandfather,
mantel and wall clocks. In 1988, the Company completed construction of a new
finishing plant located at its Pulaski facilities. Also in 1988, the Company
acquired Craftique, Inc. with manufacturing facilities located in Mebane and
Durham, North Carolina. In 1994, the Company completed an expansion of its
Pulaski operations by construction of a new manufacturing facility. The new
facility houses highly-automated production lines, which provides the Company
with access to lower price points in the market. See Item 2 - Properties.
As part of a plan to improve operating efficiencies, the Company sold its
Craftique, Inc. subsidiary in 1997. Craftique, Inc. was engaged in the
production and sale of higher-priced furniture products made of mahogany and
cherry. The sale of this subsidiary will allow the Company to focus on its
primary business of producing and selling medium-priced furniture products.
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<PAGE>
Materials
Lumber constitutes the principal material used by the Company in the
manufacturing of its furniture products. The Company also uses lumber in its
manufacturing of clock cases. The Company purchases lumber from sawmill
operators and lumber dealers. Clock components are purchased from various
domestic and foreign sources. Other materials essential to the Company's
manufacturing include veneers, finishing materials, chipcore, sandpaper, lumber
squares, fabric, glue, mirrors, hardware, glass, carvings, packing materials,
wooden frames for use in its upholstery business and other product supplies. The
Company believes that all required materials can be obtained from suppliers as
needed.
Marketing and Promotion
Through a sales force of about 100 persons, including 55 regular
commission salesmen, the Company serves approximately 11,000 retail customers
located in all fifty states of the United States, the District of Columbia,
Puerto Rico, Canada, Mexico, Australia, New Zealand, the European Common Market
and parts of the Far East. The substantial majority of the Company's sales are
within the United States and its territories. However, the Company has
experienced growth in its international sales over the course of the last few
years. During the Company's fiscal years ended in 1998, 1997 and 1996, export
sales by the Company aggregated approximately $11,218,938, $8,614,955 and
$9,974,040, respectively.
The sales force for the Company's products is responsible to two national
sales managers organized by product lines. One national sales manager is
responsible for the Company's sales for the Pulaski and Accentrics divisions,
and the other national sales manager is responsible for the Company's sales for
the Ridgeway division. Both national sales managers report to the Vice
President-Sales. In addition, most of the Company's foreign export sales are
made through foreign representatives and distributors, who report to the
Company's respective national sales manager.
The Company currently utilizes a small number of trademarks and tradenames
in connection with certain lines of the Company's products and a few patents in
connection with certain of its products. All trademarks, tradenames and patents
utilized by the Company either are owned by the Company or one of its
subsidiaries. From time to time, the Company may apply for the registration of
additional trademarks or the issuance of additional patents in connection with
its products.
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<PAGE>
The Company permits its sales personnel to spend part of their time
selling home furnishings (such as lines of accessories and lamps) manufactured
by other companies. These secondary products are considered complementary to,
and not competitive with, the Company's products. The Company's products are
distributed to customers by truck and rail facilities.
For the display of its products, the Company maintains permanent showrooms
at the International Home Furnishings Market in High Point, North Carolina, the
Tupelo Furniture Market in Tupelo, Mississippi and the San Francisco Mart in San
Francisco, California. The annual rentals for these display facilities total
approximately $458,491.
As of November 1, 1998, the Company's unfilled customers' orders for
furniture and clocks totaled approximately $31.3 million (compared with
approximately $23.7 million as of November 2, 1997). The backlog of unfilled
orders is valued at prices prevailing at the time the orders were taken. The
Company expects to fill all of the unfilled customer orders for the 1998 fiscal
year during the 1999 fiscal year.
Demand for the Company's furniture products generally is highest in the
period from September through January and lowest in June and August. Demand for
the Company's clock products is generally highest in the period from August
through December.
Competition
The business in which the Company is engaged is highly competitive with
several manufacturers competing for product acceptability in the retail market.
Competition within the markets for medium-priced wooden bedroom, dining room and
occasional furniture and for clocks occurs principally in the areas of style,
quality and price. The Company has recently been successful in introducing new
lines that were favorably received by the market. Although it is difficult to
compare manufacturers by size, the Company estimates that, based on its 1998 net
sales, the Company ranks among the 25 largest furniture manufacturers in the
United States.
Employees
The Company employs approximately 2,100 persons on a full-time basis,
approximately 7% of whom are salaried and none of whom is represented by a labor
union. The Company considers its employee relations to be good.
Item 2. Properties
General
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<PAGE>
The Company owns all of its manufacturing and warehouse facilities, except
warehouse space in Pulaski, Radford and Martinsville, Virginia (each of which is
rented on a monthly basis). The Company's operating plants are well-maintained
and include many items of equipment and machinery of recent design. The Company
believes that its present operating plant capacity is sufficient to meet current
and projected future demand for its products.
Insurance is maintained against certain risks, including fire and business
interruption, and in such amounts as the Company deems desirable.
Pulaski Facilities
Pulaski, Virginia is the site of the Company's general offices and of two
of its principal furniture manufacturing plants. The Company's buildings located
in Pulaski are constructed primarily of brick and cinder block and were erected
and have been renovated at various times from 1926 to the present.
In 1983, the Company acquired real estate, improvements and equipment from
Coleman Furniture Corporation, including land and building space adjoining the
Company's original Pulaski plant. In 1985, the Company completed the renovation
of a portion of the former Coleman plant adjoining the Company's original
Pulaski plant and the integration of that portion of the plant with the original
Pulaski facility. The cost of the renovation (including capitalized interest
expense) was approximately $8,000,000. The remaining portion of the former
Coleman property is being used for warehouse and office space or otherwise is
being held for renovation and future expansion. In 1988, a new finishing plant
was brought on line at a total project cost of $3,955,000. The plant includes
updated equipment providing improved finishing techniques and greater safety for
employees.
In 1994, the Company completed an expansion of its Pulaski facilities by
the construction of a new 75,000 square foot manufacturing facility. The total
cost of the expansion was approximately $13.6 million. The new manufacturing
facility is designed to utilize newer equipment and to provide for more
efficient manufacturing of certain lines of the Company's furniture products.
The complete Pulaski facility now contains approximately 980,000 square
feet of production, warehouse and office space and approximately 120,000 square
feet of additional building space available for future expansion at renovation
costs. The facility is located on approximately twenty-nine acres. During the
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last year the Pulaski facility primarily produced occasional furniture
(including curios, consoles, tables, chairs and other accent pieces) and served
as a dimension plant (producing rough-cut materials) for the Company's other
facilities.
Dublin Plant
The Dublin plant, which began operations in 1973, consists of
approximately 570,000 square feet of factory and warehouse space located on a
153.5-acre parcel owned by the Company (including 106.5 acres acquired in 1983
from Coleman Furniture Corporation). The plant produces bedroom, dining room and
occasional furniture (including curios, collectors cabinets, consoles and other
accent pieces). This parcel fronts on State Route #100, close to Interstate
Highway 81 and is served by the Norfolk & Southern Railroad.
The Dublin plant also produces veneer in a 36,000 square foot brick and
cinder block building constructed in 1964. During 1996 construction of a 4,400
square foot addition was completed, increasing the total square footage of the
Dublin plant to 40,400 square feet.
Martinsville Plant
The Martinsville plant manufactures occasional furniture, including
curios, desks, consoles and other accent pieces. A major renovation and
expansion program for the Martinsville plant was completed in fiscal 1975. The
plant contains approximately 190,000 square feet of manufacturing, warehouse and
office space and is located on a tract of about eight acres in the City of
Martinsville, Virginia.
Ridgeway Clock Company Plant
In 1985, the Company acquired Gravely Furniture Company, Incorporated,
located in Ridgeway, Virginia. Gravely Furniture Company, Incorporated was
renamed Ridgeway Clock Company. Ridgeway Clock Company manufactures grandfather,
mantel and wall clocks. Ridgeway Clock Company purchases clock parts from
foreign and domestic sources and assembles the parts into manufactured wooden
clock cases. The Ridgeway Clock Company plant contains approximately 326,000
square feet of production, warehouse and office space located on approximately
79.5 acres.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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<PAGE>
Item *. Executive Officers of the Registrant
The Company's executive officers are as follows:
Year
First
Name Age Elected Office
---- --- ------- ------
John G. Wampler 40 1988 President and Chief
Executive Officer
Randolph V. Chrisley 50 1983 Vice President - Sales
Ira S. Crawford 61 1978 Vice President -
Administration, Secretary
Jason A. Gibbs 65 1969 Vice President - Chief
Financial Officer,
Treasurer
James H. Kelly 56 1971 Vice President - Product
Development
Paul T. Purcell 50 1998 Vice President - Credit
Administration
James W. Stout 53 1996 Vice President -
Manufacturing
Raymond E. Winters, Jr. 40 1998 Vice President -
Operations
John G. Wampler is the son of Bernard C. Wampler. Each of the executive
officers, other than Messrs. Purcell, Stout and Winters has been an officer of
the Company for the last five years. Mr. Purcell has been with the Corporation
since 1993, as Director of Credit until being named Vice President of Credit
Administration in 1998. Mr. Stout has been with the Corporation since 1972,
starting as a trainee. In 1975, he was promoted to the position of Plant Manager
of our Pulaski Plant and held that position until being named Vice President of
Manufacturing in 1996. Raymond E. Winters Jr., was previously the Director of
Manufacturing and Quality Assurance with Rowe Furniture. He has been with the
Corporation since 1995, as Director of Continuous Improvement until being named
Vice President of Operations in 1998. The Company's executive officers are
elected by and serve at the pleasure of the Company's Board of Directors.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information contained on page 2 of the Company's 1998 Annual Report to
Security Holders is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained on page 3 of the Company's 1998 Annual Report to
Security Holders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information contained on pages 4 and 5 of the Company's 1998 Annual
Report to Security Holders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
The information contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 4 of the Company's 1998
Annual Report to Security Holders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements contained on pages 6 through 15 of the Company's
1998 Annual Report to Security Holders are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company's 1999 Proxy Statement contains information on pages 1 through
3 concerning directors, persons nominated to become directors, and executive
officers of the Company. Such information is incorporated herein by reference.
See "Executive Officers of the Registrant" and "Certain Directors of the
Registrant" at the end of Part I hereof, for further information.
Item 11. Executive Compensation
The Company's 1999 Proxy Statement contains information on pages 5 through
7 concerning executive compensation. Such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Company's 1999 Proxy Statement contains information on pages 3 and 4
concerning security ownership of certain beneficial owners and management and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The Company's 1999 Proxy Statement contains information on page 8
concerning certain relationships and related transactions and is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)(1) The following financial statements of the registrant, included in
the 1998 Annual Report to Security Holders, are incorporated herein by reference
in Item 8:
Consolidated balance sheets -- November 1, 1998 and November 2, 1997
Consolidated statements of income and retained earnings -- Years
ended November 1, 1998, November 2, 1997 and November 3, 1996
Consolidated statements of cash flows -- Years ended November 1,
1998, November 2, 1997 and November 3, 1996
Notes to consolidated financial statements
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<PAGE>
(a)(2) The following financial statement schedules of Pulaski Furniture
Corporation are included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------
ADDITIONS
--------------------------
DESCRIPTION Balances (1) (2) Balance at
at Charged to Charged to Deductions End of
Beginning Costs and Other - Describe Period
of Period Expenses Accounts
- Describe
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended November 1,
1998:
Deducted from asset
accounts
Allowance for doubtful
accounts $ 950,000 $632,467 $632,467(1) $950,000
---------- -------- -------- --------
Year Ended November 2,
1997:
Deducted from asset
accounts
Allowance for doubtful
accounts $ 900,000 $474,325 $425,325 (1) $950,000
---------- -------- -------- --------
Year Ended November 3,
1996:
Deducted for asset
accounts
Allowance for doubtful
accounts $1,000,000 $125,217 $225,217 (1) $900,000
---------- -------- -------- --------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
The following documents are filed as exhibits to this Form 10-K
pursuant to Item 601 of Regulation S-K:
3.1 Restated Articles of Incorporation of Pulaski Furniture
Corporation (7)
3.2 Bylaws of Pulaski Furniture Corporation (7)
4.1 Pulaski Furniture Corporation's Series A Company Note in the
principal amount of $3,000,000, given to the Industrial
Development Authority of Pulaski County (1)
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<PAGE>
4.2 Pulaski Furniture Corporation's Series B Company Note in the
principal amount of $5,000,000, given to the Industrial
Development Authority of Pulaski County (1)
4.3 Industrial Development Authority of Pulaski County's
Industrial Development Revenue Note in the principal amount of
$3,000,000, given to Sovran Bank, N.A. as Note Agent
(Series A) (1)
4.4 Industrial Development Authority of Pulaski County's
Industrial Development Revenue Note in the principal amount of
$5,000,000, given to Sovran Bank, N.A., as Note Agent (Series
B) (1)
4.5 Industrial Development Authority of Pulaski County's
Industrial Development Revenue Note in principal amount of
$2,000,000, given to Sovran Bank as Note Agent (Series A) (1)
4.6 Pulaski Furniture Corporation's Series A Company Note in
principal amount of $2,000,000 given to the Industrial
Development Authority of Pulaski County (1)
4.7 Note Purchase Agreement and Agreement of Sale between
Industrial Development Authority of Pulaski County, Sovran
Bank, N.A., Planters Bank & Trust Co.; and Pulaski Furniture
Company, dated April 1, 1984 (1)
4.8 Reimbursement, Purchase and Loan Agreement between Pulaski
Furniture Corporation and Sovran Bank, N.A., dated April 1,
1984 (1)
4.9 UDAG Grant Agreement No. B-82-AB-51-0189, as executed and
delivered by the Town of Pulaski and the United States
Department of Housing & Urban Development (1)
4.10 Term Loan Agreement between Pulaski Furniture Corporation
and Wachovia Bank and Trust Company, N.A., dated October 21,
1985 (4)
4.11 Term Loan Note in principal amount of $4,000,000 between
Pulaski Furniture Corporation and Wachovia Bank and Trust
Company, N.A., dated October 21, 1985 (4)
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<PAGE>
4.12 Term Loan Agreement between Pulaski Furniture Corporation
and Sovran Bank, N.A., dated October 23, 1985 (4)
4.13 Term Loan Note in principal amount of $4,000,000 between
Pulaski Furniture Corporation and Sovran Bank, N.A., dated
October 23, 1985 (4)
4.14 Note Issuance Agreement and Revolving Credit Agreement
between Pulaski Furniture Corporation and Sovran Bank, N.A. in
principal amount of $10,000,000, dated December 1, 1988 (6)
4.15 Form of Variable Rate Taxable Promissory Note in principal
amount of $10,000,000 between Pulaski Furniture Corporation
and Sovran Bank, N.A., dated December 9, 1988 (6)
4.16 Form of Revolving Credit Facility Note in principal amount of
$10,000,000 between Pulaski Furniture Corporation and Sovran
Bank, N.A., dated December 9, 1988 (6)
4.17 Form of Credit Agreement in principal amount of $10,000,000
between Pulaski Furniture Corporation and Wachovia Bank of
North Carolina, N.A., dated as of December 10, 1993 (8)
4.18 Form of Promissory Note in principal amount of $10,000,000
made by the Company to Wachovia Bank of North Carolina, N.A.,
dated December 10, 1993 (8)
4.19 Amendment to Term Loan Agreement between the Company and
Wachovia Bank of North Carolina, N.A., dated July 25, 1994 (9)
4.20 Amendment to Promissory Note made by the Company to Wachovia
Bank of North Carolina, N.A., dated July 25, 1994 (9)
4.21 Rights Agreement between Pulaski Furniture Corporation and
First Union National Bank, dated as of December 15, 1997 (12)
10.1 Deferred Compensation Agreement between the Company and
Bernard C. Wampler dated December 2, 1977 (2) (11)
10.2 The Company's Stock Option Plan (7) (11)
10.3 The Company's Executive Life Insurance Plan (5) (11)
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<PAGE>
10.4 The Company's Production and Administrative Incentive Plans
(5) (11)
10.5 Conversion Agreement between Pulaski Furniture Corporation and
Sovran Bank, N.A., dated as of March 3, 1986 (5) (11)
10.6 The Company's 1996 Salaried Employees Stock Purchase Plan
(11)(13)
11 Computation of Earnings Per Share
13 Pulaski Furniture Corporation's 1998 Annual Report to Security
Holders (3)
20 Pulaski Furniture Corporation's Proxy Statement for the Annual
Meeting of Stockholders to be held February 12, 1999
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule (10)
Footnotes:
(1) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 28, 1984
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1977
(3) With the exception of the information incorporated herein by
reference to the Company's Annual Report for the fiscal year ended
November 1, 1998, the Annual Report shall not be deemed "filed" as
part of this report on Form 10-K
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 27, 1985
(5) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 26, 1986
(6) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1988
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<PAGE>
(7) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 29, 1989
(8) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993
(9) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 29, 1995
(10) The Electronic Data Schedule is submitted with the electronic filing
of the Company's Annual Report on Form 10-K but shall not be deemed
to be "filed" as part of this report
(11) These items are compensatory plans or arrangements required to be
filed as an exhibit to this form pursuant to Item 14(c) of this Form
10-K
(12) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended November 2, 1997
(13) Incorporated herein by reference to the Company's Registration
Statement on Form S-8 as of November 25, 1998 (SEC File Number
333-67941)
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PULASKI FURNITURE CORPORATION
(Registrant)
Date: January 25, 1999 By /s/ John G. Wampler
----------------------------------
John G. Wampler,
President, Chief
Executive Officer and
Principal Financial Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date: January 21, 1999 By: /s/ Bernard C. Wampler
----------------------------------------
Bernard C. Wampler,
Director and Chairman
of the Board
Date: January 22, 1999 By: /s/ Robert C. Greening, Jr.
--------------------------------------
Robert C. Greening, Jr.,
Director
Date: January 25, 1999 By: /s/ Harry J.G. van Beek
-----------------------------------
Harry J.G. van Beek,
Director
Date: January 25, 1999 By: /s/ O. Kenton McCartney, III.
----------------------------------------
O. Kenton McCartney, III.,
Director
Date: January 25, 1999 By: /s/ John G. Wampler
-----------------------------------------
John G. Wampler,
Director
(Principal Financial Officer)
Date: January 23, 1999 By: /s/ Harry H. Warner
----------------------------------------
Harry H. Warner,
Director
Date: January 21, 1999 By: /s/ Hugh V. White, Jr.
------------------------------------------
Hugh V. White, Jr.,
Director
Date: January 25, 1999 By: /s/ Carl W. Hoffman
------------------------------------------
Carl W. Hoffman,
Treasurer
<PAGE>
EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PULASKI FURNITURE CORPORATION
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Exhibit Index Page
<S> <C> <C>
3.1 Restated Articles of Incorporation of Pulaski
Furniture Corporation
3.2 Bylaws of Pulaski Furniture Corporation
4.1 Pulaski Furniture Corporation's Series A Company Note in the principal
amount of $3,000,000, given to the Industrial Development Authority of
Pulaski County
4.2 Pulaski Furniture Corporation's Series B Company Note in the principal
amount of $5,000,000, given to the Industrial Development Authority of
Pulaski County
4.3 Industrial Development Authority of Pulaski County's Industrial
Development Revenue Note in the principal amount of $3,000,000, given
to Sovran Bank, N.A. as Note Agent (Series A)
4.4 Industrial Development Authority of Pulaski County's Industrial
Development Revenue Note in the principal amount of $5,000,000, given
to Sovran Bank, N.A., as Note Agent (Series B)
4.5 Industrial Development Authority of Pulaski County's Industrial
Development Revenue Note in principal amount of $2,000,000, given to
Sovran Bank, N.A. as Note Agent (Series A)
4.6 UDAG Grant Agreement No. B-82-AB-51-0189, as executed and delivered by
the Town of Pulaski and the United States Department of Housing &
Urban Development
4.7 Note Purchase Agreement and Agreement of Sale between Industrial
Development Authority of Pulaski County, Sovran Bank, N.A., Planters
Bank & Trust Co., and Pulaski Furniture Company, dated April 1, 1984
<PAGE>
4.8 Reimbursement, Purchase and Loan Agreement between Pulaski Furniture
Corporation and Sovran Bank, N.A., dated April 1, 1984
4.9 Pulaski Furniture Corporation's Series A Company Note in principal
amount of $2,000,000 given to the Industrial Development Authority of
Pulaski County
4.10 Term Loan Agreement between Pulaski Furniture Corporation and Wachovia
Bank and Trust Company, N.A., in principal amount of $4,000,000, dated
October 21, 1985
4.11 Term Loan Note in principal amount of $4,000,000 between Pulaski
Furniture Corporation and Wachovia Bank and Trust Company, N.A., dated
October 21, 1985
4.12 Term Loan Agreement between Pulaski Furniture Corporation and Sovran
Bank, N.A., in principal amount of $4,000,000, dated October 23, 1985
4.13 Term Loan Note in principal amount of $4,000,000 between Pulaski
Furniture Corporation and Sovran Bank, N.A., dated October 23, 1985
4.14 Note Issuance Agreement and Revolving Credit Agreement between Pulaski
Furniture Corporation and Sovran Bank, N.A. in principal amount of
$10,000,000, dated December 1, 1988
4.15 Form of Variable Rate Taxable Promissory Note in principal amount of
$10,000,000 between Pulaski Furniture Corporation and Sovran Bank,
N.A., dated December 9, 1988
4.16 Form of Revolving Credit Facility Note in principal amount of
$10,000,000 between Pulaski Furniture Corporation and Sovran Bank,
N.A., dated December 9, 1988
4.17 Form of Credit Agreement in principal amount of $10,000,000 between
Pulaski Furniture Corporation and Wachovia Bank of North Carolina,
N.A., dated as of December 10, 1993
4.18 Form of Promissory Note in principal amount of $10,000,000 made by the
Company to Wachovia Bank of North Carolina, N.A., dated December 10,
1993
<PAGE>
4.19 Amendment to Term Loan Agreement between the Company and Wachovia Bank
of North Carolina, N.A., dated July 25, 1994
4.20 Amendment to Promissory Note made by the Company to Wachovia Bank of
North Carolina, N.A., dated July 25, 1994
4.21 Rights Agreement between Pulaski Furniture Corporation and First Union
National Bank, dated as of December 15, 1997
10.1 Employment Agreement between the Company and Bernard C. Wampler, dated
December 2, 1997
10.2 The Company's Stock Option Plan
10.3 The Company's Executive Life Insurance Plan
10.4 The Company's Production and Administrative Bonus Plans
10.5 Conversion Agreement between Pulaski Furniture Corporation and Sovran
Bank, N.A., dated as of March 3, 1986
10.6 The Company's 1996 Salaried Employees Stock Purchase Plan
11 Computation of Earnings Per Share* 1
13 Pulaski Furniture Corporation's 1998 Annual Report
to Security Holders
20 Pulaski Furniture Corporation's Proxy Statement for the Annual Meeting
of Stockholders to be held February 12, 1998
21 Subsidiaries of Registrant* 3
23 Consent of Ernst & Young LLP* 4
27 Financial Data Schedule
</TABLE>
- --------
*Filed with this Report on Form 10-K; all other exhibits are herein incorporated
by reference
Exhibit 11
PULASKI FURNITURE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
November 1, November 2, November 3,
1998 1997 1996
- ------------------------------------------------------------------------------
Numerator:
Net Income (loss) $6,397,397 $(2,422,844) $4,308,067
Numerator for
dilutive earnings per
share-income available
available to common
shareholders after
assumed conversions $6,397,397 $(2,422,844) $4,308,067
- ------------------------------------------------------------------------------
Denominator:
Denominator for basic
earnings per share-
weighted average shares 2,819,838 2,789,628 2,838,836
Effect or dilutive
securities:
Employee stock options 7,890 ------- 4,164
Stock purchase plan 12,348 ------- 15,303
- ------------------------------------------------------------------------------
Denominator for
dilutive earnings per
share-adjusted weighted
average shares after 2,840,076 2,789,628 2,858,303
assumed conversions
- ------------------------------------------------------------------------------
Basic earnings (loss) per $ 2.27 $ (.87) $ 1.52
share
- ------------------------------------------------------------------------------
Dilutive earnings (loss) per
share $ 2.25 $ (.87) $ 1.51
- ------------------------------------------------------------------------------
Exhibit 13
Designing
for the Future
[PFC LOGO]
Pulaski
Furniture Corporation
1998 Annual Report
<PAGE>
CONTENTS
- -------------------------------------------------------------------------------
Message to Shareholders 1
General Information 2
Selected Financial Data 3
Forward Looking Statements 3
Management's Discussion and Analysis 4
Consolidated Balance Sheets 6
Consolidated Statements of Operations
and Retained Earnings 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
Report of Independent Auditors 15
[PHOTO]
This beautiful secretary is one of the newest introductions to our Accentrics
division. It features a drop down lid, two drawers and hand painted decorations.
<PAGE>
1998 MESSAGE TO SHAREHOLDERS
- --------------------------------------------------------------------------------
[PHOTO]
Officers of Pulaski Furniture Corporation (Seated L-R: Ira S. Crawford, John G.
Wampler, Jason A. Gibbs.
Standing L-R: James H. Kelly, Randolph V. Chrisley, James W. Stout, Paul T.
Purcell, Raymond E. Winters, Jr.)
We made major changes in 1997 to better position Pulaski Furniture for the
future. The timing for the restructuring was fortuitous, as the retail of
residential furniture was healthy throughout 1998, providing an improved
environment for our marketing and manufacturing initiatives. All facets of the
Corporation showed improvement as we focused on our core businesses and recorded
profits in every division. Sales from continuing operations increased 13 percent
as they reached $172,359,000 in 1998. Earnings were at record levels with a net
income of $6,397,000 or $2.25 per share.
We are pleased to have shown substantial improvement and to have met the goals
that were set for the 1998 fiscal year; however, we are far from satisfied with
the results. We feel that we have the domestic facilities and international
sourcing structure to grow sales and to increase our earnings. The entire
Pulaski Furniture team is well coordinated and highly focused as we endeavor to
show another year of improvement in 1999. We do not know if the retail sales of
furniture will continue their current expansion, but we will continue to
scrutinize every aspect of our business to enhance earnings and to improve
shareholders' value.
We announced the anticipated acquisition of Dawson Furniture Company of Webb
City, Missouri, in the fourth quarter. We understand Dawson's business well in
that it is a low cost manufacturer of solid wood occasional and bedroom
furniture. The transaction should be completed early next year and is expected
to be accretive to earnings in 1999. Dawson Furniture is a blueprint for a good
investment. It is a well run manufacturer of quality products that fit into our
niches. The management team has unquestionable integrity, a deep understanding
of the furniture business, and ample energy to execute the necessary marketing
and manufacturing initiatives to achieve outstanding results. Current management
plans to stay with the Company after the acquisition is completed.
We have a well trained work force and our factories are modern and well
equipped. We will continue to make astute investments in the proper equipment
and systems to enhance our competitiveness. We feel that the import division
will provide the best opportunities for growth in the future, therefore we will
deploy more resources in support of this division.
We appreciate the efforts of our employees and sales representatives this
year. We also want to thank our Board of Directors for their assistance and
guidance during 1998.
Sincerely,
/s/ John G. Wampler
- -------------------------
John G. Wampler
President
1998 Annual Report 1 Pulaski Furniture Corporation
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Organized in Virginia in 1955, the Corporation manufactures and sells
medium-priced wooden bedroom, dining room and occasional furniture produced in
its manufacturing plants located in Pulaski, Dublin, and Martinsville, Virginia.
The Corporation also has a veneer plant located in Dublin, Virginia, which
produces veneer used at all manufacturing plants. The Corporation's Ridgeway
Clock division manufactures grandfather, mantel and wall clocks and is located
in Ridgeway, Virginia. The Corporation also has an import division that
supplements its' product mix with furniture and components parts.
At November 1, 1998, the end of the Corporation's 1998 fiscal year, 2,864,939
shares of the Corporation's 10 million authorized shares of Common Stock were
outstanding. In addition, the Corporation has authorized one million shares of
Cumulative Preferred stock of which no shares were outstanding.
MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
Pulaski Furniture Corporation's stock is listed on the NASDAQ National Market
System, which is the most active listing of over-the-counter quotations. During
the fiscal year 1998, the Corporation believes that Wheat First Union, of
Richmond, Virginia, was the most active market maker for the stock. The
Corporation has approximately 800 shareholders of record as of November 1, 1998.
The range of closing sales prices as reported by NASDAQ and cash dividends for
the last two fiscal years are listed in the following chart. The market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
SALES PRICES OF COMMON STOCK
- ---------------------------------------------------
Fiscal 1998 Dividends
Quater High Low Declared 1998
- ---------------------------------------------------
First $19.75 $17.75 $0.17
Second 26.00 18.75 $0.17
Third 27.00 24.00 $0.17
Fourth 25.50 19.50 $0.17
Fiscal 1997 Dividends
Quater High Low Declared 1997
- ---------------------------------------------------
First $18.25 $15.50 $0.17
Second 18.25 15.00 $0.17
Third 18.50 15.50 $0.17
Fourth 19.50 17.25 $0.17
[PHOTO]
The Accentrics division of Pulaski Furniture debuts their Orient Collection at
the High Point Furniture Market. Featured in their collection is this 63" tall
chest with two tone hand applied Antique finish and antiqued hardware with that
special oriental flair.
Pulaski Furniture Corporation 2 1998 Annual Report
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Years Ended
- -------------------------------------------------------------------------------------------------------
November 1, November 2, November 3, October 29, October 30,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 172,359,659 $158,942,459 $ 166,646,062 $172,842,105 $148,698,029
Net Income 6,397,397 (2,422,844) 4,308,067 4,475,171 3,168,494
Diluted Earnings Per Share 2.25 (.87) 1.51 1.56 1.10
Total Assets 117,627,771 110,879,450 124,335,635 118,675,813 112,750,099
Long-Term Debt 23,764,884 25,774,173 27,851,222 29,354,804 31,398,173
Cash Dividends Per Share 0.68 0.68 0.64 0.60 0.56
Book Value Per Share 20.46 19.10 20.72 19.78 18.69
Net Working Capital 51,504,949 48,984,594 52,771,424 51,787,988 47,203,234
Current Ratio 2.8 2.9 2.6 2.9 3.1
</TABLE>
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
The following is a tabulation of the unaudited quarterly results of
operations for the fiscal years ended November 1, 1998 and November 2, 1997
(dollars in thousands, except earnings per share).
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Total
(12 Weeks in (12 Weeks in (12 Weeks in (16 Weeks in (52 Weeks in
1998 and 1997) 1998 and 1997) 1998 and 1997) 1998 and 1997) 1998 and 1997)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
November 1, 1998
Net sales $36,310 $39,268 $32,687 $64,095 $172,360
Gross profit 7,095 7,763 6,809 15,351 37,018
Net income 1,000 1,158 533 3,706 6,397
Basic earnings per share 0.36 0.41 0.19 1.31 2.27
Diluted earnings per share 0.35 0.41 0.19 1.30 2.25
November 2, 1997
Net sales $35,422 $35,322 $30,054 $58,144 $158,942
Gross profit 6,935 7,390 (3,167)a 13,465 24,623
Net income 664 852 (5,745)a 1,806 (2,423)
Basic earnings per share* 0.24 0.30 (2.06)a 0.65 (0.87)
Diluted earnings per share* 0.23 0.30 (2.06)a 0.64 (0.87)
</TABLE>
(a) Note: 1997 income includes a non-recurring non-cash write-off of certain
assets and inventories amounting to $9,270,269 pre-tax ($5,923,702 after taxes,
or $2.10 per share) announced July 28, 1997.
*Note: Earnings (loss) per share ("EPS") amounts have been restated to reflect
the adoption of Statement of Financial Accounting Standards No. 128, "Earnings
per Share", which replaces the presentation of primary EPS and fully diluted EPS
with a presentation of basic EPS and diluted EPS, respectively.
FORWARD LOOKING STATEMENTS
- --------------------------------------------------------------------------------
Some of the information presented in the following report, particularly in
the Year 2000 Update of the Management Discussion and Analysis and in the
Capital Resources and Liquidity Section, 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 businesses 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, competition 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.
1998 Annual Report 3 Pulaski Furniture Corporation
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
1998 Compared to 1997
- -------------------------------------------------------------------------------
The fiscal 1998 net income was $6,397,397, or $2.25 per share compared to net
loss of $2,422,844, or $0.87 per share for fiscal 1997. The 1997 net loss
included non-recurring, non-cash after tax write-down of certain assets and
inventories amounting to $5,923,702 or $2.10 per share.
The Corporation shipped 15% more units in fiscal 1998 at a higher average
unit price of approximately 2%. The increase in sales was due, primarily, to the
development of marketing programs that capitalized on the improvement in the
retail furniture environment during fiscal 1998. The Corporation is not certain
how long this improvement in the retail furniture environment will last into the
future. Export sales for fiscal 1998 were approximately 7% of net sales compared
to approximately 5% in 1997.
Cost of products sold for fiscal 1997 included an inventory write-down of
$9,047,698. Excluding the write-down, cost of products sold for fiscal 1997 was
78.81% versus 78.52% for fiscal 1998.
Selling, general and administrative expenses as a percentage of net sales
were 14.65% for fiscal 1998 and 16.15% for fiscal 1997. The decrease in the
percentage is due to the increased sales without increases in expenses.
The Corporation's average amount of outstanding indebtedness for borrowed
money was $40,802,594 in fiscal 1997 and $31,419,610 in fiscal 1998. The
weighted average borrowing rates for the three fiscal years of 1996, 1997 and
1998 were 5.68%, 5.65% and 5.40% respectively. The lower interest expense for
fiscal 1998 was due to the lower average outstanding indebtedness and the lower
interest rates.
Miscellaneous other deductions for fiscal 1997 included a loss on disposal of
the Craftique division and the domestic seating line.
1997 Compared to 1996
- --------------------------------------------------------------------------------
The fiscal 1997 net loss was $2,422,844, or $0.87 per share compared to net
income of $4,308,067, or $1.51 per share for fiscal 1996.
The 1997 net loss included a non-recurring non-cash write-down of certain
assets and inventories amounting to $9,270,269 pre-tax ($5,923,702 after taxes,
or $2.10 per share) announced July 28, 1997. Excluding the write-off, pre-tax
earnings were $5,503,233 for fiscal 1997 compared to $6,739,607 for fiscal 1996,
a decrease of 18.34%. The decrease was caused, in part, by a reduction in net
sales of approximately $7,704,000 in 1997. The 4.6% reduction in net sales was
caused by a lower demand for the Corporation's furniture in fiscal 1997, by the
elimination of the domestic seating line and by the sale of the Craftique
division. Additionally, fiscal 1997 comprised 52 weeks (16 weeks in the fourth
quarter), whereas fiscal 1996 comprised 53 weeks (17 weeks in the fourth
quarter).
The Corporation shipped approximately 5% fewer units in 1997 at an average
unit price of approximately 3% more. The decrease in units shipped was caused by
the lower demand in fiscal 1997. Export sales for fiscal 1997 were approximately
5% of net sales compared to approximately 6% in 1996.
Cost of products sold included $9,047,698 of inventory costs which were
written down in the third quarter of fiscal 1997. Excluding the write-down, cost
of products sold for fiscal 1997 was 78.81% versus 79.19% for fiscal 1996.
Although factory labor decreased, the percentage of factory labor to sales was
21.35% for fiscal 1997 compared with 20.83% in fiscal 1996. Overall, the
Corporation was not able to reduce labor in proportion to the decrease in
production and sales volume.
Selling, general and administrative expenses as a percentage of net sales
were 16.15% for fiscal 1997 and 15.47% for fiscal 1996. The largest increases
were in the categories of showroom and warehouse expenses, bad debts,
advertising, education and training and depreciation of new computers.
The Corporation's average amount of outstanding indebtedness for borrowed
money was $39,077,050 in fiscal 1996 and $40,802,594 in fiscal 1997. The
weighted average borrowing rates for the three fiscal years of 1995, 1996 and
1997 were 6.44%, 5.68% and 5.65% respectively. The weighted averages excluding
the interest rate swap costs for 1995 and 1996 would have been 5.94% and 5.41%.
The interest rate swap costs increased interest expense by $206,595 and $103,992
in 1995 and 1996 respectively. The interest rate Conversion Agreement terminated
April 15, 1996, therefore, no rate swap expenses were incurred in fiscal 1997.
Miscellaneous other deductions for fiscal 1997 included the loss on disposal
of the Craftique division and domestic seating line.
Interest Risk Disclosures
- --------------------------------------------------------------------------------
Because the Corporation's obligations under the bank credit agreements bear
interest at variable rates, the Corporation is sensitive to changes in
prevailing interest rates. A 10% fluctuation in market interest rates would not
have a material impact on earnings during the 1999 fiscal year, however.
Year 2000 Update
- --------------------------------------------------------------------------------
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
Pulaski Furniture Corporation 4 1998 Annual Report
<PAGE>
event they are not completed in a timely manner, the Year 2000 issue could have
a material impact on the operations of the Corporation. The Corporation's Year
2000 remediation efforts progressed through the selection phase into a 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 where 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 specifically 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 capitalized 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
the 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 are 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
interruption, or a 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 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 to determine at this time whether the consequences of Year 2000 problems
will have a material impact on the Corporation's results of operations,
liquidity or financial condition.
CAPITAL RESOURCES & LIQUIDITY
- --------------------------------------------------------------------------------
Net cash provided by operating activities for the year totaled approximately
$7,842,000. Trade receivables increased approximately $1,685,000, and
inventories increased approximately $7,646,000. The inventory increase is due to
the Corporation's response to the higher demand for household furniture.
The Corporation has short-term lines of credit totaling $16,000,000 with
interest not to exceed prime rates. At November 1, 1998, which was approximately
the middle of the Corporation's heaviest shipping season, the Corporation had
$12,000,000 outstanding under these credit lines. The Corporation reduced
overall debt by approximately $2,009,000 in fiscal 1998.
Because of the available lines of credit, the strong working capital
position, and its ability to generate cash through operations, the Corporation
believes it has adequate liquidity to meet its short-term and long-term debt
obligations, cover its capital expenditures, pay cash dividends and to continue
controlled growth indefinitely.
The Corporation has signed a Letter of Intent to purchase a furniture company
located in Southwest Missouri. The Corporation intends to borrow approximately
$17,000,000 in fiscal 1999 to finance the cost of the acquisition which is
expected to require approximately $17,000,000, including initial working
capital. The Corporation expects to service the new debt with earnings from
operations of the acquired facility. No other borrowings are contemplated by the
Corporation at this time.
DISCUSSION-FOURTH QUARTER
- --------------------------------------------------------------------------------
The increase in sales in the fourth quarter of fiscal 1998, compared to the
fourth quarter of fiscal 1997 was caused, primarily, by the Corporation's
response to the improvement in the retail furniture environment in the 1998
quarter. The increase in net income was caused, primarily, by the strong sales
gains, which resulted in higher capacity utilization and improved manufacturing
efficiencies. The fourth quarter is normally the Corporation's strongest quarter
for sales and earnings.
The Board of Directors at its December 11, 1998, meeting declared a dividend
of 17 cents per common share payable on January 4, 1999 to shareholders of
record December 18, 1998, and authorized the purchase by the Corporation of up
to 200,000 shares of its common stock presently outstanding.
1998 Annual Report 5 Pulaski Furniture Corporation
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
November 1, November 2,
1998 1997
- ----------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,452,166 $ 2,702,339
Trade receivables, less allowance of $950,000
in 1998 and in 1997 38,411,214 36,726,320
Inventories:
Finished furniture 19,944,327 18,126,731
Furniture in process 5,839,888 3,549,265
Raw materials 13,205,339 9,667,753
- ----------------------------------------------------------------------------------------
38,989,554 31,343,749
Prepaid expenses 802,637 874,515
Recoverable income taxes -- 1,473,577
Deferred income taxes 687,212 1,276,766
- ----------------------------------------------------------------------------------------
Total current assets 80,342,783 74,397,266
Property, plant and equipment:
Land 426,710 426,710
Buildings 32,771,313 32,446,950
Machinery and equipment 55,327,271 51,331,178
Furniture, fixtures and office equipment 5,618,291 4,951,973
Vehicles 604,068 571,222
- ----------------------------------------------------------------------------------------
94,747,653 89,728,033
Less allowances for depreciation 59,522,800 54,480,356
- ----------------------------------------------------------------------------------------
35,224,853 35,247,677
Other assets
Cash surrender value of life insurance, less loans
of $220,468 in 1998 and $802,273 in 1997 2,049,120 1,223,492
Other 11,015 11,015
- ----------------------------------------------------------------------------------------
2,060,135 1,234,507
- ----------------------------------------------------------------------------------------
$117,627,771 $110,879,450
========================================================================================
</TABLE>
Pulaski Furniture Corporation 6 1998 Annual Report
<PAGE>
<TABLE>
<CAPTION>
November 1, 1998 November 2, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses:
Accounts payable $7,684,327 $ 6,222,174
Wages and commissions 3,948,283 2,901,691
Payroll taxes and taxes withheld from employees 355,056 400,110
Other accrued expenses 2,096,035 1,888,697
- ------------------------------------------------------------------------------------------
14,083,701 11,412,672
Notes payable 12,000,000 12,000,000
Current portion of long-term debt 2,000,000 2,000,000
Federal and state income taxes 754,133 --
- ------------------------------------------------------------------------------------------
Total current liabilities 28,837,834 25,412,672
Deferred compensation 2,875,084 2,680,686
Deferred income taxes 3,532,191 3,742,437
Long-term debt 23,764,884 25,774,173
Stockholders' equity:
Common stock (authorized 10,000,000 shares, issued
shares, 2,864,939 in 1998 and 2,789,527 in 1997) 6,328,363 4,989,622
Retained earnings 52,955,435 48,479,127
Unamortized restricted stock (666,020) (199,267)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 58,617,778 53,269,482
- ------------------------------------------------------------------------------------------
$117,627,771 $110,879,450
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1998 Annual Report 7 Pulaski Furniture Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Years Ended
- --------------------------------------------------------------------------------------------
November 1, November 2, November 3,
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $172,359,659 $158,942,459 $166,646,062
Cost of products sold 135,341,805 134,318,909 131,939,252
- --------------------------------------------------------------------------------------------
37,017,854 24,623,550 34,706,810
Selling, general and administrative expenses 25,244,182 25,676,853 25,776,676
- --------------------------------------------------------------------------------------------
11,773,672 (1,053,303) 8,930,134
Other income:
Interest 56,423 21,887 36,692
Miscellaneous 13,146 38,485 158,059
- --------------------------------------------------------------------------------------------
69,569 60,372 194,751
- --------------------------------------------------------------------------------------------
11,843,241 (992,931) 9,124,885
Other deductions:
Interest expense 1,804,694 2,346,434 2,343,123
Miscellaneous 148,050 427,669 42,695
- --------------------------------------------------------------------------------------------
1,952,744 2,774,103 2,385,818
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes 9,890,497 (3,767,034) 6,739,067
Income taxes 3,493,100 (1,344,190) 2,431,000
- --------------------------------------------------------------------------------------------
Net income (loss) 6,397,397 (2,422,844) 4,308,067
Retained earnings at beginning of year 48,479,127 52,804,294 50,296,885
Cash dividends (per share: 1998 - $.68;
1997 - $.68; 1996 - $.64) (1,921,089) (1,902,323) (1,800,658)
- --------------------------------------------------------------------------------------------
Retained earnings at end of year $52,955,435 $48,479,127 $52,804,294
============================================================================================
BASIC EARNINGS (LOSS) PER SHARE $ 2.27 $ (0.87) $ 1.52
============================================================================================
DILUTED EARNINGS (LOSS) PER SHARE $ 2.25 $ (0.87) $ 1.51
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Pulaski Furniture Corporation 8 1998 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Years Ended
- -------------------------------------------------------------------------------------------------------
November 1, November 2, November 3,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 6,397,397 $(2,422,844) $ 4,308,067
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Provision for depreciation and amortization 5,481,109 5,418,042 5,108,000
Provision for deferred income taxes 379,308 (1,079,326) 29,479
Provision for deferred compensation 194,398 162,107 249,830
Loss (gain) on sale of property, plant and equipment (6,769) 274,165 7,721
Changes in operating assets and liabilities:
Trade receivables (1,684,894) 2,746,718 (3,798,709)
Inventories (7,645,805) 10,434,695 (1,369,573)
Accounts payable and
accrued expenses 2,671,029 (1,381,213) 81,644
Federal income taxes payable 2,227,710 (2,822,262) 1,091,258
Other (171,945) (397,877) (390,773)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,841,538 10,932,205 5,316,944
Investing activities
- --------------------------------------------------------------------------------------------------------
Purchases of property, plant and equipment (5,026,913) (2,950,835) (4,215,586)
Proceeds from sale of property, plant and equipment 3,044 701,098 14,340
Sale of investments -- -- 3,600
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,023,869) (2,249,737) (4,197,646)
Financing activities
- --------------------------------------------------------------------------------------------------------
Issuance of common stock 540,591 486,220 440,722
Repurchase of common stock (96,250) (920,000) (1,570,813)
Payment of dividends (1,921,089) (1,902,323) (1,800,658)
Proceeds from long-term debt -- -- 500,000
Payments on long-term debt (2,009,289) (2,077,049) (2,051,200)
Increase (decrease) in notes payable -- (4,000,000) 4,000,000
(Payment) proceeds on life insurance loans (581,805) 36,173 37,955
- --------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,067,842) (8,376,979) (443,994)
Increase in cash and cash equivalents (1,250,173) 305,489 675,304
Cash and cash equivalents at beginning of year 2,702,339 2,396,850 1,721,546
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,452,166 $ 2,702,339 $ 2,396,850
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1998 Annual Report 9 Pulaski Furniture Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE ONE
- --------------------------------------------------------------------------------
Significant Accounting Policies
- --------------------------------------------------------------------------------
Business and Credit Risk: Pulaski Furniture Corporation manufactures medium-
priced bedroom, dining room and occasional furniture for a variety of customers
in the retail furniture industry. Ridgeway Clock manufactures grandfather,
mantel and wall clocks. Substantially all of the Corporation's accounts
receivable are due from companies in the retail furniture industry. Management
periodically performs credit evaluations of its customers and generally does not
require collateral.
Fiscal Year: The Corporation uses a 52-53 week year. The fiscal year ended
November 3, 1996, included 53 weeks. All other fiscal years presented include 52
weeks.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Corporation and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Cash Equivalents: The Corporation considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of LIFO (last-in, first-out)
cost or market.
Property, Plant and Equipment: Property, plant and equipment are stated at cost.
Depreciation has been computed on a straight-line basis over the estimated
useful lives of the related assets.
Fair Value of Financial Instruments: At November 1, 1998, the carrying amounts
of the Corporation's financial instruments, including cash and cash equivalents,
trade receivables and accounts payable, approximated their fair values.
Management believes that the estimated fair value of the Corporation's long-term
debt approximated its carrying value at November 1, 1998. Fair value is
determined based on expected future cash flows, discounted at market interest
rates, and other appropriate valuation methodologies.
Long-Lived Assets: The Corporation periodically assesses the realizability of
its long-lived assets and evaluates such assets for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. For assets to be held, impairment is determined to exist if
estimated future cash flows, undiscounted and without interest charges, are less
than the carrying amount. For assets to be disposed of, impairment is determined
to exist if the estimated net realizable value is less than the carrying amount.
Stock Based Compensation: The Corporation accounts for stock options and grants
under Accounting Principals Board Opinion No. 25 "Accounting for Stock Issued to
Employees". Accordingly, compensation expense for stock options is measured as
the excess, if any, of the quoted market price of the Corporation's stock at the
date of grant over the exercise price. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS
No. 123) "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require, adoption of a fair value method of accounting for employee
stock-based compensation plans. SFAS No. 123 does not have a material impact on
the Corporation's financial position or results of operations.
Use of Estimates: The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs: The Corporation expenses advertising costs when the
liabilities arise. Advertising expense for 1998, 1997 and 1996 was $1,549,000,
$1,552,000 and $1,568,000, respectively.
Earnings Per Share: Effective for the Corporation's consolidated financial
statements for the year ended November 1, 1998, the Corporation adopted SFAS No.
128 "Earnings per Share", which replaces the presentation of primary earnings
per share ("EPS") and fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period. Similar to fully diluted
EPS, diluted EPS assumes the issuance of common stock for all potentially
dilutive equivalent shares outstanding. All prior-period EPS data has been
restated.
Other: In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 "Reporting Comprehensive Income" and No. 131 "Disclosures About Segments of
an Enterprise and Related Information," both of which the Corporation will adopt
in its 1999 fiscal year. The Corporation will be required to report
comprehensive income, which is the total of net income and certain other
nonowner changes in shareholders' equity. SFAS No. 131, among other things,
establishes standards for
Pulaski Furniture Corporation 10 1998 Annual Report
<PAGE>
reporting financial information about operating segments, defined as components
of an enterprise about which separate financial information is available to the
chief operating decision maker for purposes of assessing performance and
allocating resources. The effect of SFAS No. 131 on the Corporation's financial
statement disclosures has not yet been determined. The adoption of SFAS No. 130
and SFAS 131 will not affect the accounting for the Corporation's consolidated
results of operations and financial position.
Reclassification: Certain reclassifications were made in prior year financial
statements to conform to the 1998 presentation.
NOTE TWO
- --------------------------------------------------------------------------------
Inventories
- --------------------------------------------------------------------------------
Current cost of the LIFO inventories exceeded the carrying amount by
approximately $16,112,000 and $14,758,000 at November 1, 1998 and November 2,
1997, respectively.
NOTE THREE
- --------------------------------------------------------------------------------
Financing Arrangements and Commitments
- --------------------------------------------------------------------------------
Long-term debt consists of the following:
November 1, November 2,
1998 1997
- --------------------------------------------------------------------------------
Industrial Development Revenue
Notes, due in installments of
$5,000,000 in 2004 and 2009 $10,000,000 $10,000,000
Notes payable under revolving
credit facility 9,000,000 9,000,000
Term loan agreement, due in
quarterly installments of
$428,572 6,357,142 8,321,428
Note payable at 3% interest to
the Town of Pulaski, Virginia,
due in monthly installments of
$4,831 through October 1, 2006,
collateralized by deed of trust 407,742 452,745
- --------------------------------------------------------------------------------
25,764,884 27,774,173
Less current maturities 2,000,000 2,000,000
- --------------------------------------------------------------------------------
$23,764,884 $25,774,173
================================================================================
Future maturities of long-term debt at November 1, 1998 are as follows:
1999 $ 2,000,000
2000 10,522,707*
2001 1,763,512
2002 1,265,018
2003 52,266
2004 and thereafter 10,161,381
- --------------------------------------------------------------------------------
$25,764,884
================================================================================
* Of this amount, $9,000,000 is extended automatically unless the bank providing
the revolving credit facility gives notice of termination as described below.
The Industrial Development Revenue Notes, which may be called prior to
maturity, bear interest at tax-exempt market rates. Interest cost (including
related letter of credit and servicing fees) averaged 4.08% during 1998. At the
option of the Corporation, or if called prior to maturity, the notes may be
placed with a bank under a letter of credit arrangement. In this event, the
notes would bear interest at two-thirds of the prime rate.
The Corporation has a note and revolving credit agreement with a bank which
provides for $10 million in notes supported by a revolving credit facility. The
notes bear interest at current market rates (averaged 5.70% in 1998) and are
renewable on an annual basis subject to minimum annual reductions of long term
debt. The agreement requires annual commitment fees of one quarter of one
percent of the total amount of the revolving credit facility. At the option of
the bank, the revolving credit facility may be terminated on February 28 of any
year if the bank gives notice of termination not later than 60 days before March
1 of the preceding year.
The Corporation has a term loan agreement with a bank that had an outstanding
amount of $6,357,142 at November 1, 1998. The note bears interest at a variable
rate not to exceed LIBOR plus 3/8% (averaged 6.25% in 1998). The agreement
requires annual commitment fees of one eighth of one percent of the unused
commitment.
The agreements contain various conditions which provide, among other things,
restrictions relating to the maintenance of working capital, payment of
dividends and additional indebtedness. At November 1, 1998, retained earnings
available for payment of dividends amounted to approximately $33,395,000.
Under short term line of credit arrangements, the Corporation may borrow up
to $16 million at November 1, 1998 which would bear interest at rates not to
exceed the prime rate. At November 1, 1998, the Corporation had $12 million
outstanding under these arrangements.
1998 Annual Report 11 Pulaski Furniture Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In connection with the purchase of inventory from foreign suppliers, the
Corporation has available letters of credit of approximately $11 million, with
$9.0 million outstanding at November 1, 1998.
Interest paid in 1998, 1997 and 1996 was $1,708,460, $2,299,277 and
$2,386,425, respectively.
NOTE FOUR
- --------------------------------------------------------------------------------
Common Stock
- --------------------------------------------------------------------------------
Changes in Common Stock for the two years in the period ended 1998 were as
follows:
Common Stock
Shares Amount
- --------------------------------------------------------------------------------
BALANCE AT NOVEMBER 3, 1996 2,783,579 $ 5,031,402
Shares issued under Salaried
Employee Stock Purchase Plan 29,473 469,210
Common Stock acquired and
retired (53,000) (920,000)
Shares issued under Stock
Incentive Plan 3,975 10
Restricted shares issued under
Stock Incentive Plan 24,500 392,000
Shares issued under Stock
Incentive Plan for
Non-Employee Directors 1,000 17,000
- --------------------------------------------------------------------------------
BALANCE AT NOVEMBER 2, 1997 2,789,527 $ 4,989,622
Shares issued under Salaried
Employee Stock Purchase Plan 27,087 514,924
Common Stock acquired and retired (5,000) (96,250)
Shares issued under Stock
Incentive Plan 10,525 167
Restricted shares issued under Stock
Incentive Plan 41,600 894,400
Shares issued under Stock Incentive
Plan for Non-Employee Directors 1,200 25,500
- --------------------------------------------------------------------------------
BALANCE AT NOVEMBER 1, 1998 2,864,939 $ 6,328,363
================================================================================
In 1998, as part of a shareholder rights plan, the Board of Directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of common stock. Each right entitles its holder to buy one
one-hundredth of a share of the Corporation's Series A Cumulative Preferred
Stock at an exercise price currently in excess of market value. The rights will
become exercisable only if a person or group acquires or obtains the right to
acquire, 15% or more of the Corporation's common stock (an "Acquiring Person")
or commences a tender offer that would result in the offeror owning 15% or more
of the Corporation's outstanding common stock ("Triggering Events"). If an
Acquiring Person acquires 15% or more of the Corporation's common stock or
engages in certain other transactions with the Corporation, each right will
entitle the holder, other than an Acquiring Person, to acquire the Corporation's
Series A Preferred Stock or, at the option of the Corporation, other securities
or property, having a value equal to twice the right's exercise price. Likewise,
if the Corporation is acquired in a merger or other business combination, or the
Corporation sells more than 50% of its earnings power or assets, each right will
entitle the holder, other that an Acquiring Person, to purchase securities of
the acquiring entity with a market value equal to twice the right's exercise
price. The rights expire December 15, 2007, and are subject to redemption at the
discretion of the Corporation's Board of Directors at a price of $0.01 per right
within 10 days following the occurrence of a Triggering Event, subject to
extension of the period by the Board of Directors. The Corporation has
authorized one million shares of cumulative preferred stock, of which 500,000
shares have been designated as Series A Cumulative Preferred Stock reserved for
issuance upon exercise of such rights.
NOTE FIVE
- --------------------------------------------------------------------------------
Stock Purchase and Incentive Plans
- --------------------------------------------------------------------------------
The Salaried Employees Stock Purchase Plan provides for the sale of Common
Stock annually based on payroll deductions of up to 8% of employee compensation
at a price equal to 70.7% of market price on the date of purchase. Compensation
expense recognized in 1998, 1997 and 1996 related to the Plan was $210,015,
$218,081 and $198,458, respectively. At November 1, 1998, 23,158 shares are to
be issued pursuant to the Plan's provisions, after which there will remain
56,448 shares available for purchase in the future.
Under the Stock Incentive Plan, as amended in 1989, key employees were
granted options to purchase Common Stock at a price determined by a committee
appointed by the Board of Directors or determined pursuant to a formula approved
by the committee. The committee was also able to grant stock appreciation rights
(SARs) in relation to the grants of stock options. The stock options and SARs
expire ten years after the date of grant.
At November 1, 1998, outstanding options and SARs under the Stock Incentive
Plan were as follows:
Number Option Price
of Shares Per Share
- --------------------------------------------------------------------------------
Outstanding at November 3, 1996 97,500 $14.75 - $18.75
- ---------------------------------------------------
Exercised (30,000) $14.75 - $17.375
Expired or canceled (15,000) $18.75
- ---------------------------------------------------
Outstanding at November 2, 1997 52,500 $14.75 - $18.75
Exercised (22,500) $14.75 - $18.75
- ---------------------------------------------------
Outstanding at November 1, 1998 30,000 $14.75 - $18.75
===================================================
Pulaski Furniture Corporation 12 1998 Annual Report
<PAGE>
All shares under option at November 1, 1998 are exercisable. All shares
issued upon exercise of options during the three years ended November 1, 1998
related to options granted between December 1989 and December 1991.
The Stock Incentive Plan, as amended in 1991, permits the committee of the
Board of Directors to make awards of the Corporation's common stock upon such
terms and conditions as may be established by the committee. Restrictions on
shares issued under the plan lapse at the rate of 20% of the stock per year.
Upon issuance of restricted stock under the plan, unearned compensation
equivalent to the market value at the date of grant is charged to stockholders'
equity and amortized over the vesting period. Amortization of $427,647, $344,003
and $360,385 was recorded in fiscal 1998, 1997 and 1996, respectively. At
November 1, 1998, there are 69,000 shares available for future issuance.
NOTE SIX
- --------------------------------------------------------------------------------
Pension Plan
- --------------------------------------------------------------------------------
The Corporation has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the employee's
highest five year average compensation. The Corporation's funding policy is to
contribute annually the amount required to fund current service cost plus an
amortization of prior service cost and actuarial gains and losses over
approximately 30 years to the extent such amounts are currently deductible for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets:
November 1, November 2,
1998 1997
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation,
including vested benefits of
$11,406,298 and $9,675,712
in 1998 and 1997, respectively. $11,615,751 $9,893,938
================================================================================
Projected benefit obligation for
service rendered to date $14,959,643 $13,458,480
Plan assets at fair value 16,542,696 15,468,996
- --------------------------------------------------------------------------------
Projected benefit obligation
less than plan assets 1,583,053 2,010,516
Unrecognized net gain from
past experience different
from that assumed (2,242,223) (2,446,108)
Unrecognized net asset at
November 2, 1987 (200,366) (250,457)
- --------------------------------------------------------------------------------
Net pension liability recognized
in balance sheet $(859,536) $ (686,049)
================================================================================
Net pension cost included the following components:
1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $608,698 $578,102 $563,784
Interest cost on
projected
benefit obligation 989,730 918,759 879,694
Actual gain on
plan assets (1,357,324) (2,775,867) (1,227,984)
Net amortization
and deferral 247,893 1,735,235 295,855
- --------------------------------------------------------------------------------
Net periodic
pension cost $488,997 $456,229 $ 511,349
================================================================================
Assumptions used in accounting for the pension plan were:
1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average discount rate 6.75% 7.5% 7.5%
Rate of increase in compensation level 5.0% 6.0% 6.0%
Expected long term rate of return on assets 8.0% 8.0% 8.0%
100.0% of plan assets at November 1, 1998 are invested in listed stocks and
bonds.
The Corporation also sponsors an unfunded Supplemental Executive Retirement
Program (SERP), which is a nonqualified plan that provides additional retirement
benefits to certain key employees. Pension expense recognized in 1998, 1997 and
1996 related to the SERP was $290,754, $267,486 and $306,482, respectively. At
November 1, 1998, the projected benefit obligation for this plan totaled
$2,914,711, of which an unrecognized net obligation of $99,291 and unamortized
prior service cost of $231,474 are subject to later amortization. The remaining
$2,554,878 is an additional pension liability recognized in the balance sheet at
November 1, 1998.
NOTE SEVEN
- --------------------------------------------------------------------------------
Income Taxes
- --------------------------------------------------------------------------------
The provision for income taxes consisted of the following:
1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $2,761,427 $ (274,172) $ 2,150,912
State 352,365 9,308 250,609
- --------------------------------------------------------------------------------
3,113,792 (264,864) 2,401,521
Deferred:
Federal 289,573 (979,251) 1,088
State 89,735 (100,075) 28,391
- --------------------------------------------------------------------------------
379,308 (1,079,326) 29,479
- --------------------------------------------------------------------------------
$3,493,100 $ (1,344,190) $2,431,000
================================================================================
1998 Annual Report 13 Pulaski Furniture Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The total provision for income taxes varied from the U.S. federal statutory
rate for the following reasons:
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory federal income
tax rate 34.0% 34.0% 34.0%
State income tax, net of federal
tax benefit 2.9% 1.6% 2.7%
Foreign sales corporation and other (1.6%) 0.1% (0.6%)
- --------------------------------------------------------------------------------
Effective tax rate 35.3% 35.7% 36.1%
================================================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:
November 1, November 2, November 3,
1998 1997 1996
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $(4,597,007) $ (4,729,947) $(5,093,334)
Inventory valuation (84,515) -- --
- --------------------------------------------------------------------------------
Total deferred tax
liabilities (4,681,522) (4,729,947) (5,093,334)
Deferred tax assets:
Deferred compensation 1,064,816 987,510 927,793
Receivable allowance 351,842 349,961 331,542
Net operating loss
carryforwards -- -- 70,284
Inventory valuation -- 627,928 20,709
Other 419,885 298,877 268,293
- --------------------------------------------------------------------------------
Total deferred tax
assets 1,836,543 2,264,276 1,618,621
Valuation allowance
for deferred tax assets -- -- (70,284)
- --------------------------------------------------------------------------------
Net deferred tax
assets 1,836,543 2,264,276 1,548,337
- --------------------------------------------------------------------------------
Net deferred
liabilities $(2,844,979) $ (2,465,671) $(3,544,997)
================================================================================
Deferred tax
liability $(3,532,191) $ (3,742,437) $(4,144,832)
Deferred tax assets 687,212 1,276,766 599,835
- --------------------------------------------------------------------------------
Net deferred
tax liability $ (2,844,979) $ (2,465,671) $(3,544,997)
================================================================================
The Corporation made income tax payments of $1,886,000, $1,630,000 and
$1,310,000, in 1998, 1997 and 1996, respectively.
NOTE EIGHT
- --------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
- --------------------------------------------------------------------------------
The following table sets forth the computation of basic and diluted earnings
per share:
November 1, November 2, November 3,
1998 1997 1996
- --------------------------------------------------------------------------------
Numerator:
Net income (loss) $ 6,397,397 $(2,422,844) $4,308,067
Numerator for
dilutive earnings
per share-income
available to common
stockholders after
assumed conversions $ 6,397,397 $(2,422,844) $4,308,067
================================================================================
Denominator:
Denominator for
basic earnings per
share-weighted
average shares 2,819,838 2,789,628 2,838,836
Effect or dilutive securities:
Employee stock options 7,890 -- 4,164
Stock purchase plan 12,348 -- 15,303
- --------------------------------------------------------------------------------
Denominator for
dilutive earnings
per share-adjusted
weighted average
shares after assumed
conversions 2,840,076 2,789,628 2,858,303
================================================================================
Basic earnings (loss)
per share $2.27 $(.87) $1.52
================================================================================
Dilutive earnings (loss)
per share $2.25 $(.87) $1.51
================================================================================
NOTE NINE
- --------------------------------------------------------------------------------
Special Charges
On July 28, 1997, the Corporation announced that it would record pre-tax
charges, in the third quarter of 1997, totaling approximately $9.2 million ($5.9
million after taxes, or $2.10 per share). These charges relate to the
elimination of the Corporation's domestic seating line and related inventories,
the divestiture of Craftique, Inc. and the discontinuance of certain other
product lines. Of the charges, approximately $9.0 million is included in cost of
sales for inventory write-downs, with the remaining charges related to assets no
longer being used included in miscellaneous expense.
NOTE TEN
- --------------------------------------------------------------------------------
Other
The Company has entered into a letter of intent to purchase substantially all
the assets of a furniture company for an amount expected to be less than $16
million. Execution of a definitive acquisition agreement is subject to
negotiation of satisfactory terms and conditions and completion of business and
financial reviews.
Pulaski Furniture Corporation 14 1998 Annual Report
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Pulaski Furniture Corporation
We have audited the accompanying consolidated balance sheets of Pulaski
Furniture Corporation and Subsidiaries as of November 1, 1998 and November 2,
1997, and the related consolidated statements of operations and retained
earnings and cash flows for each of the three years in the period ended November
1, 1998. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pulaski Furniture
Corporation and Subsidiaries at November 1, 1998 and November 2, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 1, 1998 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
- --------------------------------
Winston-Salem, North Carolina
December 1, 1998
[PHOTO]
Top right: The elegantly curved side glass of this charming curio opens up a
grand view for your treasured collectibles. Shown in Brittany finish, it is also
available in Eden House Cherry, Golden Oak and Stone Crackle.
Bottom right: Pulaski recently introduced "Cafe Country" to its line of kitchen
and dining home furnishings. Glazed tile, beveled glass, wooden pegs, towel
racks, casters and a lazy susan are just some of the features in this casual but
functional group.
Pulaski Furniture Corporation 15 1998 Annual Report
<PAGE>
[PHOTOS]
Top left: Your most cherished collectibles will enjoy the view sitting atop
curved glass shelves inside this dramatic curio. They will also enjoy the side
entry access, curved front glass, mirrored back and lighted interior.
Top right: The "Havana" grandfather clock is made with a rubbed cherry finish on
cherry veneers and solids, and detailed book matched crotch mahogany veneers on
the crown and base front. The cabinet includes carved bun feet and beveled
glass. Inside, there is a brass twisted lure pendulum with 270mm bob featuring
the Hemingway logo with a center pierced fretwork.
Left: Bellissimo!! recaptures its place in time. In this fine bedroom grouping,
Pulaski has brought together the 16th Century Classic Renaissance period with
17th Century Baroque elements.
1998 Annual Report 16 Pulaski Furniture Corporation
<PAGE>
OFFICERS
- -------------------------------------------------------------------------------
JOHN G. WAMPLER
President and Chief Executive
Officer
RANDOLPH V. CHRISLEY
Vice President-Sales
IRA S. CRAWFORD
Vice President-Administration
& Investor Relations; Secretary
JASON A. GIBBS
Vice President-Chief Financial
Officer; Treasurer
JAMES H. KELLY
Vice President-Product
Development
PAUL T. PURCELL
Vice President-Credit
Administration
JAMES W. STOUT
Vice President-Manufacturing
RAYMOND E. WINTERS, JR.
Vice President-Operations
DIRECTORS
- -------------------------------------------------------------------------------
BERNARD C. WAMPLER
Chairman of the Board
HARRY J.G. van BEEK*
President, Klockner Capital
Corporation, Gordonsville, Va.
ROBERT C. GREENING, JR.
Vice President and General
Manager, Neiman Marcus
Northbrook, Il.
O. KENTON McCARTNEY, III*
President, Virginia Banking,
Wachovia Bank, N.A.
Charlottesville, Va.
JOHN G. WAMPLER
President and Chief Executive
Officer of Pulaski Furniture
Corporation
HARRY H. WARNER*
Financial Consultant,
Lexington, Va.
HUGH V. WHITE, JR.
Partner of Hunton & Williams
Attorneys, Richmond, Va.
*Member of Audit Committee
CORPORATE DATA
- -------------------------------------------------------------------------------
CORPORATE OFFICES
Pulaski Furniture Corporation
One Pulaski Square
P.O. Box 1371
Pulaski, VA 24301
(540) 980-7330
STOCK TRANSFER AGENT AND DIVIDEND DISBURSING AGENT First Union National Bank of
North Carolina- Shareholders Services 1525 West W.T. Harris Blvd 3C3 Charlotte,
NC 28288-1153
(800) 829-8432
STOCK LISTING
Traded Over-The-Counter NASDAQ Symbol-PLFC
LEGAL COUNSEL
Hunton & Williams
Richmond, Virginia
ANNUAL MEETING
The Annual Meeting of Shareholders of Pulaski Furniture Corporation will be
held on Friday, February 12, 1999 at 10 a.m. at the Roanoke Airport Marriott,
Roanoke, Va.
ADDITIONAL INFORMATION
A copy of Form 10-K, the Annual Report filed with the Securities and Exchange
Commission, is available without charge to shareholders upon written request
directed to the Corporation, attention Secretary
[PHOTO]
Detailed in a rubbed Nantucket finish with carved mouldings, adjustable glass
shelves, mirrored back, lighted interior and marble top, it is sure to enhanced
any area of your home. Just imagine showing off your heirloom collections in
this beautiful credenza.
Exhibit 21
Subsidiaries of Registrant
Jurisdiction
Name of Incorporation
---- ----------------
1. Pulaski Foreign Sales Corporation, Inc. U.S. Virgin Islands
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-67941) pertaining to the Pulaski Furniture Corporation 1996 Salaried
Employees' Stock Purchase Plan of our report dated December 1, 1998, with
respect to the consolidated financial statements and schedule of Pulaski
Furniture Corporation included in the Annual Report (Form 10-K) for the year
ended November 1, 1998.
/s/ Ernst & Young LLP
Ernst & Young LLP
Winston-Salem, North Carolina
January 22, 1999
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