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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 July 31, 1998
(Mark One) OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 001-13635
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MEADOWCRAFT, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0891252
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
4700 Pinson Valley Parkway
Birmingham, Alabama 35215 (205) 853-2220
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(Address of principal executive office) (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange on which registered
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COMMON STOCK NEW YORK STOCK EXCHANGE
$.01 PAR VALUE PER SHARE
Indicate by check mark whether Registrant (1) has filled out all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that 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. [ ]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the registrant (3,707,019 shares) on October 6, 1998 was
$33,826,548. For the purposes of this response, officers, directors and holders
of 5% or more of the Registrant's Common Stock are considered the affiliates of
the Registrant at that date.
As of October 6, 1998, 19,708,750 shares of the Registrant's Common Stock. $.01
par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement for the registrant's
1998 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year by
this report, are incorporated into Part III hereof.
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GENERAL
ITEM 1. BUSINESS
Meadowcraft, Inc. (the "Company") is the leading domestic producer of casual
outdoor furniture and is the largest manufacturer of outdoor wrought iron
furniture in the United States. The Company designs, manufactures and
distributes a variety of wrought iron consumer products, including outdoor and
indoor furniture and accessories, outdoor cushions and umbrellas and garden
products, which it markets to mass merchandisers and specialty stores primarily
in the United States. The Company believes that it has established a reputation
as an innovator in the design, manufacturing, distribution and marketing of
moderately priced, quality wrought iron furniture.
The Company offers consumers a wide variety of products across different price
points in three markets: the outdoor mass market under the Plantation Patterns
brand name; the outdoor specialty market under the Meadowcraft, Arlington House,
and Salterini brand names; and the indoor specialty and mass markets under the
Interior Images by Salterini and Home Collection from Plantation Patterns brand
names, respectively.
During the second quarter of fiscal 1998, the Company completed its Initial
Public Offering ("IPO"), selling 3,708,750 shares of common stock for $13.00 per
share. The proceeds from the Offering were used to pay an S Corporation dividend
and fund capital expenditures. (See Note 1 of Notes to Consolidated Financial
Statements.)
COMPETITIVE STRENGTHS
The Company attributes its strong market position to the high value-to-price
characteristic and design of its products as well as its low-cost production and
efficient distribution systems. These factors have contributed to the Company's
success with its customers - both mass and specialty retailers and consumers.
The Company believes its competitive strengths include the following:
Low-Cost Producer. The Company believes that its low-cost, high-volume
production systems have enabled it to design, manufacture and distribute quality
wrought iron furniture and accessories with traditional, "high-end" design
features, broad consumer appeal and high value-to-price characteristics. The
Company developed its low-cost production systems by combining design and
production expertise developed for the specialty markets with efficient,
innovative manufacturing and distribution systems designed to accommodate the
need of mass merchandisers. Management believes that by applying its low-cost
manufacturing expertise to additional product lines it can increase its share of
the casual outdoor furniture market as well as gain market share in the indoor
furniture market.
Advanced Manufacturing and Distribution Systems. The Company's advanced
manufacturing and distribution facilities and computerized inventory tracking
and shipping systems enable the Company to produce and ship large quantities of
products on a timely and reliable basis. Timely and reliable shipment of
products is an important competitive factor in the casual furniture industry,
especially in the mass market where customers often require shipment of a large
volume of products on short notice throughout the spring and summer months. The
Company's manufacturing facilities are designed to accommodate efficient
production of products for both the mass and specialty markets, with common
product design elements and flexible production systems permitting rapid
transition between products styles and colors. In addition, the Company's
management information systems integrate all aspects of production, distribution
and shipping.
Relationships with Mass Market and Specialty Retail Customers. By
manufacturing and delivering quality products reliably, the Company has built
excellent relationships with its mass market customers and has developed an
extensive network of specialty retailers. The Company sells its mass market
products to nine of the top ten U.S. discount retailers/mass merchants and home
centers, and believes that it has excellent relationships with its existing mass
market customers. The Company believes that its relationships with mass market
retail customers and specialty retail customers position it to increase sales of
existing products and introduce new products and product lines successfully
through these distribution channels. In addition, by leveraging relationships
established in the outdoor furniture market, management believes that the
Company will be able to gain access to distribution channels for new products
such as indoor furniture and accessories and garden products.
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BUSINESS STRATEGY
Since 1991, the Company has profitably developed its business by providing
quality wrought iron furniture to the mass and specialty markets. Meadowcraft
has refined and expanded the outdoor wrought iron furniture market by designing,
producing and shipping on a reliable, timely and cost-effective basis quality
products with broad consumer appeal and high value-to-price characteristics. The
Company has identified future growth opportunities and has developed a strategy
to increase its sales, earnings and market share of the casual outdoor and
indoor furniture markets, including the following initiatives:
Introduce New Products and Expand Product Offerings. The Company intends to
apply its low-cost production expertise to introduce more new products with
traditional, "high-end" design features, broad consumer appeal, and high
value-to-price characteristics, and to expand product offerings in its existing
product lines. For example, in the outdoor market, the Company introduced a new
line of wrought iron garden products in Fiscal 1997 and introduced a new line of
tubular steel outdoor furniture in Fiscal 1998. In the indoor market, the
Company is expanding the product offerings under its Home Collection from
Plantation Patterns and Interior Images by Salterini lines. This strategy is
designed to expand market share within the casual outdoor and indoor furniture
markets.
Increase Manufacturing and Distribution Capacity. The Company has increased
its manufacturing and product distribution capacity to allow the Company to meet
the demands of new and existing customers in new geographic regions, as well as
to enhance the Company's ability to provide products to all customers on a
timely and reliable basis. During Fiscal 1998 the Company constructed a
distribution facility in the southwestern United States, and acquired a
manufacturing facility in Mexico to serve customers in the western United
States. In addition, the Company converted an idle manufacturing facility in
Alabama to produce tubular steel outdoor furniture, which was completed by
December 1997. The Company will continue to evaluate opportunities to produce
and distribute products efficiently in markets outside of the United States.
Heighten Brand Awareness. In addition to expanded offerings of products
with high value-to-price characteristics, management believes that by targeting
the ultimate consumer directly through point of purchase materials, the Company
will heighten brand name awareness and increase consumer demand for the
Company's products.
PRODUCTS
The Company designs and manufactures a variety of quality wrought iron outdoor
and indoor furniture and accessories, cushions and umbrellas, and garden
products. These products are sold primarily in the United States through mass
merchants and specialty retailers.
Historically, the Company manufactured exclusively outdoor wrought iron
furniture. In recent years, the Company expanded its product lines to include
indoor wrought iron furniture and accessories. In addition, Meadowcraft further
broadened its product offerings with the introduction of wrought iron garden
products in Fiscal 1997. In Fiscal 1998, the Company introduced a line of
tubular steel outdoor furniture.
The Company's outdoor products are sold through mass merchandisers under the
Plantation Patterns brand name and include dining groups composed of action
chairs, stack chairs, dining tables, bistro groups and accent tables;
accessories such as chaises, gliders, bakers' racks and tea carts; cushions and
umbrellas; and garden products. In addition, the Company sells a similar line of
outdoor products in the specialty market under the Meadowcraft, Arlington House
and Salterini brand names. The Company's outdoor casual furniture products come
in a variety of styles and colors and are sold across different price points to
appeal to a range of consumers in the mass and specialty markets.
The Company's indoor wrought iron furniture is sold to specialty furniture
stores and department stores under the Interior Images by Salterini brand name
and to mass merchants under the Home Collection from Plantation Patterns brand
name. The indoor collections include occasional tables, dining groups and beds,
as well as accent pieces. The Company's garden products include shepherds'
hooks, trellises, arbors, and plant stands and are sold through both mass
merchandisers and specialty retailers under the Plantation Patterns brand name.
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CUSTOMERS AND MARKETING
The Company's primary customers are domestic retailers in the mass market and
specialty markets. Meadowcraft serves three markets; the outdoor mass market,
which includes national chains, discount retailers, mass merchants, and home
centers; the outdoor specialty market, which includes furniture stores,
specialty stores and garden shops; and the indoor market, which includes
specialty furniture stores, mass merchandisers and department stores. In Fiscal
1998, the Company sold products to over 1,500 mass and specialty accounts,
including nine of the top ten U.S. discount retailers/mass merchants and home
centers.
The Company believes that its relationship with all of its top customers is
excellent, which management believes positions the Company to increase sales of
existing products and introduce new products.
To service its mass merchant and specialty accounts, Meadowcraft has tailored
its sales strategy to meet the distinct needs of each market.
Each summer, Meadowcraft's sales managers meet with their mass market accounts
to plan product purchases and shipping schedules for the following selling
season. The Company's marketing efforts in the mass market culminate with the
National Hardware Show in August at which Meadowcraft exhibits its product line
for the upcoming mass retail selling season. Typically, by early fall of each
year, the Company has received estimated requirements from customers for
approximately seventy percent of the sales that it will produce and ship during
the following selling season. Throughout the selling season, Meadowcraft works
closely with its customers to assure timely shipment and to monitor and respond
to sales trends and feedback.
The specialty market sales team markets both standard and made-to-order products
to over 1,500 specialty accounts throughout North America and Europe. Given the
number of specialty accounts and the seasonality of its business, the Company
believes that the use of independent representatives is an effective and
cost-effective means to serve the specialty market. These representatives are
paid on a commission-only basis, which the Company believes makes them highly
entrepreneurial. Participation in trade shows, particularly the International
Casual Furniture Market held at the Merchandise Mart in Chicago, is an important
element of Meadowcraft's marketing efforts directed at specialty retail
customers.
To supplement its sales efforts to mass market and specialty account customers,
Meadowcraft uses a variety of means to advertise and promote its products,
including product brochures, trade shows and cooperative advertising with some
of its specialty accounts.
MANUFACTURING AND DISTRIBUTION
The Company operates four manufacturing facilities and four distribution centers
in Alabama, one manufacturing facility in Sonora, Mexico, and a paint and pack
facility and distribution center in Yuma, Arizona. The Company believes that it
operates advanced manufacturing and distribution systems. These facilities are
run by well-trained and experienced production personnel and have allowed the
Company to become a low-cost producer in the wrought iron furniture industry.
The Company's manufacturing process combines sophisticated, computerized
materials handling systems and advanced primer and paint systems with a skilled
work force. The Company emphasizes cost-efficiencies in the manufacturing
process and has consistently modernized its manufacturing equipment and
facilities through capital expenditures in order to improve the process. Due to
the Company's high volume of business with mass merchandisers, Meadowcraft
begins production and warehouses products during the off season in order to meet
in-season purchases from customers. Through the extension of the production
season and the leveling off of production activity, Meadowcraft reduces the
seasonality of the manufacturing process.
The Company's modern distribution facilities are located adjacent to its
manufacturing facilities and utilize integrated materials handling systems. The
Company utilizes sophisticated computer systems to code and track inventory and
to coordinate and monitor loading and shipment of products to retailers.
Coordination of the manufacturing, packing, and distribution functions allows
for greater control and production efficiencies.
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INDUSTRY AND COMPETITION
The casual furniture industry is highly competitive and includes a large number
of manufacturers, none of which dominate the market. The Company competes
against other domestic and foreign wrought iron furniture manufacturers as well
as manufacturers of aluminum, resin and plastic, wicker and rattan, and wood
casual furniture with respect to its outdoor products and traditional furniture
companies with respect to its indoor products. A number of the companies which
compete directly with the Company may have greater financial and other
resources. Management believes that the competition in the wrought iron
furniture industry is generally a function of timeliness of delivery, price,
quality, product design, product availability, and customer service. In addition
to the factors which the Company believes allow it to compete effectively with
all of its competitors, the Company believes that the proximity of its U.S.
manufacturing and distribution facilities to its customers is a competitive
advantage over foreign manufacturers due to its ability to respond timely to
in-season orders and the higher freight costs incurred in shipping products from
foreign manufacturers.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by the Company to manufacture and distribute its
products are steel, fabrics, cardboard, paint and umbrella frames. Each year,
the Company purchases its raw materials from a number of domestic and foreign
suppliers. The Company has annual contracts with many of its major suppliers,
and the Company does not anticipate, nor has it experienced, any difficulty in
obtaining any of its raw materials. The Company believes that there are a
relatively large number of other suppliers of raw materials available, which
enable the Company to obtain competitive prices for its raw materials. While the
cost of raw materials is subject to fluctuations, the Company commits to
purchase the raw materials that it estimates will be needed for the ensuing year
at fixed prices to control production costs. Significant increases in the cost
of raw materials in a particular year could have an effect on the Company's
margins for its products if the Company were unable to build these costs into
the prices of its products or to offset such raw material cost increases through
cost reductions in the following year.
REGULATORY MATTERS
The Company's operations must meet federal, state and local regulatory standards
in the areas of safety, health, labor and environmental pollution controls. To
the best of the Company's knowledge, it is in substantial compliance with all
federal, state and local regulatory standards and environmental protection
provisions. Historically, compliance with these standards has not had any
material adverse effect on the Company's results of operations. In addition, the
Company is subject to numerous environmental laws and regulations concerning air
emissions, discharges into waterways and the generation, handling, storage,
transportation, treatment and disposal of waste materials. These laws and
regulations are subject to change, and it is impossible to predict with accuracy
the affect they may have on the Company in the future. Like many other
industrial companies, the Company's manufacturing operations entail the risk of
noncompliance, which may result in fines, penalties and remediation costs, and
there can be no assurance that such costs will be insignificant. The Company
believes that any future fines, penalties and remediation costs associated with
noncompliance should not have a material adverse effect on capital expenditures,
earnings or the Company's competitive position. However, legal and regulatory
requirements in those areas have been increasing, and there can be no assurance
that significant costs and liabilities will not be incurred in the future due to
regulatory noncompliance.
EMPLOYEES
As of July 31, 1998, the Company employed approximately 772 persons,
approximately 464 of whom were subject to a collective bargaining agreement.
Employment levels fluctuate throughout the year due to the seasonal nature of
the Company's business. The Company's non-salaried employees, except those in
Arizona and Mexico, are covered by three separate collective bargaining
agreements. One of the Company's collective bargaining agreements, covering
employees at two facilities in Birmingham, Alabama, was ratified in July 1998,
and is effective for a three year period. The Company believes that its
relations with its employees are good.
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TRADEMARKS
The Company has registered the trade names of "Meadowcraft," "Arlington House,"
"Salterini," and "Interior Images by Salterini" with the United States Patent
and Trademark Office ("USPTO"). The Company has filed applications with USPTO to
register the trade names "Plantation Patterns," and "Home Collection from
Plantation Patterns." In the opinion of management, the Company's trademark
position is adequately protected in all markets in which the Company does
business. The Company believes that its various trade names are generally well
recognized by dealers and distributors and are associated with a high level of
quality and value.
ITEM 2. PROPERTIES
The table below presents certain information with respect to the Company's
principal properties. The Company believes that all of its properties are
well-maintained and in good condition and are capable of handling increased
production. All of the properties are equipped with automatic sprinkler systems
and modern fire protection equipment, which management believes are adequate.
Approximate Size
Location Primary Use (Square Feet) Owned/Leased
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BIRMINGHAM, AL
Carson Road Manufacturing/Offices/Distribution 1,530,000 Owned
Meadowcraft Road Manufacturing/Offices 240,000 Leased (1)
Goodrich Drive Distribution 340,000 Leased (2)
WADLEY, AL Manufacturing/Distribution 999,000 Owned
SELMA, AL Manufacturing/Distribution 272,000 Owned
SAN LUIS, AZ Manufacturing/Offices/Distribution 600,000 Owned
SONORA, MEXICO Manufacturing 175,000 Owned
(1) Lease expires August 29, 2000.
(2) Lease expires May 31, 2000.
In addition to these properties, the Company also leases approximately 9,000
square feet of showroom space in Chicago, Illinois and approximately 5,400
square feet of showroom space in High Point, North Carolina.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time, is subject to legal proceedings and other claims
arising in the ordinary course of its business. Management believes that the
Company is not presently a party to any litigation, the outcome of which would
have a material effect on its business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 31, 1998, the Board of Directors approved the First Amendment to the
Amended and Restated Certificate of Incorporation. The purpose of the amendment
was to reduce the total number of authorized shares and thereby reduce the
Delaware franchise tax. Pursuant to the Delaware General Corporation Law 228,
Consent of Stockholders in Lieu of Meeting, the majority stockholders have
consented to the adoption of the First Amendment to the Amended and Restated
Certificate of Incorporation.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common stock trades on The New York Stock Exchange under the
symbol MWI. The following table sets forth, by fiscal quarter, the high and low
sales prices of the Common Stock reported by The New York Stock Exchange from
November 25, 1997 (the first day of trading in the Company's Common Stock)
through July 31, 1998.
High Sale Low Sale
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Second Quarter (November 25, 1997 $14.00 $ 9.75
through January 31, 1998)
Third Quarter ended May 2, 1998 $17.13 $ 9.94
Fourth Quarter ended July 31, 1998 $16.75 $10.75
As of October 7, 1998, the number of shareholders of record of the Company's
Common Stock was approximately 40 and the number of beneficial holders of the
Company's Common Stock was approximately 1,000. The Company has not declared or
paid any dividends on its Common Stock. The policy of the Board of Directors of
the Company is to retain earnings for the expansion and development of the
Company's business. Future dividend policy and the payment of dividends, if any,
will be determined by the Board of Directors in light of circumstances then
existing, including the Company's earnings, financial condition, contractual
restrictions and other factors deemed relevant by the Board.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of Meadowcraft, Inc. included elsewhere herein. This data
should be read in conjunction with Meadowcraft's consolidated financial
statements, related notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein.
Fiscal Year Ended Thirteen Weeks Ended
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(In Thousands Except Per Share Data)
May 1, April 30, April 28, May 3, July 31, July 31, July 31,
1994 1995 1996 1997 1998 1996 1997
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STATEMENT OF INCOME DATA: (Unaudited)
Net sales $ 96,189 $ 120,767 $ 117,419 $ 141,945 $ 162,201 $ 32,233 $ 35,368
Cost of sales 70,805 88,587 87,849 98,315 112,255 24,270 25,932
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Gross profit 25,384 32,180 29,570 43,630 49,946 7,963 9,436
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Operating expenses
Selling 5,551 6,101 6,092 6,939 7,796 1,232 1,517
General and administrative 4,861 5,165 5,906 6,039 7,540 1,332 1,442
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10,412 11,266 11,998 12,978 15,336 2,564 2,959
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Operating income 14,972 20,914 17,572 30,652 34,610 5,399 6,477
Interest expense 4,885 4,881 5,018 5,274 4,262 1,304 1,161
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Income before provision for
income taxes - historical 10,087 16,033 12,554 25,378 30,348 4,095 5,316
Provision for income taxes 0 0 0 0 4,038 0 0
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Net income - historical $ 10,087 $ 16,033 $ 12,554 $ 25,378 $ 26,310 $ 4,095 $ 5,316
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Pro forma presentation:
Income before provision for income
taxes - historical $ 10,087 $ 16,033 $ 12,554 $ 25,378 $ 30,348 $ 4,095 $ 5,316
Pro forma income tax:
Provision 3,672 6,071 4,685 9,439 11,289 1,523 1,978
Benefit related to change in tax
status 0 0 0 0 (3,200) 0 0
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3,672 6,071 4,685 9,439 8,089 1,523 1,978
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Pro forma net income $ 6,415 $ 9,962 $ 7,869 $ 15,939 $ 22,259 $ 2,572 $ 3,338
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Historical earnings per share:
Basic and diluted $ .63 $ 1.00 $ .78 $ 1.59 $ 1.42 $ .26 $ .33
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Pro forma:
Basic and diluted $ .40 $ .62 $ .49 $ 1.00 $ 1.20 $ .16 $ .21
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Pro forma excluding benefit related
to change in tax status:
Basic and diluted $ .40 $ .62 $ .49 $ 1.00 $ 1.03 $ .16 $ .21
=========== =========== =========== =========== ============ =========== ===========
Weighted average shares
outstanding:
Basic 16,000,000 16,000,000 16,000,000 16,000,000 18,519,969 16,000,000 16,000,000
=========== =========== =========== =========== ============ =========== ===========
Diluted 16,000,000 16,000,000 16,000,000 16,000,000 18,523,574 16,000,000 16,000,000
=========== =========== =========== =========== ============ =========== ===========
OTHER DATA:
Capital expenditures $ 7,615 $ 16,034 $ 18,676 $ 4,081 $ 25,258 $ 1,628 $ 2,070
Depreciation and amortization 1,482 2,340 4,006 5,099 6,092 1,235 1,237
BALANCE SHEET DATA:
Total assets $ 79,921 $ 111,815 $ 126,479 $ 127,061 $ 110,151 $ 68,360 $ 71,072
Total debt 64,614 71,836 84,737 68,966 43,527 38,910 28,168
Stockholders' equity 5,051 15,984 20,200 39,328 54,831 18,795 33,144
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Meadowcraft is the leading domestic producer of casual outdoor furniture and is
the largest manufacturer of outdoor wrought iron furniture in the United States.
The Company sells its products in three markets: the outdoor mass market under
the Plantation Patterns brand name; the outdoor specialty market under the
Meadowcraft, Arlington House and Salterini brand names; and the indoor specialty
and mass markets under the Interior Images by Salterini and Home Collection from
Plantation Patterns, respectively. During Fiscal 1997, the Company introduced a
line of wrought iron garden products to both the specialty and mass markets. The
following is a summary of the percentages of gross sales by market category for
each of the last two fiscal years in the period ended May 3, 1997 and the fiscal
year ended July 31, 1998 and for the thirteen weeks ended July 31, 1996 and
1997:
Fiscal Year Ended Thirteen Weeks Ended
----------------------------- --------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
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Outdoor Mass 75.7% 75.1% 73.6% 69.6% 69.4%
Outdoor Specialty 18.7 16.9 15.3 23.6 19.5
Indoor Specialty and Mass 4.6 4.2 3.8 4.4 5.0
Garden Products 0.0 2.3 5.0 0.0 3.9
Other 1.0 1.5 2.3 2.4 2.2
----- ----- ----- ----- -----
Total Gross Sales 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
The Company was on a 52/53 week year with the fiscal year ending on the Sunday
closest to the last day of April. During Fiscal 1997, the Company changed its
reporting period to a fiscal year ending on the Saturday closest to the last day
of April. As a result of this change, Fiscal 1997 includes 53 weeks of
operations versus 52 weeks in Fiscal 1996. Subsequent to the completion of the
Company's initial public offering and termination of the S Corporation election,
the Company changed its financial reporting year end to July 31.
Net sales as reflected throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations reflect gross sales less returns,
allowances and discounts. The Company generally does not allow returns unless
products are damaged, in which case they would be covered under its warranty
policy. The Company offers up to a 36-month limited warranty on certain
products. As such, estimated warranty costs are accrued at the time products are
sold based on a historical percentage of warranty costs to gross sales. The
charge for such accrual is reflected as returns and allowances, which reduces
gross sales to net sales. Historically, changes in warranty costs as a
percentage of gross sales have not been material. See Note 2 of the Financial
Statements included elsewhere herein.
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RESULTS OF OPERATIONS
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales for the
respective periods:
Fiscal Year Ended Thirteen Weeks Ended
----------------------------- --------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
---------- ------ -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.8 69.3 69.2 75.3 73.3
----- ----- ----- ----- -----
Gross profit 25.2 30.7 30.8 24.7 26.7
Selling expense 5.2 4.8 4.8 3.8 4.3
General and administrative expense 5.0 4.3 4.7 4.1 4.1
----- ----- ----- ----- -----
Operating income 15.0 21.6 21.3 16.8 18.3
Interest expense 4.3 3.7 2.6 4.1 3.3
----- ----- ----- ----- -----
Income before provision for income taxes - historical 10.7 17.9 18.7 12.7 15.0
Provision for income taxes 0.0 0.0 2.5 0.0 0.0
----- ----- ----- ----- -----
Net income-historical 10.7 17.9 16.2 12.7 15.0
===== ===== ===== ===== =====
Pro forma presentation:
Income before provision for income taxes- historical 10.7 17.9 18.7 12.7 15.0
Pro forma income tax:
Provision 4.0 6.7 7.0 4.7 5.6
Benefit related to change in tax status 0.0 0.0 (2.0) 0.0 0.0
----- ----- ----- ----- -----
4.0 6.7 5.0 4.7 5.6
----- ----- ----- ----- -----
Pro forma net income 6.7% 11.2% 13.7% 8.0% 9.4%
===== ===== ===== ===== =====
JULY 31, 1998 COMPARED TO MAY 3, 1997
Net Sales
Net sales in Fiscal 1998 increased $20.3 million, or 14.3%, to $162.2 million
from $141.9 million in Fiscal 1997. This increase was due primarily to a $12.0
million increase in gross sales of the Company's Plantation Patterns product
line. In addition, sales increased $5.2 million or 157.6% to $8.5 million from
$3.3 million in the Garden Products product line. Increases were also achieved
in the tubular furniture line and the indoor Home Collection from Plantation
Patterns product line.
Gross Profit
Gross margin is defined as gross profit as a percentage of net sales. Gross
margin improved slightly to 30.8% of net sales in Fiscal 1998 from 30.7% in
Fiscal 1997. Improvements in raw material prices coupled with improvement in
margins at existing facilities resulting from higher production volumes offset
the start-up costs associated with new production facilities. Gross Profit in
Fiscal 1998 increased $6.3 million or 14.5% to $49.9 million from $43.6 million
in Fiscal 1997.
Selling Expense
Selling expense as a percentage of net sales remained at 4.8%. Selling expense,
which includes commissions, advertising and promotion expense, increased $0.9
million, or 12.4%, to $7.8 million from $6.9 million in Fiscal 1997. Higher net
sales resulted in an increase in sales commissions and other variable selling
costs.
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General and Administrative Expense
General and administrative expense as a percentage of net sales increased to
4.7% in Fiscal 1998 from 4.3% in Fiscal 1997. General and administrative
expense, which includes corporate salaries, employee benefits and professional
fees, increased $1.5 million, or 24.9%, to $7.5 million in Fiscal 1998 from $6.0
million in Fiscal 1997. Increases in professional fees and salaries and travel
expenses were offset to some extent by lower management incentives. In addition,
Fiscal 1997 included a one time favorable legal settlement of $0.7 million.
Interest Expense
Interest expense as a percentage of net sales declined to 2.6% in Fiscal 1998
from 3.7% in Fiscal 1997. Interest expense, which includes factor fees,
decreased by $1.0 million, or 19.2%, to $4.3 million from $5.3 million in Fiscal
1997 due to overall lower debt levels and a lower interest rate on those
borrowings.
Historical and Pro Forma Provision for Income Taxes
Prior to November 25, 1997, the Company elected to be taxed as an S Corporation
and, as a result, the periods prior to November 25, 1997 do not reflect
historical income tax provisions. On November 25, 1997, the Company terminated
its S Corporation election in connection with its Initial Public Offering and
became a taxable C Corporation. In connection with this termination, the Company
recorded a deferred tax asset and a credit to the income tax provision in the
amount of $3.2 million. Additionally, the Company has allocated its income for
the twelve months, ended May 3, 1998 (the end of the tax year), between the
nontaxable S Corporation and the taxable C Corporation based on the number of
days in the 12 month period ended May 3, 1998, in which the Company was an S
Corporation and C Corporation, respectively. The effect on the allocation was
that a portion of the income for the nine months ended May 3, 1998 was
attributable to the C Corporation with the remainder being attributable to the S
Corporation; subsequent to May 3, 1998 the Company was taxed entirely as a C
Corporation. The income attributable to the Corporation resulted in a historical
tax provision of $4.0 million for the twelve months ended July 31, 1998, which
included the effects of the recording of net deferred tax assets of $3.2
million. The pro forma provision for the twelve months ended July 31, 1998 and
May 3, 1997, gives effect to income taxes that would have been reported had the
Company's income been attributable to the C Corporation for the entire twelve
month period. The pro forma income tax provision reflects an overall effective
tax rate of 37.2% in both Fiscal 1998 and 1997, before considering the effect of
the one time credit income tax provision of $3.2 million in Fiscal 1998 related
to the initial recording of the net deferred tax asset.
THIRTEEN WEEKS ENDED JULY 31, 1997 COMPARED TO THIRTEEN WEEKS ENDED JULY 31,
1996
Net Sales
Net sales increased $3.1 million, or 9.7%, to $35.4 million for the thirteen
weeks ended July 31, 1997 from $32.2 million in the comparable period in the
prior year. The increase was due primarily to an approximately $2.6 million, or
12.9%, increase in gross sales in the Plantation Patterns product line resulting
from increased end of season sales.
Gross Profit
Gross profit for the thirteen weeks ended July 31, 1997 increased $1.4 million,
or 17.5%, to $9.4 million from $8.0 million in the comparable period in the
prior year. Gross margin improved to 26.7% of net sales for the thirteen weeks
ended July 31, 1997 from 24.7% of net sales for the comparable period in the
prior year. The improvement was due to production efficiencies achieved in
conjunction with the extended production period required as a result of
increased sales.
Selling Expense
Selling expense as a percentage of net sales increased to 4.3% for the thirteen
weeks ended July 31, 1997 from 3.8% for the comparable period in the prior year
due primarily to the national radio advertising program implemented in 1997 with
Paul Harvey. Selling expense increased $0.3 million, or 23.1%, to $1.5 million
for the thirteen weeks ended July 31, 1997 from $1.2 million for the comparable
period in the prior year.
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General and Administrative Expense
General and administrative expense as a percentage of net sales remained flat at
4.1%. General and administrative expense increased $0.1 million, or 8.3%, to
$1.4 million for the thirteen weeks ended July 31, 1997 from $1.3 million for
the comparable period in the prior year primarily due to increases in management
incentives.
Interest Expense
Interest expense as a percentage of net sales declined to 3.3% for the thirteen
weeks ended July 31, 1997 from 4.1% for the comparable period in the prior year.
Interest expense decreased by $0.1 million, or 11.0%, to $1.2 million for the
thirteen weeks ended July 31, 1997 from $1.3 million in the comparable period in
the prior year due to lower debt levels, which were the result of the Company's
financial performance.
Pro Forma Provision for Income Taxes
Since the Company had elected to be taxed as an S Corporation at this time, no
provision for income taxes was provided in the Company's historical financial
statements. The pro forma provision for income taxes gives effect to the
application of income taxes that would have been reported had the Company been a
C Corporation subject to federal and state income taxes. The pro forma income
tax provision for the thirteen weeks ended July 31, 1997 was $2.0 million versus
$1.5 million for the comparable period in the prior year. The effective tax rate
in both 1997 and 1996 was 37.2%.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales
Net sales in Fiscal 1997 increased $24.5 million, or 20.9%, to $141.9 million
from $117.4 million in Fiscal 1996. This increase was due primarily to a $17.7
million, or 18.8%, increase in gross sales of the Company's Plantation Patterns
product line. In addition, other product lines contributed to the growth in
sales. The Home Collection from Plantation Patterns indoor furniture line
increased to $3.3 million in Fiscal 1997, from $1.0 million in gross sales in
Fiscal 1996 while sales from the introduction of the garden products line were
$3.3 million in Fiscal 1997.
Gross Profit
Gross margin improved to 30.7% in Fiscal 1997 from 25.2% in Fiscal 1996,
primarily as the result of higher production volume required to meet additional
customer demand and efficiencies realized at the new Birmingham production
facility (Carson Road) and a more favorable product mix. Gross profit in Fiscal
1997 increased $14.0 million, or 47.5%, to $43.6 million from $29.6 million in
Fiscal 1996.
Selling Expense
Selling expense as a percentage of net sales declined to 4.8% in Fiscal 1997
from 5.2% in Fiscal 1996 because of increases in net sales without corresponding
increases in selling expense. In Fiscal 1997, selling expense increased by $0.8
million, or 13.9%, to $6.9 million from $6.1 million in Fiscal 1996, due
primarily to increases in advertising expense, of which $0.4 million related to
the Company's newly implemented national radio advertising campaign featuring
Paul Harvey. Additionally, high net sales resulted in an increase in sales
commissions and other variable selling costs.
General and Administrative Expense
General and administrative expense as a percentage of net sales decreased to
4.3% in Fiscal 1997 from 5.0% in Fiscal 1996 as the growth in sales outpaced
increases in general and administrative expense. General and administrative
expense increased $0.1 million, or 2.3%, to $6.0 million in Fiscal 1997 from
$5.9 million in Fiscal 1996. This increase was due partially to a $0.5 million
increase in management incentives attributable to the increased performance of
the Company in Fiscal 1997, which was offset by a legal settlement in favor of
the Company in the amount of $0.7 million.
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Interest Expense
Interest expense as a percentage of net sales declined to 3.7% in Fiscal 1997
from 4.3% in Fiscal 1996. Interest expense increased by $0.3 million, or 5.1%,
to $5.3 million in Fiscal 1997 from $5.0 million in Fiscal 1996 due to higher
interest rates on consistent debt levels.
Pro Forma Provision for Income Taxes
The pro forma income tax provision in Fiscal 1997 was $9.4 million versus $4.7
million in Fiscal 1996. The effective tax rate in Fiscal 1997 was 37.2% versus
37.3% in Fiscal 1996.
QUARTERLY RESULTS AND SEASONALITY
Consistent with the nature of the casual outdoor furniture industry, the
Company's sales are very seasonal. Historically, approximately 50% of the
Company's net sales have been realized in the quarter ended April, while only
approximately 5% of the Company's net sales have occurred in the quarter ended
October. As a result, the Company typically shuts down its production facilities
during August for vacation, repairs and maintenance. The Company begins
manufacturing in September and October to build inventory to meet customer
orders and anticipated demand for the next selling season, incurring increased
operating and overhead costs without corresponding sales for the period. The
Company has historically experienced operating losses in the quarter ended
October of each year. In addition, the Company's sales are subject to
fluctuations on a quarterly basis due to such factors as weather and customer
ordering decisions.
In order to stimulate off-season sales and, thus, lessen the effects of
seasonality, the Company utilizes several incentive programs for its outdoor
specialty product lines. Most of these programs provide for some form of
deferred payment, referred to as "dating," to promote the early shipment of
products to customers and the recognition of sales during the off-season. Upon
shipment, the Company recognizes sales. Although shipments are made early in the
Company's seasonal year, dated receivables are generally due from April through
June.
Since the Company's revolving credit facility is used to support both the
build-up of inventory during the fall and winter months and the dating programs,
short term borrowings and interest expense peak during the period from January
through April. To further lessen the effects of seasonality, the Company has
expanded its offerings of indoor products and diversified into garden products.
By increasing off-season sales, the Company can extend its production period and
level its production activity and, thus, better match sales to operating
expenses.
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The following table sets forth certain unaudited financial statement data from
the Company's statements of income for each of the Company's last 8 quarters in
the period ended July 31, 1998. In the opinion of management, the unaudited
financial statements from which this data has been derived include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. Pro forma net income
(loss) is presented as if the Company had been a C corporation for tax purposes
for all periods presented. See "Use of Proceeds" and "Selected Financial Data."
(In thousands, except per share data) Twelve Months
Quarter Ended Ended
------------------------------------------------- -------------
October 31, January 31, May 2, July 31, July 31,
1997 1998 1998 1998 1998
----------- ----------- ----------- ---------- -------------
Net sales $ 6,916 $ 28,546 $ 81,840 $44,899 $ 162,201
Gross profit 168 8,792 28,991 11,995 49,946
Operating income (loss) (2,364) 5,143 23,781 8,050 34,610
Net income - historical (2,855) 6,280 18,625 4,260 26,310
Pro forma net income (loss) (1,794) 5,868 13,925 4,260 22,259
Pro forma net income (loss),
excluding benefit related to change
in tax status (1,794) 2,668 13,925 4,260 19,059
Historical Earnings Per Share:
Basic (.18) .34 .95 .22 1.42
Diluted (.18) .34 .94 .22 1.42
Pro forma:
Basic and diluted (.11) .31 .71 .22 1.20
Pro forma excluding benefit related to
change in tax status:
Basic and diluted (.11) .14 .71 .22 1.03
Weighted average shares outstanding
Basic 16,000,000 18,662,378 19,708,750 19,708,750 18,519,969
Diluted 16,000,000 18,662,378 19,723,167 19,708,750 18,523,574
(In thousands, except per share data) Twelve Months
Quarter Ended Ended
------------------------------------------------- -------------
October 31, January 31, May 3, July 31, July 31,
1996 1997 1997 1997 1997
----------- ----------- ----------- ---------- -------------
Net sales $ 6,622 $ 27,183 $ 75,907 $ 35,368 $ 145,080
Gross profit 555 9,137 25,975 9,436 45,103
Operating income (loss) (1,841) 7,043 20,051 6,477 31,730
Net income - historical (2,826) 5,866 18,244 5,316 26,600
Pro forma net income (loss) (1,775) 3,684 11,458 3,338 16,705
Historical earnings per share
Basic and diluted (.18) .37 1.14 .33 1.66
Pro forma:
Basic and diluted (.11) .23 .71 .21 1.04
Weighted average shares outstanding
Basic and diluted 16,000,000 16,000,000 16,000,000 16,000,000 16,000,000
In the quarter ended October, the Company's sales to mass merchants are
relatively low since at this time these customers have just completed the mass
retail selling season (namely, the period from January through July) and are
planning their product selections for the next selling season. The Company's
sales during this period are primarily
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to specialty retail customers who have a longer selling season. Gross profit in
this quarter is normally low due to the lower amount of sales. In addition,
production levels of inventory are lower in this quarter due to the shutdown of
facilities, which reduces the absorption of fixed costs.
In the quarter ended January, sales increase over the previous quarter as the
selling season begins with mass merchandisers and specialty retailers filling
their floor space. Production of inventory is at its highest level thereby
absorbing fixed costs more efficiently than in the previous quarter. As a result
of these factors, gross profit increases during this period.
Sales and profitability are highest in the quarter ended April since this is the
high point of the mass retail selling season. Production continues at high
levels during this quarter to meet existing orders and to replenish retailers'
inventories. In the quarter ended May 3, 1997, the Company changed its year end
to the Saturday closest to April 30 from the Sunday closest to April 30. The
effect of this change was to increase the number of weeks in the quarter ended
May 3, 1997 to 14 weeks versus 13 weeks in the comparable period in the prior
year.
In the quarter ended July, the Company's sales are significantly lower than in
the previous quarter as the mass retail selling season comes to a close.
Additionally, production levels generally decrease resulting in less efficient
absorption of fixed costs than in the quarter ended April. As a result of these
factors, gross profit is lower than in the quarter ended April.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for the
respective periods:
Thirteen Weeks Ended
-------------------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
----------- ------------- -------------- ------------------ -----------
(in thousands)
OPERATING ACTIVITIES:
Net cash provided by operations $ 14,361 $ 26,102 $ 14,815 $ 52,956 $ 54,368
INVESTING ACTIVITIES:
Capital expenditures (15,676) (3,406) (25,258) (1,628) (2,070)
FINANCING ACTIVITIES:
Net borrowings (payments)
on notes payable 2,656 (11,632) 3,798 (45,519) (38,670)
Proceeds from issuance of long-term debt 10,500 0 13,500 974 0
Principal payments of long-term debt (3,255) (4,814) (1,939) (1,283) (2,128)
Payment of S Corporation distributions (8,338) (6,250) (48,934) (5,500) (11,500)
Net proceeds from initial public offering 0 0 44,311 0 0
The Company has historically financed its operations and growth from seasonal
borrowings under its bank line of credit, from internally generated funds, and
from other term debt. The Company's primary liquidity requirements are for
capital expenditures, working capital and debt service.
The Company's operating activities for the Fiscal year ended July 31, 1998
provided cash of $14.8 million. This was primarily due to net income of $26.3
million offset by an increase in inventory of $10.0 million. Cash flows from
investing activities are related solely to capital expenditures. Capital
expenditures (excluding capital leases and certain capital expenditures financed
with debt) incurred by the Company over the last three fiscal years amounted to
$44.3 million and were primarily related to the Company's new manufacturing and
distribution facilities in Birmingham, Alabama and construction of the Selma,
Alabama facility. The Fiscal 1998 expenditures relate to production and
distribution facilities to service the western United States, new distribution
facilities in Birmingham and Selma and continued productivity and product line
improvements for existing facilities. Financing activities in Fiscal 1998
resulted in net borrowings of $15.3 million relating to the capital expenditures
program during Fiscal 1998. S Corporation distributions for the year relate to
the payments required to the shareholders from the initial public offering and
the earnings related to the period during the year the Company was an S
Corporation.
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Currently, the Company maintains a $90 million revolving line of credit (the
"Revolving Credit Facility") and a maximum $36.4 million of term debt facilities
(the "Term Debt Facilities" and, together with the Revolving Credit Facility,
the "Credit Facilities") with a consortium of lenders led by NationsBank N.A.
("NationsBank"). As a result of the seasonal nature of the Company's business,
the Company utilizes the Revolving Credit Facility to build up inventory levels
during the first half of the Company's fiscal year, among other things. This
build-up is necessary to meet the peak selling season which occurs in the latter
part of the quarter ended April and generally lasts through June. See
"--Quarterly Results and Seasonality." The Company also finances this inventory
build-up through a vendor deferred payment program, which allows the Company to
order and receive raw materials for production in the fall and winter months and
delay vendor payments until the spring.
The Revolving Credit Facility is subject to certain borrowing base limitations,
which are related primarily to accounts receivable and inventory balances, and
compliance with customary financial and other covenants. As of July 31, 1998,
the outstanding balance under the Revolving Credit Facility amounted to $14.0
million, and $13.5 million was available to be borrowed at July 31, 1998 based
upon the borrowing base. The Company's debt agreements contain, among other
things, certain restrictions relating to net worth, capital expenditures,
current ratios and debt service ratio. The Company was in compliance with all
covenants at July 31, 1998.
The Company believes that cash flow from operations, together with the Company's
unused borrowing capacity under the Credit Facilities and proceeds from the
Offering, will be sufficient to fund the Company's debt service requirements,
capital expenditures and working capital needs through the maturity date of the
Credit Facilities. Pursuant to its terms, the Revolving Credit Facility expires
on August 28, 2000, and the principal balances outstanding on all loans
thereunder will mature on that date. In addition, to provide any additional
funds necessary for the continued pursuit of the Company's growth strategies,
the Company may incur, from time to time, additional short- and long-term bank
indebtedness and may issue additional debt or equity securities, the
availability and term of which would depend upon market and other conditions.
There can be no assurance that such additional financing would be available on
terms acceptable to the Company.
FACTORING
In order to provide additional liquidity and to reduce the Company's exposure to
the credit risk of certain of its customers, the Company factors a significant
portion of its trade accounts receivable without recourse to the Company with
respect to credit risk. Currently, the Company maintains two factoring
agreements with financial institutions. The vast majority of the factored
receivables are with an affiliate of NationsBank, and the proceeds from
factoring are generally used to repay the outstanding borrowings on the Credit
Facility. When the Company makes a sale to a customer, generally the receivable
from that customer is factored without recourse. Thereafter, the Company removes
the receivable from the balance sheet and records a receivable from the factor
at a discounted amount. Such amount is referred to as "Due From Factor" in the
Financial Statements. The difference in the account receivable from the customer
and the amount recorded as Due from Factor represents factor fees which are
reflected as interest expense in the Financial Statements. The Due from Factor
amount is paid to the Company by the factor on a predetermined date, based
primarily upon the customer's invoice due date, and is not contingent upon
collection of the customer's receivable by the factor. The Company does not
factor its receivables related to certain of its large customers. Therefore, the
Company retains credit risk with respect to these customers, which the Company
believes is insignificant. See Note 2 to the Financial Statements included
elsewhere in this Document.
INFLATION
The Company believes that the relatively moderate rate of inflation experienced
over the last three years has not had a material impact on its sales or
profitability. The Company generally has been able to absorb increases in costs
without significantly increasing the selling prices of its products due to cost
reductions and improved manufacturing efficiencies. However, there can be no
assurances that the Company's business will not be adversely affected by
inflation in the future.
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YEAR 2000
The Company has initiated actions to address the year 2000 issue. It is expected
that compliance work will be substantially completed by the end of calendar
1998. Total costs associated with these efforts, which are being expensed as
incurred, have not had, and are not expected to have, a material impact on the
Company's financial results.
SAFE HARBOR
The statements contained in this filing that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1993 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, hopes, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statement. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. Factors that
could cause actual results to differ materially from those projected include,
among others, its customer concentration; seasonality; cyclicality; fluctuation
of price of raw materials; risk of business interruption; dependence on key
personnel; control by existing stockholders; government regulation; shares
eligible for future sale; dilution; no prior market for common stock; and
possible volatility of stock price. Prospective purchasers of the Common Stock
should consult the risk factors listed from time to time in the Company's
Reports on Form 10-Q, 8-K, 10-K, and Annual Reports to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including the report of
independent accountants, the consolidated balance sheets as of July 31, 1997 and
1998, the related consolidated statements of income, stockholders' equity and
cash flows for the fiscal years ended April 28, 1996, May 3, 1997, and July 31,
1998, and the thirteen weeks ended July 31, 1997 and notes to the consolidated
financial statements are set forth on pages F-1 through F-16 of this Annual
Report on Form 10-K. In addition, on page S-1 of this Annual Report on Form
10-K, the supplemental financial statement schedule, as required by Item 8, is
provided.
ITEM 9. DISAGREEMENTS AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on accounting or
financial disclosure occurred in fiscal years 1996, 1997, or 1998.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information with respect to directors, set forth under the caption
"Election of Directors" in the Company's Proxy Statement relating to the Annual
Meeting of Stockholders to be held on December 4, 1998, is incorporated herein
by reference.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Samuel R. Blount 51 Chairman of the Board of Directors
William J. McCanna 58 President and Director
Steven C. Braswell 48 Vice President of Finance, Chief
Financial Officer and Secretary
Timothy M. LeRoy 34 Vice President of Sales and
Marketing (Mass Accounts)
Rory S. Rehmert 38 Vice President of Sales and
Marketing (Specialty Accounts)
Samuel R. Blount. Mr. Blount is Chairman of the Board of Directors of the
Company and has served in such capacity since the Company's formation in 1985.
Mr. Blount has over 19 years of experience with the Company and its
predecessor. Prior to the formation of the Company, Mr. Blount served as
President of HBC, Incorporated, a holding company that owned several
manufacturing businesses.
William J. McCanna. Mr. McCanna is President and a director of the Company and
has served in such capacities since 1991. Mr. McCanna has over 30 years of
experience in manufacturing, operations and senior management. Prior to
joining the Company, Mr. McCanna served as Chief Operating Officer and Director
of Philips Industries in Dayton, Ohio.
Steven C. Braswell. Mr. Braswell is Vice President of Finance, Chief Financial
Officer and Secretary of the Company and has served in such capacity since
1991. Mr. Braswell has over 25 years of experience in finance and accounting,
including thirteen years at Hanson Industries in various financial positions
including Group Controller and Vice President, two years as manager of Finance
and Accounting at Perkin Elmer Corporation in its Interdata Division and five
years with Price Waterhouse.
Timothy M. LeRoy. Mr. LeRoy is Vice President of Sales and Marketing (Mass
Accounts) of the Company and has served in such capacity since 1991. Prior to
joining the Company, Mr. LeRoy was with Central Hardware Company for eight
years as Supervisor, Buyer and Merchandiser.
Rory S. Rehmert. Mr. Rehmert is Vice President of Sales and Marketing
(Specialty Accounts) of the Company and has served in such capacity since 1991.
Prior to joining Meadowcraft, Mr. Rehmert served as National Sales Manager for
Lyon Shaw Furniture Company and Special Accounts Manager for Winston Furniture
Company and as Store Manager with Flower City, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The information required in this Item 11 is incorporated by reference to
the registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in this Item 12 is incorporated by reference to
the registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this Item 13 is incorporated by reference to
the registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
Reference is made to the index set forth on page F-1 of this Annual
Report on Form 10-K.
(2) Financial Statement Schedules
The following consolidated financial statement schedule is filed herewith:
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits
The following exhibits are filed with this Report or incorporated by
reference
Exhibit
Number Description
------- --------------------------------------------------------------------
1 Form of Underwriting Agreement (1)
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(1)
3.2 Amended and Restated Bylaws of the Registrant (1)
3.3 First Amendment to the Amended and Restated Certificate of
Incorporation (2)
10.1 Assignment of Sublease between Champion International Corporation,
Pinson Partners and the Company, dated July 31, 1997 (1)
10.2 Sublease Agreement between The Uniroyal Goodrich Tire Company and
The Company, dated September 30, 1993 (1)
10.3 Amended and Restated Loan and Security Agreement, dated August 28,
1997 (1)
10.4 1997 Stock Option Plan of the Registrant (1)
21 Subsidiaries of Registrant (2)
27 Financial Data Schedule (for SEC use only) (2)
99.1 Consent of T. Morris Hackney (Director Nominee) (1)
99.2 Affidavit of Registrant regarding consent of James M. Scott
(Director Nominee) (1)
99.3 Consent of Reese H. McKinney, Jr. (Director Nominee) (1)
(1) Incorporated by reference to the exhibits shown in parentheses
to and filed with the Company's registration statement on form S-1
under the Securities Act of 1933, registration number 333-33053.
(2) Filed herewith
(b) Reports on 8-K
There were no reports on Form 8-K filed by the registrant during the last
quarter of the period covered by this report.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Meadowcraft, Inc.
Date: October 7, 1998 By: /s/ William J. McCanna
-------------------- --------------------------------------
William J. McCanna
President and Director
Date: October 7, 1998 By: /s/ Steven C. Braswell
-------------------- --------------------------------------
Steven C. Braswell
Vice President, Chief Financial
Officer, and Secretary
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 Registrant in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Samuel R. Blount Chairman of the Board October 7, 1998
- -------------------- of Directors and Director
Samuel R. Blount
/s/ William J. McCanna President and Director October 7, 1998
- ----------------------
William J. McCanna
/s/ T. Morris Hackney Director October 7, 1998
- ---------------------
T. Morris Hackney
/s/ James M. Scott Director October 7, 1998
- ------------------
James M. Scott
/s/ Reese H. McKinney, Jr. Director October 7, 1998
- --------------------------
Reese H. McKinney, Jr.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Meadowcraft, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Meadowcraft, Inc. (a Delaware corporation)
and Subsidiaries, included in this Annual Report to Shareholders, included in
this Form 10-K, and have issued our report dated September 23, 1998. Our audit
was made for the purposes of forming an opinion on these basic financial
statements taken as a whole. Schedule II included in Part II of the Form 10-K is
presented for purposes of complying with Securities and Exchange Commission's
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Birmingham, Alabama
September 23, 1998
23
MEADOWCRAFT, INC. AND SUBSIDIARIES
Page
Number
------
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of July 31, 1997 and 1998 F-3
Consolidated Statements of Income for the years ended April 28, 1996, May 3, 1997,
July 31, 1998 and the thirteen weeks ended July 31, 1996 (unaudited) and July 31, 1997 F-4
Consolidated Statements of Stockholders' Equity for the years ended April 28, 1996,
May 3, 1997, July 31, 1998 and the thirteen weeks ended July 31, 1997 F-5
Consolidated Statements of Cash Flows for the years ended April 28, 1996, May 3, 1997,
July 31, 1998 and the thirteen weeks ended July 31, 1996 (unaudited) and July 31, 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Meadowcraft, Inc.:
We have audited the accompanying consolidated balance sheets of MEADOWCRAFT,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of July 31, 1997 and 1998 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the two fiscal years in the period ended May 3, 1997, the
thirteen weeks ended July 31, 1997 and the fiscal year ended July 31, 1998.
These financial statements are the responsibility of the Company'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 financial position of Meadowcraft, Inc. as of July
31, 1997 and 1998 and the results of its operations and its cash flows for each
of the two fiscal years in the period ended May 3, 1997, the thirteen weeks
ended July 31, 1997 and the fiscal year ended July 31, 1998 in conformity with
generally accepted accounting principles.
Birmingham, Alabama
September 23, 1998
F-2
25
MEADOWCRAFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, 1997 July 31, 1998
------------- -------------
CURRENT ASSETS:
Due from factor $ 10,758,000 $ 14,686,000
Accounts receivable 5,700,000 6,810,000
Inventories 11,590,000 21,599,000
Prepaid expenses and other 293,000 359,000
Deferred income taxes 0 4,334,000
------------- -------------
28,341,000 47,788,000
------------- -------------
PROPERTY, PLANT, AND EQUIPMENT:
Land 4,966,000 8,130,000
Buildings 22,459,000 38,682,000
Machinery and equipment 26,141,000 31,932,000
Leasehold improvements 1,287,000 1,529,000
Furniture and fixtures 2,707,000 3,267,000
Construction in process 2,309,000 889,000
------------- -------------
59,869,000 84,429,000
Less accumulated depreciation
and amortization (17,908,000) (23,039,000)
------------- -------------
41,961,000 61,390,000
------------- -------------
OTHER ASSETS 770,000 973,000
------------- -------------
$ 71,072,000 $ 110,151,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,550,000 $ 2,990,000
Notes payable 10,226,000 14,024,000
Accounts payable 2,847,000 2,400,000
Accrued expenses and warranty 6,913,000 6,594,000
Income taxes payable 0 2,799,000
------------- -------------
24,536,000 28,807,000
------------- -------------
LONG-TERM DEBT 13,392,000 26,513,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000
shares authorized, 16,000,000 shares
issued and outstanding at July 31, 1997, and
19,708,750 shares issued and outstanding at
July 31, 1998 160,000 197,000
Additional paid-in capital 340,000 44,614,000
Retained earnings 32,644,000 10,020,000
------------- -------------
33,144,000 54,831,000
------------- -------------
$ 71,072,000 $ 110,151,000
============= =============
The accompanying notes are an integral part of these balance sheets.
F-3
26
MEADOWCRAFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended Thirteen Weeks Ended
----------------------------------------- -----------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
------------ ------------ ------------- ----------- -----------
(52 Weeks) (53 Weeks) (52 Weeks) (Unaudited)
Net Sales $117,419,000 $141,945,000 $162,201,000 $32,233,000 $35,368,000
Cost of Sales 87,849,000 98,315,000 112,255,000 24,270,000 25,932,000
------------ ------------ ------------ ----------- -----------
Gross Profit 29,570,000 43,630,000 49,946,000 7,963,000 9,436,000
------------ ------------ ------------ ----------- -----------
Operating Expenses:
Selling 6,092,000 6,939,000 7,796,000 1,232,000 1,517,000
General and administrative 5,906,000 6,039,000 7,540,000 1,332,000 1,442,000
------------ ------------ ------------ ----------- -----------
11,998,000 12,978,000 15,336,000 2,564,000 2,959,000
------------ ------------ ------------ ----------- -----------
Operating Income 17,572,000 30,652,000 34,610,000 5,399,000 6,477,000
Interest Expense 5,018,000 5,274,000 4,262,000 1,304,000 1,161,000
------------ ------------ ------------ ----------- -----------
Income before provision for
income taxes - historical 12,554,000 25,378,000 30,348,000 4,095,000 5,316,000
Provision for income taxes 0 0 4,038,000 0 0
------------ ------------ ------------ ----------- -----------
Net income - historical $12,554,000 $ 25,378,000 $ 26,310,000 $4,095,000 $ 5,316,000
============ ============ ============ =========== ===========
Pro Forma Presentation
(unaudited):
Income before provision for
income taxes - historical $12,554,000 $ 25,378,000 $ 30,348,000 $4,095,000 $ 5,316,000
Pro forma income tax:
Provision 4,685,000 9,439,000 11,289,000 1,523,000 1,978,000
Benefit related to change in
tax status 0 0 (3,200,000) 0 0
------------ ------------ ------------ ----------- -----------
4,685,000 9,439,000 8,089,000 1,523,000 1,978,000
------------ ------------ ------------ ----------- -----------
Pro forma net income
(Note 8) $7,869,000 $ 15,939,000 $ 22,259,000 $2,572,000 $ 3,338,000
============ ============ ============ =========== ===========
Pro forma net income
excluding benefit related to
change in tax status $7,869,000 $ 15,939,000 $ 19,059,000 $2,572,000 $ 3,338,000
============ ============ ============ =========== ===========
Earnings per share:
Basic and diluted $0.78 $ 1.59 $ 1.42 $0.26 $ 0.33
============ ============ ============ =========== ===========
Pro forma (unaudited):
Basic and diluted $0.49 $ 1.00 $ 1.20 $0.16 $ 0.21
============ ============ ============ =========== ===========
Pro forma excluding
benefit related to change
in tax status:
Basic and diluted $0.49 $ 1.00 $ 1.03 $0.16 $ 0.21
============ ============ ============ =========== ===========
Weighted average shares
outstanding:
Basic 16,000,000 16,000,000 18,519,969 16,000,000 16,000,000
============ ============ ============ =========== ===========
Diluted 16,000,000 16,000,000 18,523,574 16,000,000 16,000,000
============ ============ ============ =========== ===========
The accompanying notes are an integral part of these statements.
F-4
27
MEADOWCRAFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------------- Additional
Shares Paid-In Retained
Issued Amount Capital Earnings Total
--------- -------- ----------- ------------- -------------
BALANCE, APRIL 30, 1995 16,000,000 $160,000 $ 340,000 $ 15,484,000 $ 15,984,000
Net income for the year 0 0 0 12,554,000 12,554,000
S corporation distributions 0 0 0 (8,338,000) (8,338,000)
---------- -------- ----------- ------------ ------------
BALANCE, APRIL 28, 1996 16,000,000 160,000 340,000 19,700,000 20,200,000
Net income for the year 0 0 0 25,378,000 25,378,000
S corporation distributions 0 0 0 (6,250,000) (6,250,000)
---------- -------- ----------- ------------ ------------
BALANCE, MAY 3, 1997 16,000,000 160,000 340,000 38,828,000 39,328,000
Net income for the period 0 0 0 5,316,000 5,316,000
S corporation distributions 0 0 0 (11,500,000) (11,500,000)
---------- -------- ----------- ------------ ------------
BALANCE, JULY 31, 1997 16,000,000 160,000 340,000 32,644,000 33,144,000
Net income for the year 0 0 0 26,310,000 26,310,000
Net proceeds from initial
public offering 3,708,750 37,000 44,274,000 0 44,311,000
S corporation distributions 0 0 0 (48,934,000) (48,934,000)
---------- -------- ----------- ------------ ------------
BALANCE, JULY 31, 1998 19,708,750 $197,000 $44,614,000 $ 10,020,000 $ 54,831,000
========== ======== =========== ============ ============
The accompanying notes are an integral part of these statements.
F-5
28
MEADOWCRAFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended Thirteen Weeks Ended
------------------------------------------------ ------------------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
------------- ------------ ------------ ------------ ------------
(52 Weeks) (53 Weeks) (52 Weeks) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,554,000 $ 25,378,000 $ 26,310,000 $ 4,095,000 $ 5,316,000
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,006,000 5,099,000 6,092,000 1,235,000 1,237,000
Deferred income taxes 0 0 (4,334,000) 0 0
Changes in assets and liabilities:
Due from factor 22,736,000 5,518,000 (3,928,000) 30,702,000 24,791,000
Accounts receivable (22,938,000) (4,977,000) (1,110,000) 19,373,000 22,215,000
Inventories 496,000 (2,232,000) (10,009,000) 8,397,000 9,882,000
Prepaid expenses and other 4,000 (11,000) (66,000) 0 37,000
Other assets (44,000) 102,000 (173,000) 41,000 (103,000)
Accounts payable (4,064,000) (2,157,000) (447,000) (7,696,000) (6,484,000)
Accrued expenses and
warranty 1,611,000 (618,000) (319,000) (3,191,000) (2,523,000)
Income taxes payable 0 0 2,799,000 0 0
------------ ------------ ------------ ------------ ------------
Total adjustments 1,807,000 724,000 (11,495,000) 48,861,000 49,052,000
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities 14,361,000 26,102,000 14,815,000 52,956,000 54,368,000
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,676,000) (3,406,000) (25,258,000) (1,628,000) (2,070,000)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities (15,676,000) (3,406,000) (25,258,000) (1,628,000) (2,070,000)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public
offering 0 0 44,311,000 0 0
Net borrowings (payments) on
notes payable 2,656,000 (11,632,000) 3,798,000 (45,519,000) (38,670,000)
Proceeds from issuance of
long-term debt 10,500,000 0 13,500,000 974,000 0
Principal payments of
long-term debt (3,255,000) (4,814,000) (1,939,000) (1,283,000) (2,128,000)
Payment of loan costs (248,000) 0 (293,000) 0 0
Payment of S corporation
distributions (8,338,000) (6,250,000) (48,934,000) (5,500,000) (11,500,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing activities 1,315,000 (22,696,000) 10,443,000 (51,328,000) (52,298,000)
------------ ------------ ------------ ------------ ------------
Net change in cash 0 0 0 0 0
CASH, BEGINNING OF YEAR 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
CASH, END OF YEAR $ 0 $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for interest $ 4,736,000 $ 5,395,000 $ 4,265,000 $ 1,059,000 $ 1,207,000
============ ============ ============ ============ ============
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease originated $ 3,000,000 $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
Capital expenditures financed
with debt $ 0 $ 675,000 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements.
F-6
29
MEADOWCRAFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Meadowcraft, Inc. and Subsidiaries (the "Company") designs, manufactures and
distributes a variety of wrought iron consumer products, including outdoor and
indoor furniture and accessories, outdoor cushions and umbrellas, and garden
products, which it markets to mass merchandisers and specialty stores primarily
in the United States.
Revenue and expenses are subject to material seasonal variations. The seasonal
nature of the Company's business requires an inventory build-up during the fall
and winter months in order to meet customer demand during the spring and summer
selling seasons. The Company relies upon bank borrowings and cash flow from
operations to finance this production (see Note 3).
On November 25, 1997, the Company completed an initial public offering (the
"Offering") of 3,225,000 shares of common stock at $13.00 per share. On December
10, 1997, the underwriters exercised their over allotment option to purchase an
additional 483,750 shares of common stock from the Company at $13.00 per share.
The net proceeds from the Offering and the over allotment option were
$44,311,787, net of an underwriting discount of $3,374,963 and expenses of
approximately $527,000. The proceeds were used to pay $32,700,000 of the S
Corporation Distribution, with the balance of $11,611,787 used to fund capital
expenditures.
Upon completion of the Offering, the Company terminated its S Corporation
election. The Company made additional S Corporation distributions in the amount
of $16,234,000 in fiscal 1998 and will complete the final S Corporation
Distribution based upon the Company's S Corporation earnings attributable to the
period from May 4, 1997 to the date of termination of the S Corporation election
(November 25, 1997). In order to determine the S Corporation earnings
attributable to this period, the Company prorated its taxable income for the
12-month period ending May 3, 1998, based on the number of days in the 12-month
period in which the Company was an S Corporation. Based on this calculation, the
Company has distributable earnings in the amount of $686,000. This amount has
not been accrued at July 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Meadowcraft De Mexico, S.A. De C.V. and
Meadowcraft (UK) Limited. All significant intercompany transactions have been
eliminated in the consolidated financial statements.
FISCAL YEAR END
Prior to fiscal 1997, the Company was on a 52/53 week year with the fiscal year
ending on the Sunday closest to the last day of April. During fiscal 1997, the
Company changed its financial reporting period to a fiscal year ending on the
Saturday closest to the last day of April. As a result of this change, the year
ended May 3, 1997 includes 53 weeks of operations versus 52 weeks in fiscal
1996. As a result of the Offering and termination of the S Corporation election,
the Company changed its financial reporting year end to July 31.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect (1) the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
(2) the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-7
30
DUE FROM FACTOR
The Company maintains agreements with two financial institutions under which a
substantial portion of its trade accounts receivable are factored. Such
agreements provide for the factoring of accounts receivable without recourse;
therefore, the financial institutions assume all credit risk with respect to
factored customer accounts. The vast majority of the Company's factored accounts
receivable are factored with the bank which provides its $90,000,000 revolving
line of credit (see Note 3). The Company does not factor the receivables related
to four of its customers and the related amounts are reflected in accounts
receivable in the accompanying consolidated balance sheets (see Note 11).
INVENTORIES
Inventories are valued at first-in, first-out ("FIFO") cost, which is not in
excess of market. An analysis of inventories at July 31, 1997 and 1998 follows:
July 31, 1997 July 31, 1998
------------- -------------
Raw materials and purchased parts $ 6,273,000 $11,533,000
Work-in-process 569,000 1,075,000
Finished goods 4,748,000 8,991,000
----------- -----------
$11,590,000 $21,599,000
============ ===========
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost less accumulated
depreciation and amortization and include expenditures for major renewals and
betterments that substantially increase the useful lives of existing assets as
well as the net amount of interest cost associated with significant capital
additions. Interest cost incurred during fiscal 1997 and 1998 amounted to
$5,274,000 and $4,502,000, respectively, of which $0 and $240,000, respectively,
were capitalized. Maintenance and repairs are charged to expense as incurred.
Upon sale, retirement, or other disposition of these assets, the cost and
related accumulated depreciation are removed from the respective accounts, and
the related gain or loss is credited or charged to income.
Depreciation is computed using the straight-line method over the estimated
service lives of the depreciable assets as follows:
Buildings 13 to 28 years
Machinery and equipment 5 to 13 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Shorter of lease term or 13 years
REVENUE RECOGNITION/WARRANTY AND OTHER RESERVES
The Company recognizes sales when products are shipped. As the Company offers up
to a 36-month limited warranty on certain products, estimated warranty costs are
accrued at the time the products are sold based on a historical percentage of
warranty costs to gross sales. The charge for such accrual is reflected as
returns and allowances, which reduces gross sales to net sales. Included in the
warranty reserve is an estimate for customer credits arising from co-op
advertising programs and purchased volume discounts. These amounts are accrued
based on individual customer agreements or Company rebate programs.
SELF-INSURANCE ACCRUAL
The Company is substantially self insured for workers' compensation and health
care claims. The Company purchases insurance coverage for all workers'
compensation claims in excess of $250,000 per occurrence with an annual
aggregate stop loss limit of $1,000,000 and for all employee health care claims
in excess of $100,000 per
F-8
31
occurrence. As self insurance claims become probable and reasonably estimable,
the estimated cost of such claims is accrued, including related expenses.
Management considers the accrued liabilities for unsettled claims to be
adequate; however, there is no assurance that the amounts accrued will not vary
from the ultimate amounts incurred upon final disposition of all outstanding
claims. As a result, periodic adjustments to the reserves will be made as events
occur which indicate changes are necessary. In the opinion of management, based
on current information, these periodic adjustments will not be material to the
Company's financial condition or results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company, from time to time, uses interest rate swap contracts ("Swaps") and
interest rate caps ("Caps") to manage interest rate risks arising from certain
of the Company's financing sources, such as the revolving credit line and
certain long-term debt. All Swaps and Caps employed by the Company represent
end-user activities designed as hedges, and, therefore, changes in fair values
of such derivatives are not included in the results of operations. Interest
receivable or payable from such contracts is accrued and recognized as an
adjustment to interest expense related to the specific financing source being
hedged.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments,
management has determined that the carrying amount approximates fair value for
current financial instruments due to the short maturities of those instruments.
The estimated fair values of long-term debt instruments are based upon the
current interest rate environment and remaining term to maturity (See Note 10).
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement is effective for financial statements issued for periods
ending after December 15, 1997 and requires restatement for all prior-period
earnings per share ("EPS") data presented.
SFAS No. 128 simplifies the standards for computing EPS previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to international
EPS standards. It replaces the presentation of primary EPS with the presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for the Company.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock are exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. Diluted EPS has been computed based
on the weighted average number of shares outstanding, including the effect of
outstanding stock options, if dilutive, in each respective year. The difference
in the weighted average shares-basic versus weighted average shares-diluted is
due to the effect of stock options.
Additionally, in February 1998, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin ("SAB") 98. SAB 98 revised prior guidance of
the SEC to reflect the requirements of SFAS No. 128. As a result of SFAS No. 128
and SAB 98, the accompanying consolidated statements of income reflect
historical earnings per share, which excludes a tax provision for all periods in
which the Company was an S Corporation. The pro forma earnings per share amounts
reflect a provision for income taxes as if the Company was a taxable
corporation.
F-9
32
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments and report a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. This statement
also requires that a public business enterprise report descriptive information
about the way that the operating segments were determined, the products and
services provided by the operating segments, differences between the
measurements used in the reporting segment information and those used in the
enterprise's general purpose financial statements, and changes in the
measurement of segment amounts from period to period. The new rule becomes
effective in fiscal 1999 and is not expected to have a significant impact on the
Company's financial reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits." SFAS No. 132, which supersedes SFAS
No. 87, 88, and 106, standardizes the disclosure requirements for pensions and
other postretirement benefit obligations and fair values of plan assets that
will facilitate financial analysis, and eliminates certain disclosures that are
no longer useful. The Company will adopt the new rules in fiscal 1999. The new
rules are not expected to have a significant impact on the Company's financial
reporting.
In July 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes the accounting
definition of a derivative, and specifies measurements, recognition, and
disclosure of changes in the fair value of derivatives (hedges) held by a
company. The Company will adopt this standard in fiscal 2000. SFAS No. 133 will
require derivatives designated as hedges to be recorded on the balance sheet at
fair value with the change in fair value of the underlying hedged item. The new
rules are not expected to have a material effect on the Company's results of
operations.
Foreign Currency Translation
In accordance with SFAS No. 52, "Foreign Currency Translation," the assets and
liabilities denominated in foreign currency are translated into U.S. dollars at
the current rate of exchange existing at year end and revenues and expenses are
translated at average monthly exchange rates. Related translation adjustments
and gains or losses resulting from foreign currency transactions were not
material to the consolidated financial statements.
3. NOTES PAYABLE
In order to meet working capital needs, the Company maintains a variable rate
(7.71% at July 31, 1997 and 6.41% at July 31, 1998) revolving line of credit in
the amount of $90,000,000. The revolving line bears interest at the prime rate
with an option of converting the borrowing rate to LIBOR plus .75% (6.41% at
July 31, 1998) for all or a portion of the outstanding balance. The Company also
has the option of converting the revolving line to a federal funds rate plus
1.50% (7.34% at July 31, 1998). At July 31, 1997 and 1998, $7,526,000 and
$14,024,000, respectively, were outstanding under the line of credit. Of the
amounts outstanding at July 31, 1997 and 1998, $3,526,000 and $0, respectively,
were based on the prime rate, and $4,000,000 and $14,024,000, respectively, were
based on the LIBOR rate. At July 31, 1997 and 1998, $17,145,000 and $13,479,000,
respectively, were available to be borrowed. The average borrowings outstanding
during the year ended May 3, 1997 and July 31, 1998 were $30,945,000 and
$26,295,000, and the maximum borrowings outstanding were $59,460,000 and
$59,340,000, respectively. The weighted average interest rate on these
borrowings was approximately 7.53% in fiscal 1997 and 6.44% in fiscal 1998. All
bank borrowings are collateralized by all assets of the Company.
During 1997 the Company also maintained a $3,000,000 variable rate (8.0% at July
31, 1997) line of credit. Of this amount, $2,700,000 was outstanding at July 31,
1997. The average borrowings outstanding were $2,700,000. This loan was repaid
during fiscal 1998
The Company maintains an interest rate cap as a hedge against the variable
interest rate exposure on the $90,000,000 line of credit. This interest rate
cap, which expires June 1, 1999, establishes the maximum prime interest rate at
8.0% for all periods presented on varying notional amounts, which range from $0
to $30,000,000, and
F-10
33
have been based on expected seasonal borrowings. At July 31, 1997 and 1998, the
notional amounts amounted to $0. The counter-party to the interest rate cap is
the Company's primary bank. The Company believes the credit and liquidity risk
of the counter-party failing to meet its obligations is remote as the Company
settles its interest position with the bank on a current basis. During fiscal
years ended April 28, 1996, May 3, 1997, and July 31, 1998 as well as the
thirteen weeks ended July 31, 1997, the interest rate cap had no material effect
on interest expense.
4. LONG-TERM DEBT
Long-term debt consists of the following at July 31, 1997 and 1998:
July 31, 1997 July 31, 1998
------------- -------------
Term note, variable rate (6.41% at July 31,
1998), subject to interest rate swaps (see
below), due in quarterly installments of $597,500
until February 1, 2003. $ 0 $21,003,000
Term note, variable rate (3.70% at July 31, 1998),
subject to an interest rate swap (see below), due
in annual installments of $400,000 until
November 6, 2012, secured by land and
buildings with a net book value of $8,914,000. 0 6,000,000
Capitalized lease obligation in Selma, AL;
variable rate (3.9% and 3.7% at July 31, 1997
and July 31, 1998, respectively), subject to an
interest rate swap (see below), due in semiannual
installments of $100,000 until February 1, 2011,
secured by buildings and equipment with a net
book value of $4,773,000. 2,700,000 2,500,000
Term note, 8.33%, repaid in fiscal 1998. 6,300,000 0
Term note, 8.89%, repaid in fiscal 1998. 4,700,000 0
Promissory notes, variable rates (7.94% at July
31, 1997), repaid in fiscal 1998. 1,500,000 0
Term note, 7.90%, repaid in fiscal 1998. 1,400,000 0
Promissory note, 8.50%, repaid in fiscal 1998. 717,000 0
Promissory note, 8.00%, repaid in fiscal 1998. 625,000 0
------------ ------------
17,942,000 29,503,000
Less amounts due within one year (4,550,000) (2,990,000)
------------ ------------
$13,392,000 $26,513,000
============ ============
During fiscal 1998, the Company restructured its various credit facilities and
entered into several interest rate swap agreements which expire in 2004 and 2005
related to the two term notes. Two swaps cover the $21,003,000 term note and are
designed to fix the interest rate at 6.52%. The $6,000,000 term note is
primarily covered by an interest rate swap which fixes the interest rate at
4.99%.
During fiscal 1996, the Company entered into an interest rate swap agreement,
which expires in 2011 related to its capital lease obligation on the Selma,
Alabama facility covering the entire principal balance outstanding on such
obligation. The agreement is designed to fix the interest rate at 5.85%.
F-11
34
The Company's debt agreements, including the notes payable in Note 3, contain,
among other things, certain restrictions relating to net worth, capital
expenditures, the current ratio, and the debt service ratio. The Company was in
compliance with all covenants at July 31, 1997 and 1998.
The Company's total debt obligations maturing in each of the next five fiscal
years at July 31, 1998 are as follows: $2,990,000 in 1999 through 2002 and
$12,043,000 in 2003 and $5,500,000 thereafter.
5. OPERATING LEASES
The Company has operating leases for office, plant, and warehouse facilities and
manufacturing and office equipment. Minimum future rental payments for all
operating leases having remaining terms in excess of one year at July 31, 1998
are as follows:
Fiscal year ending in:
1999 $ 1,956,000
2000 1,776,000
2001 950,000
2002 918,000
2003 751,000
Thereafter 1,462,000
-----------
$ 7,813,000
===========
Total rental expense amounted to $1,400,000, $ 1,361,000 and $ 1,380,000 for the
fiscal years ended April 28, 1996, May 3, 1997, and July 31, 1998, respectively,
and $297,000 for the thirteen weeks ended July 31, 1997.
6. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Profit Sharing Plan (the "Plan") for its salaried
employees, which allows these employees to make pretax contributions to the
Plan. The Plan covers all full-time salaried employees who have completed one
year of service and who are at least 21 years of age. Participants of the Plan
may voluntarily contribute from 3% to 10% of their annual compensation within
certain dollar limits as allowed by law. The Company's matching contribution is
33.3% of the participants' contribution and can be increased or decreased at the
option of the Board of Directors. Company contributions to the Plan are
determined by the Company's Board of Directors and are limited to a maximum of
10% of the employee's compensation. Contribution expense for the years ended
April 28, 1996, May 3, 1997, and July 31, 1998 amounted to $82,000, $94,000 and
$118,000, respectively, and $26,000 for the thirteen weeks ended July 31, 1997.
The Company also maintains a defined benefit pension plan covering the employees
of the Birmingham plants. The benefits are based on certain Company monthly
contributions for each year of credited service. The Company's funding policy is
to contribute annually no less than the minimum amount required by ERISA and no
more than the maximum amount that can be deducted 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.
F-12
35
As discussed in Note 2, the Company changed its financial reporting year end to
July 31. However, the Company's pension disclosures remain on the previous year
end. As such, net pension expense for the fiscal years ended April 28, 1996, May
3, 1997, April 30, 1998, and the thirteen weeks ended July 31, 1997, includes
the following components:
Thirteen
Weeks
April 28, May 3, April 30, Ended
1996 1997 1998 July 31, 1997
--------- --------- --------- ------------
Service cost of the current period $130,000 $158,000 $161,000 $ 40,000
Interest cost on the projected benefit obligation 98,000 115,000 127,000 32,000
Actual return on assets held in the plan (52,000) (64,000) (89,000) (29,000)
Net amortization and deferral of prior service cost,
transition liability, and net gain (11,000) 4,000 (1,000) 7,000
-------- -------- -------- --------
Net pension expense $165,000 $213,000 $198,000 $ 50,000
======== ======== ======== ========
The following sets forth the funded status of the pension plan at April 28,
1996, May 3, 1997, July 31, 1997, and April 30, 1998:
April 28, May 3, July 31, April 30,
1996 1997 1997 1998
----------- ----------- ----------- -----------
Accumulated benefit obligation $1,360,000 $1,529,000 $1,569,000 $1,904,000
========== ========== ========== ==========
Vested accumulated benefit obligation 1,283,000 1,452,000 1,493,000 1,781,000
========== ========== ========== ==========
Projected benefit obligation 1,473,000 1,726,000 1,786,000 2,093,000
Fair value of assets held in the plan 1,040,000 1,453,000 1,515,000 1,743,000
---------- ---------- ---------- ----------
Excess of projected benefit obligation
over fair value of plan assets (433,000) (273,000) (271,000) (350,000)
Unrecognized net loss 205,000 210,000 210,000 407,000
Unrecognized initial obligation 53,000 44,000 42,000 36,000
Unrecognized prior service cost 83,000 149,000 145,000 134,000
---------- ---------- ---------- ----------
Prepaid (accrued) pension cost $ (92,000) $ 130,000 $ 126,000 $ 227,000
========== ========== ========== ==========
Pension plan assets consist primarily of group annuity policies at April 28,
1996, May 3, 1997, July 31, 1997 and April 30, 1998. The weighted average
discount rate used to measure the projected benefit obligation and the expected
long-term rate of return on assets was 7.50% at April 28, 1996, May 3, 1997, and
July 31, 1997 and 7.0% at April 30, 1998. The Company uses the straight-line
method of amortization for prior service costs and unrecognized gains and
losses.
The Company contributes to the Retail, Wholesale, and Department Store Union
Industry Pension Plan on behalf of each employee of the divisions, excluding
Arizona and Mexico, not covered by the aforementioned pension plan as prescribed
in the Company's collective bargaining agreements. The Company contributes $2.40
to $3.40 per week for each full-time employee on the active payroll subject to
these agreements. Pension expense under these plans amounted to approximately
$70,000, $88,000, and $81,000 for the fiscal years ended April 28, 1996, May 3,
1997, and July 31, 1998, respectively, and $15,000 for the thirteen weeks ended
July 31, 1997.
F-13
36
The Company also maintains discretionary performance compensation and deferred
compensation plans covering certain management employees as approved by the
Chairman and President of the Company. The Company's discretionary provision for
these plans amounted to $1,143,000, $1,653,000, and $843,000 for the fiscal
years ended April 28, 1996, May 3, 1997, and July 31, 1998, respectively, and
$300,000 for the thirteen weeks ended July 31, 1997.
The Company does not provide any additional post-retirement or post-employment
benefits to its employees.
7. STOCK OPTION PLAN
On July 31, 1997, the Company adopted a Stock Option Plan (the "Plan") reserving
1,000,000 shares of the Company's common stock for grants to executive officers,
directors and key employees. The Compensation Committee of the Board of
Directors administers and interprets the Plan and is authorized to grant options
to an eligible employee of the Company and non-employee directors. The Plan
provides for both incentive stock options and non-qualified stock options.
Options are granted under the Plan on such terms and at such prices as
determined by the Compensation Committee, except that the per share exercise
price of incentive stock options cannot be less than the fair market value of
the Company's common stock on the date of grant. All options which have been
granted have a term of ten years and vest evenly over five years.
The Company accounts for this plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," under which no compensation cost has been
recognized. Had compensation expense for the Company's stock option plan for
awards in fiscal 1998 been determined under SFAS No. 123, "Accounting for
Stock-Based Compensation," based on the fair market value of the options at the
grant date, the Company's net income and income per share would have been
reduced to the pro forma amounts indicated below:
For the Fiscal Year Ended
July 31, 1998
--------------------------
Pro forma net income - as reported $22,259,000
Pro forma net income - adjusted 22,043,000
Diluted pro forma earnings per share - as reported 1.20
Pro forma earnings per share - adjusted 1.19
The fair market value was estimated on the date of grant using a Black-Scholes
option pricing model for fiscal 1998 assuming a dividend yield of 0, a risk-free
interest rate of 5.5%, a volatility factor for the Company's common stock of
51.35%, vesting evenly over five years and weighted average expected and
contractual lives of the options of 9.32 years.
The pro forma information is not likely to be representative of the effects of
options on pro forma net income in future years because the Company may award
additional options.
Information with respect to the Company's Plan is as follows:
Fiscal 1998
------------------------
Weighted Average
Options Exercise Price
-------- ----------------
Granted during the year and
outstanding at July 31, 1998 337,965 $13.16
Exercisable at July 31, 1998 0 0
Weighted average fair value of option granted $7.50
The range of exercise prices for options outstanding is $13.00 - $16.13
F-14
37
8. HISTORICAL AND PRO FORMA PROVISIONS FOR INCOME TAXES
Prior to November 25, 1997, the Company elected to be taxed as an S Corporation
and, as a result, the periods prior to November 25, 1997 do not reflect
historical income tax provisions. On November 25, 1997, the Company terminated
its S Corporation election in connection with the Offering and became a taxable
C Corporation. In connection with this termination, the Company recorded a
deferred tax asset and a credit to income tax provision in the amount of
$3,200,000. Additionally, the Company has allocated its income for the twelve
months ended May 3, 1998 (the end of the tax year), between the nontaxable S
Corporation and the taxable C Corporation based on the number of days in the 12
month period ended May 3, 1998, in which the Company was an S Corporation and C
Corporation, respectively. The effect on the allocation was that a portion of
the income for the nine months ended May 3, 1998 was attributable to the C
Corporation with the remainder being attributable to the S Corporation.
Subsequent to May 3, 1998, the Company was taxed entirely as a C Corporation.
The income attributable to the C Corporation resulted in a historical tax
provision of $4,038,000 for the twelve months ended July 31, 1998 which included
the effects of the recording of the net deferred tax asset of $3,200,000. The
pro forma provision gives effect to income taxes that would have been reported
had the Company's income been attributable to the C Corporation for the entire
period. The pro forma income tax provision reflects an overall effective tax
rate of 37% in fiscal 1996, 1997 and 1998, before considering the effect of the
one time credit income tax provision of $3,200,000 in fiscal 1998 related to the
initial recording of the net deferred tax asset.
A summary of the components of the pro forma provision for income taxes is as
follows:
Fiscal Year Ended Thirteen Weeks Ended
------------------------------------ ----------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
---------- ---------- ------------ ----------- ----------
Federal:
Current $4,580,000 $7,658,000 $10,870,000 $1,134,000 $1,453,000
Deferred (312,000) 941,000 (3,792,000) 253,000 349,000
---------- ---------- ----------- ----------- ----------
4,268,000 8,599,000 7,078,000 1,387,000 1,802,000
---------- ---------- ----------- ----------- ----------
State:
Current 448,000 748,000 1,553,000 111,000 144,000
Deferred (31,000) 92,000 (542,000) 25,000 32,000
---------- ---------- ----------- ----------- ----------
417,000 840,000 1,011,000 136,000 176,000
---------- ---------- ----------- ----------- ----------
Pro Forma Provision for
Income Taxes $4,685,000 $9,439,000 $ 8,089,000 $1,523,000 $1,978,000
========== ========== =========== =========== ==========
The pro forma provision for income taxes differs from the amounts computed by
applying federal statutory rates due to the following:
Fiscal Year Ended Thirteen Weeks Ended
----------------------------------- ----------------------
April 28, May 3, July 31, July 31, July 31,
1996 1997 1998 1996 1997
---------- ---------- ------------ ---------- ----------
Tax provision computed at the
federal statutory rate (35%) $4,394,000 $8,882,000 $10,622,000 $1,433,000 $1,861,000
Benefit related to change in
tax status 0 0 (3,200,000) 0 0
Effect of state income taxes,
net of benefits 271,000 546,000 657,000 88,000 114,000
Other 20,000 11,000 10,000 2,000 3,000
---------- ---------- ----------- ---------- ----------
$4,685,000 $9,439,000 $ 8,089,000 $1,523,000 $1,978,000
========== ========== =========== ========== ==========
F-15
38
Temporary differences which create net deferred tax assets at July 31, 1998 are
as follows:
Depreciation $ (726,000)
Inventory 1,875,000
Warranty reserve 1,530,000
Payroll-related accrued expenses 1,519,000
Other accrued expenses 136,000
----------
Pro forma deferred tax assets, net $4,334,000
==========
9. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, after consultation with legal counsel, the
ultimate liability, if any, with respect to these proceedings will not
materially affect the financial position or results of operations of the
Company.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
The estimated fair value of the Company's on-balance sheet financial instruments
at July 31, 1998 approximated their carrying value at that date. As of July 31,
1997 and 1998, and as discussed in Notes 3 and 4, the Company is party to an
interest rate cap agreement and several interest rate swap agreements, all of
which are considered derivative financial instruments. The fair value of these
instruments, which are specifically used for hedging purposes, is the estimated
amount that the Company would pay or receive if these agreements were terminated
as of July 31, 1997 and 1998. Such estimates of fair value take into account
current interest rates and the present creditworthiness of the counterparties.
Under the restrictions of the bank credit agreements, the Company does not
expect to cancel these agreements, and expects them to expire as originally
contracted. As of July 31, 1997 and 1998, the carrying amount of these financial
instruments, which represents amounts paid to obtain such instruments, exceeds
the estimated fair value by $203,000 and $968,000, respectively.
11. MAJOR CUSTOMERS
During the fiscal years ended April 28, 1996, May 3, 1997 and July 31, 1998,
three major customers accounted for sales of approximately $55,266,000,
$72,133,000, and $81,744,000, respectively, of total net sales. During the
thirteen weeks ended July 31, 1997, three major customers accounted for sales of
approximately $17,146,000 of total net sales. As of July 31, 1997 and July 31,
1998, the outstanding balances, included in accounts receivable on the
respective consolidated balance sheets, related to these customers were
$5,700,000 and $4,047,000, respectively.
12. STOCKHOLDERS' EQUITY
On July 31, 1998, the Board of Directors approved an amendment to reduce the
Company's total number of authorized shares from 100,000,000 to 30,000,000.
13. BUSINESS COMBINATIONS
Effective August 1, 1997, the Company entered into an asset purchase agreement
with Virco Manufacturing Corporation to acquire all of the assets located and in
possession of Virsan, a Mexican Company and a subsidiary of Virco, in Sonora,
Mexico. The agreement stipulated cash payments for the purchase of assets, in
the amount of $2,175,000 and was funded under the Company's revolving credit
agreement. Pro forma financial information has not been provided as it would not
be meaningful since customers, products and operations of the Company will
differ significantly from that of Virsan.
F-16
39
Schedule II
MEADOWCRAFT, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended April 28,1996, May 3, 1997, the 13-weeks ended July 31, 1997
and the year ended July 31, 1998
Balance At Charged to Balance At
Beginning Costs and End of
of Year Expenses Deductions Year
---------- ---------- ------------ ----------
The year ended April 30, 1995:
Warranty and other reserves $2,134,000 $6,338,000 $(5,473,000) $2,999,000
The year ended April 28, 1996:
Warranty and other reserves $2,999,000 $6,473,000 $(6,465,000) $3,007,000
The year ended May 3, 1997:
Warranty and other reserves $3,007,000 $4,667,000 $(4,958,000) $2,716,000
The 13-weeks ended July 31, 1997:
Warranty and other reserves $2,716,000 $1,674,000 $(3,079,000) $1,311,000
The year ended July 31, 1998:
Warranty and other reserves $1,311,000 $6,280,000 $(6,537,000) $1,054,000