FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended July 2, 1994 Commission File No. 0-11577
LADD FURNITURE, INC.
(Exact name of registrant as specified in charter)
North Carolina 56-1311320
(State or other juris- (I.R.S. Employer
diction of incorpora- Identification No.)
tion or organization)
One Plaza Center, Box HP-3, High Point, North Carolina 27261-1500
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (910) 889-0333
_____________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
______________________
As of August 11, 1994 there were 23,096,557 shares of Common
Stock ($.10 par value) of the registrant outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the thirteen weeks and twenty-six weeks
ended July 2, 1994 and July 3, 1993
(Amounts in thousands, except per share data)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
Net sales $ 153,182 133,840 292,221 269,968
Cost of sales 122,657 107,328 236,112 218,572
Gross profit 30,525 26,512 56,109 51,396
Selling, general and
administrative expenses 23,996 21,252 45,565 41,858
Operating income 6,529 5,260 10,544 9,538
Other deductions (income):
Interest expense 2,206 1,374 3,840 2,765
Other, net 524 (79) 476 (151)
2,730 1,295 4,316 2,614
Earnings before income taxes 3,799 3,965 6,228 6,924
Income tax expense 1,094 1,615 1,868 2,824
Net earnings $ 2,705 2,350 4,360 4,100
Net earnings per common share $ 0.12 0.10 0.19 0.18
Weighted average number of
common shares outstanding 23,087 23,060 23,077 23,047
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LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 2, 1994 and January 1, 1994
(Amounts in thousands, except share data)
ASSETS
July 2,
1994 January 1,
(Unaudited) 1994 *
Current assets:
Cash $ 1,436 1,350
Trade accounts receivable, less allowances
for doubtful receivables, discounts,
returns and allowances of $4,397 and $4,178,
respectively (Note 4) 57,259 72,975
Inventories (Note 2) 121,766 100,639
Prepaid expenses and other current assets 11,164 6,110
Total current assets 191,625 181,074
Property, plant and equipment, net 117,780 97,497
Intangible and other assets, net 84,968 57,166
$ 394,373 335,737
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 7,704 5,815
Short-term bank borrowings (Note 5) 22,650 -
Trade accounts payable 29,445 23,414
Accrued expenses and other current liabilities 35,477 28,841
Total current liabilities 95,276 58,070
Long-term debt, excluding current installments 126,967 105,257
Deferred compensation and other liabilities 2,739 3,405
Deferred income taxes 16,253 18,902
Total liabilities 241,235 185,634
Shareholders' equity:
Preferred stock of $100 par value. Authorized
500,000 shares; no shares issued - -
Common stock of $.10 par value. Authorized
50,000,000 shares; issued 23,093,557 and
23,062,262 shares, respectively 2,309 2,306
Additional paid-in capital 49,495 49,186
Currency translation adjustment (232) (170)
Retained earnings 102,543 99,568
154,115 150,890
Less unamortized value of restricted stock (977) (787)
Total shareholders' equity 153,138 150,103
$ 394,373 335,737
* Derived from the Company's 1993 Annual Report.
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LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the thirteen weeks ended July 2, 1994 and July 3, 1993
(Amounts in thousands)
(Unaudited)
26 Weeks Ended
July 2, July 3,
1994 1993
Cash flows from operating activities:
Net earnings $ 4,360 4,100
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation of property, plant and equipment 6,621 4,881
Amortization 1,600 1,263
Provision for losses on trade accounts receivable 1,473 861
Gain on sales of property, plant and equipment (155) (172)
Provision for deferred income taxes (199) (438)
Increase (decrease) in deferred compensation and
other liabilities (667) 1,009
Change in assets and liabilities, net of effects
from purchase of Pilliod Furniture in 1994
Increase in trade accounts receivable (5,508) (9,434)
Increase in inventories (9,803) (7,712)
(Increase) decrease in prepaid expenses and
other current assets (3,052) 73
Decrease in trade accounts payable (1,411) (3,742)
Increase in accrued expenses and other
current liabilities 4,531 584
Total adjustments (6,570) (12,827)
Net cash used in operating activities (2,210) (8,727)
Cash flows from investing activities:
Acquisition of Pilliod Furniture, net of cash
acquired (Note 3) (23,847) -
Additions to property, plant and equipment (17,817) (11,359)
Proceeds from sales of property, plant and equipment 295 239
Additions to other assets (606) (660)
Net cash used in investing activities (41,975) (11,780)
Cash flows from financing activities:
Proceeds from long-term borrowings 27,217 21,650
Proceeds from short-term bank borrowings 22,650 -
Proceeds from sales of trade accounts receivable 31,000 -
Principal payments of long-term debt (35,171) (848)
Proceeds from common stock issued 22 83
Dividends paid (1,385) (1,383)
Net cash provided by financing activities 44,333 19,502
Effect of exchange rate changes on cash (62) 10
Net increase (decrease) in cash 86 (995)
Cash at beginning of period 1,350 1,826
Cash at end of period $ 1,436 831
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,703 2,011
Cash paid during the period for income taxes 1,367 1,860
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LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Amounts in thousands, except share data)
Currency Unamortized
Number Additional trans- value of Total
of shares Common paid-in lation Retained restricted shareholders'
issued stock capital adjustment earnings stock equity
BALANCE AT JANUARY 2, 1993 23,019,631 $ 2,302 48,681 (89) 98,489 (659) 148,724
Shares issued in connection
with incentive stock
option plan 11,668 1 90 - - - 91
Shares issued in connection
with and amortization of
employee restricted
stock awards 30,963 3 415 - - (128) 290
Currency translation
adjustment - - - (81) - - (81)
Net earnings - - - - 3,846 - 3,846
Dividends paid - - - - (2,767) - (2,767)
BALANCE AT JANUARY 1, 1994 23,062,262 2,306 49,186 (170) 99,568 (787) 150,103
Shares issued in connection
with incentive stock
option plan 2,344 - 19 - - - 19
Repurchase of restricted
stock (18,424) (1) (170) - - 170 (1)
Shares issued in connection
with and amortization of
employee restricted
stock awards 47,375 4 460 - - (360) 104
Currency translation
adjustment - - - (62) - - (62)
Net earnings - - - - 4,360 - 4,360
Dividends paid - - - - (1,385) - (1,385)
BALANCE AT JULY 2, 1994
(UNAUDITED) 23,093,557 $ 2,309 49,495 (232) 102,543 (977) 153,138
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Notes:
(1) Quarterly Financial Data
The quarterly consolidated financial data are unaudited but
include, in the opinion of management, all adjustments
necessary for a fair statement of the operating results for
the interim periods indicated. All such adjustments are of a
normal recurring nature.
(2) Inventories
A summary of inventories follows (in thousands):
July 2, January 1,
1994 1994
Inventories on the FIFO
cost method:
Finished goods $ 69,369 55,881
Work in process 21,612 19,277
Raw materials and supplies 45,472 37,183
Total inventories on
the FIFO cost method 136,453 112,341
Less adjustments of certain inven-
tories to the LIFO cost method (14,687) (11,702)
$ 121,766 100,639
(3) Acquisition of Pilliod Furniture
On January 31, 1994, the Company acquired The Pilliod
Cabinet Company, a manufacturer of promotional priced
casegoods furniture, by purchasing all of the common stock
of its parent company, Pilliod Holding Company (Pilliod),
for $24,257,000 million cash (including acquisition
expenses), the repayment of Pilliod debt of $29,893,000
million, and the assumption of other long-term debt of
$247,000. The excess of cost over fair value of the net
assets acquired was approximately $32,629,000 and will be
amortized on a straight-line basis over 40 years. The
acquisition was accounted for as a purchase and accordingly,
the net assets and operations of Pilliod have been included
in the Company's consolidated financial statements beginning
on the acquisition date. Valuations assigned are
preliminary and subject to change.
The following unaudited pro forma data presents the combined
second quarter and six months 1994 and 1993 results of
operations of the Company and Pilliod as though the
acquisition had occurred on January 3, 1993, giving effect
to depreciation and amortization of assets on the accounting
basis recognized in recording the purchase,
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the interest on funds used to effect the purchase, and excluding
certain non-recurring expenses of Pilliod during 1993 (in thousands,
except per share data).
13 Weeks Ended 26 Weeks Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
Net sales $153,182 154,635 299,881 312,424
Net earnings 2,705 3,107 4,639 5,645
Net earnings per
common share $ 0.12 0.13 0.20 0.24
During the second quarter of 1994, management of the Company
became aware of a potential error in the inventory balances
of Pilliod. An internal review of Pilliod's inventories is
in progress which management believes will be completed during
the third quarter of 1994. Information currently available indicates
that the error also existed in the inventory balances included in
the January 31, 1994 audited consolidated financial statements of
Pilliod and that inventory balances may have been overstated by
approximately $1.4 million. Accordingly, management currently
believes an adjustment reducing inventory and increasing excess of cost
over fair value of the net assets acquired will ultimately be required.
The effect of this adjustment would not have a material
impact on the 1994 consolidated statements of operations of
the Company. Additionally, the net earnings and net
earnings per common share included in the unaudited pro
forma combined financial data of the Company and Pilliod for
the prior year thirteen and twenty-six week periods ended July 3,
1993 may ultimately be reduced should it be determined that the
inventory error arose during either of those periods.
(4) Accounts Receivable Securitization Program
On January 31, 1994, the Company sold ownership interest in
a defined pool of trade accounts receivable for $20,000,000,
the proceeds of which were used to partially finance the
Pilliod acquisition - see Note 3. Under the agreement (as
amended on May 11, 1994) which expires in January 1995, the
maximum amount of the purchaser's investment can be
$40,000,000 and is subject to change based on the level of
eligible receivables and concentrations of receivables. At
July 2, 1994 the pool of trade accounts receivable which met
specified eligibility requirements for sale totaled
approximately $43,951,000 and the purchaser's investment
totaled $31,000,000. The net cash proceeds are reported as
financing activities in the accompanying consolidated
statement of cash flows for the twenty-six weeks ended July
2, 1994. The purchaser's investment is reflected as a
reduction of trade accounts receivables in the accompanying
July 2, 1994 consolidated balance sheet. The Company
retains substantially the same risk of credit loss as if the
receivables had not been sold and has made allowance for
such loss. The total cost of the program is included in
selling, general and
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administrative expense in the
accompanying 1994 second quarter and six months consolidated
statements of operations. A portion of the cost of the
accounts receivable sale program is based on the purchaser's
level of investment and borrowing costs.
(5) Short-term Bank Borrowings
During the first quarter of 1994, the Company established
unsecured short-term bank credit lines aggregating
$35,000,000, of which $22,650,000 was outstanding at July 2,
1994. These short-term bank credit lines expire on January
27, 1995 and February 28, 1995. The credit lines bear
interest at rates selected by the Company of LIBOR (4.94% at
July 2, 1994) plus 1 1/8%, prime (7.25% at July 2, 1994) or
at a lesser rate based on availability of bank funds. The
Company pays commitment fees ranging from 0.25% to 0.375% on
the unused portion of the short-term bank credit lines.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The following table sets forth the percentage relationship of net
sales to certain items included in the Consolidated Statements of
Operations:
13 Weeks Ended 26 Weeks Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 80.1 80.2 80.8 81.0
Gross profit 19.9 19.8 19.2 19.0
Selling, general and
administrative expenses 15.6 15.9 15.6 15.5
Operating income 4.3 3.9 3.6 3.5
Other deductions
Interest expense 1.4 1.0 1.3 1.0
Other, net .4 - .2 -
1.8 1.0 1.5 1.0
Earnings before income
taxes 2.5 2.9 2.1 2.5
Income tax expense .7 1.2 .6 1.0
Net earnings 1.8% 1.7% 1.5% 1.5%
The Company's 1994 second quarter and six months operating
results were influenced by the acquisition of Pilliod on January 31,
1994. Pilliod's results of operations are included in the Company's
consolidated financial statements from the date of acquisition - see
Note 3.
Net sales for the second quarter and first six months of 1994
were $153.2 million and $292.2 million, respectively, compared with
$133.8 million and $270.0 million during the comparable 1993 periods.
Net sales in 1994 increased from prior year levels by 14.5% for the
second quarter and 8.2% for the year-to-date. On a pro forma basis
assuming the acquisition of Pilliod took place at the beginning of
fiscal year 1993, net sales in 1994 would have decreased from prior
year levels by 0.9% for the second quarter and by 4.0% for the year-
to-date. The decrease in pro forma six months 1994 net sales was
primarily due to the discontinuance of certain American of
Martinsville residential casegoods product lines during the second
half of 1993; declines in 1994 export sales to Canada attributable to
weakness in the Canadian dollar against the U.S. dollar; shipments
under a large export contract to the Mideast in 1993 which did not
reoccur in the first half of 1994; and a decline in 1994 sales of
lower-priced upholstery products.
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Cost of sales as a percentage of net sales decreased slightly to
80.1% for the second quarter of 1994 and to 80.8% for the year-to-
date, compared to 80.2% and 81.0%, respectively, in 1993. This
decrease resulted in an increase in the gross profit margins to 19.9%
for the second quarter and 19.2% for the year to date, from 19.8% and
19.0%, respectively, in 1993. Gross margins, however, continue to
be negatively impacted by high prices for hardwood lumber and increased
particleboard prices, as well as promotional discounting of sales
prices.
Selling, general and administrative (SG&A) expenses remained
comparable with prior periods. SG&A expenses were 15.6% of net sales
for the second quarter of 1994 from 15.9% for the same period in
1993, while first half SG&A expenses increased to 15.6% of net sales
in 1994 as compared to 15.5% in 1993.
Other deductions were 1.8% of net sales for the second quarter
and 1.5% for the first six months of 1994, compared to 1.0% for the
same periods in 1993. The increase in other deductions was primarily
attributable to an increase in interest expense due to the partial
funding of the $54.0 million Pilliod acquisition with long and short-
term bank borrowings (see Note 3), coupled with an increase in
interest rates. Additionally, amortization expense increased as a
result of the Pilliod acquisition.
The decrease in the Company's effective income tax rate from
40.8% in 1993's first six months to 30.0% in the first six months of
1994 was in part due to tax planning strategies implemented late in
1993 to reduce the Company's state income taxes. Additionally, the
effective income tax rate was favorably impacted by utilizing a
portion of both Pilliod's net operating loss carryforwards and the
Company's capital loss carryforwards.
Net earnings were $2.7 million, or $.12 per share, for the
second quarter of 1994, compared with $2.3 million, or $.10 per share
for the same quarter of 1993. First half net earnings were $4.4
million, or $.19 per share for 1994, compared with $4.1 million, or
$.18 per share, for 1993.
Liquidity and Capital Resources
The Company's current ratio at July 2, 1994 was 2.0 to 1
compared to 3.1 to 1 at January 1, 1994. Net working capital totaled
$96.3 million at July 2, 1994 compared to $123.0 million at January
1, 1994. The decline in the current ratio and the decrease in net
working capital were primarily attributable to an increase in short-
term bank borrowings of $22.7 million and the sale of $31.0 million
of trade accounts receivables through the Company's accounts
receivable securitization program (see Notes 4 and 5). The proceeds
of these transactions were both used principally to finance the
Pilliod acquisition.
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During the first six months of 1994, the Company generated cash
from net earnings plus depreciation and amortization of $12.6 million
compared to $10.2 million in 1993. The cash generated in 1994 and
1993's first half of the year was utilized to partially fund
increases in working capital of $15.2 million and $20.2 million,
respectively.
During the first six months of 1994, capital spending totaled a
record $17.8 million compared to $11.4 million during the same period
in 1993. Capital expenditures were funded largely from operations
and borrowings under the Company's long-term and short-term revolving
credit lines. A majority of the capital spending during the first
six months of 1994 was to complete capital projects initiated in 1993
and early 1994.
During the first six months of 1994, the Company increased long-
term borrowings by $27.2 million. These incremental borrowings were
used principally to fund the Pilliod acquisition and the first six
month's capital expenditures. The Company had outstanding long-term
borrowings of $127.0 million at July 2, 1994, representing 42.5% of
total capitalization, compared to $105.3 million or 37.9% at January
1, 1994. At July 2, 1994, the Company had $12.3 million in unused
and available short-term revolving bank credit lines to meet future
cash requirements.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held
in High Point, North Carolina on April 28, 1994. Of the
23,082,996 shares of common stock outstanding on the record
date, 19,596,012 shares were present in person or by proxy.
Those shares were voted on the following matters as set
forth below:
A. Election of Directors:
Richard R. Allen Gerald R. Grubbs
For: 19,563,857 For: 19,563,957
Abstentions/ Abstentions/
Withhold Authority: 32,155 Withhold Authority: 32,055
Broker Non-Votes: 0 Broker Non-Votes: 0
William B. Cash Don A. Hunziker
For: 19,341,825 For: 19,563,757
Abstentions/ Abstentions/
Withhold Authority: 254,187 Withhold Authority: 32,255
Broker Non-Votes: 0 Broker Non-Votes: 0
James H. Corrigan, Jr. Thomas F. Keller
For: 19,564,257 For: 19,563,457
Abstentions/ Abstentions/
Withhold Authority: 31,755 Withhold Authority: 32,555
Broker Non-Votes: 0 Broker Non-Votes: 0
O. William Fenn, Jr Fred L. Schuermann, Jr.
For: 19,563,457 For: 19,564,057
Abstentions/ Abstentions/
Withhold Authority: 32,555 Withhold Authority: 31,955
Broker Non-Votes: 0 Broker Non-Votes: 0
B. Proposal to ratify the election of KPMG Peat Marwick as
independent auditors of the Company for 1994:
For: 19,553,112
Against: 12,963
Abstentions: 29,937
Broker Non-votes: 0
C. Proposal to approve the LADD Furniture, Inc. 1994
Incentive Stock Option Plan:
For: 16,775,881
Against: 1,393,021
Abstentions: 63,344
Broker Non-votes: 1,363,766
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 LADD Furniture, Inc. 1994 Incentive Stock Option
Plan
10.2 Amendment Number 2 to Transfer and Administration
Agreement dated as of May 11, 1994, between
Enterprise Funding Corporation, LADD Furniture,
Inc., and Clayton-Marcus Company, Inc., Barclay
Furniture, Co., LADD Transportation, Inc., and
Pilliod Furniture, Inc., as designated
subsidiaries
10.3 Amendment Number 1 to Receivables Purchase
Agreement dated as of May 11, 1994, between LADD
Furniture, Inc., Clayton-Marcus Company, Inc.,
Barclay Furniture, Co., LADD Transportation, Inc.,
and Pilliod Furniture, Inc.
10.4 Form of Amendment dated as of July 1, 1994 to the
Credit Agreement, dated as of January 15, 1993,
between the Company, The Chase Manhattan Bank
(National Association) as agent, and each of the
banks signatory to the Credit Agreement
(b) Reports on Form 8-K
During the quarter, the Company filed a Form 8-K/A-1
dated April 8, 1994 amending the Form 8-K report dated
February 14, 1994 which reported under Item 2 the Company's
acquisition of all of the outstanding stock of Pilliod
Holding Company. The Form 8-K/A-1 included the audited
financial statements for Pilliod Holding Company for
the nine months ended January 31, 1994 and pro forma
financial data reflecting the combination of the
Company and Pilliod as if the acquisition had occurred
January 3, 1993.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LADD Furniture, Inc.
Date: August 16, 1994 By: s/William S. Creekmuir
William S. Creekmuir
Senior Vice President
and Chief Financial Officer
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