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 1, 1995 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, 1995 there were 7,725,236 shares of Common Stock ($.30
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 1, 1995 and July 2, 1994
(Amounts in thousands, except per share data)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
Net sales $ 148,989 153,182 302,377 292,221
Cost of sales 133,492 122,657 260,052 236,112
Gross profit 15,497 30,525 42,325 56,109
Selling, general and
administrative expenses 28,335 23,996 52,151 45,565
Restructuring expense (Note 2) 25,696 - 25,696 -
Operating income (loss) (38,534) 6,529 (35,522) 10,544
Other deductions:
Interest expense 2,846 2,206 5,649 3,840
Other, net 2,687 524 2,861 476
5,533 2,730 8,510 4,316
Earnings (loss) before income taxes (44,067) 3,799 (44,032) 6,228
Income tax expense (benefit) (16,744) 1,094 (16,733) 1,868
Net earnings (loss) $ (27,323) 2,705 (27,299) 4,360
Net earnings (loss) per common share $ (3.54) 0.35 (3.54) 0.57
Weighted average number of
common shares outstanding 7,725 7,697 7,715 7,694
-2-
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 1, 1995 and December 31, 1994
(Amounts in thousands, except share data)
ASSETS
July 1,
1995 December 31
(Unaudited) 1994*
Current assets:
Cash $ 1,406 576
Trade accounts receivable, less allowances
for doubtful receivables, discounts,
returns and allowances of $3,862 and $4,294,
respectively 41,347 52,735
Inventories (Note 3) 91,127 122,083
Prepaid expenses and other current assets 11,670 10,053
Total current assets 145,550 185,447
Property, plant and equipment, net 83,826 109,522
Businesses held for sale, net (Note 2) 31,184 -
Intangible and other assets, net 76,515 83,847
$ 337,075 378,816
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (Note 5) $ 618 687
Short-term bank borrowings (Note 5) 1,950 5,000
Trade accounts payable 24,059 28,360
Accrued expenses and other current liabilities 29,814 27,715
Total current liabilities 56,441 61,762
Long-term debt, excluding current
installments (Note 5) 145,287 143,584
Deferred compensation and other liabilities 7,000 6,316
Deferred income taxes 4,769 15,248
Total liabilities 213,497 226,910
Shareholders' equity:
Preferred stock of $100 par value. Authorized
500,000 shares; no shares issued - -
Common stock of $.30 par value. Authorized
50,000,000 shares; issued 7,725,236 and
7,700,151 shares, respectively (Note 4) 2,317 2,310
Additional paid-in capital 49,883 49,516
Currency translation adjustment 0 (208)
Retained earnings 72,416 101,105
124,616 152,723
Less unamortized value of restricted stock (1,038) (817)
Total shareholders' equity 123,578 151,906
$ 337,075 378,816
* Derived from the Company's 1994 Annual Report.
-3-
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the twenty-six weeks ended July 1, 1995 and July 2, 1994
(Amounts in thousands)
(Unaudited)
26 Weeks Ended
July 1, July 2,
1995 1994
Cash flows from operating activities:
Net earnings (loss) $ (27,299) 4,360
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 7,214 6,621
Amortization 2,199 1,600
Restructuring expense 25,696 -
Provision for losses on trade accounts receivable 2,401 1,473
Gain on sales of property, plant and equipment (136) (155)
Provision for deferred income taxes (14,650) (199)
Increase (decrease) in deferred compensation and
other liabilities 561 (667)
Change in assets and liabilities, net of effects
from purchase of Pilliod Furniture in 1994 and
classification of businesses held for sale in 1995
Increase in trade accounts receivable (4,293) (5,508)
(Increase) decrease in inventories 7,266 (9,803)
Increase in prepaid expenses and other
current assets (460) (3,052)
Decrease in trade accounts payable (123) (1,411)
Increase in accrued expenses and other
current liabilities 6,082 4,531
Total adjustments 31,757 (6,570)
Net cash provided by (used in) operating activities 4,458 (2,210)
Cash flows from investing activities:
Acquisition of Pilliod Furniture, net of cash
acquired - (23,847)
Additions to property, plant and equipment (6,732) (17,817)
Proceeds from sales of property, plant and equipment 75 295
Additions to other assets (1,121) (606)
Net cash used in investing activities (7,778) (41,975)
Cash flows from financing activities:
Proceeds from long-term borrowings 2,131 27,217
Proceeds from (repayments of) short-term bank borrowings (3,050) 22,650
Proceeds from sales of trade accounts receivable 315 31,000
Proceeds from sale leaseback of equipment 6,691 -
Principal payments of long-term debt (497) (35,171)
Proceeds from common stock issued 7 22
Dividends paid (1,390) (1,385)
Net cash provided by financing activities 4,207 44,333
Effect of exchange rate changes on cash (57) (62)
Net increase in cash 830 86
Cash at beginning of period 576 1,350
Cash at end of period $ 1,406 1,436
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 5,585 3,703
Cash paid during the period for income taxes 319 1,367
-4-
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 1, 1994 7,688,719 $ 2,306 49,186 (170) 99,568 (787) 150,103
Shares issued in connection
with incentive stock
option plan 782 - 19 - - - 19
Repurchase of restricted
stock (6,142) (1) (170) - - 170 (1)
Shares issued in connection
with and amortization of
employee restricted
stock awards 16,792 5 481 - - (200) 286
Currency translation
adjustment - - - (38) - - (38)
Net earnings - - - - 4,308 - 4,308
Dividends paid - - - - (2,771) - (2,771)
BALANCE AT DECEMBER 31, 1994 7,700,151 2,310 49,516 (208) 101,105 (817) 151,906
Repurchase of restricted
stock (2,452) (1) (68) - - 68 (1)
Shares issued in connection
with and amortization of
employee restricted
stock awards 27,537 8 435 - - (289) 154
Currency translation
adjustment - - - (57) - - (57)
Reclassification to
businesses held for sale - - - 265 - - 265
Net loss - - - - (27,299) - (27,299)
Dividends paid - - - - (1,390) - (1,390)
BALANCE AT JULY 1, 1995
(UNAUDITED) 7,725,236 $ 2,317 49,883 0 72,416 (1,038) 123,578
-5-
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. During the quarter, a $10.2 million non-cash
charge was recorded to write-off bank financing fees and increase
reserves for slow moving and discontinued inventories, potential
bad debts and other liabilities recognized during the second
quarter. All other adjustments are of a normal recurring nature
except as disclosed in Note 2 to the financial statements.
(2) Restructuring
In June 1995, the Company recorded a $25.7 million non-cash
restructuring charge. The restructuring charge resulted from the
Company's plan to divest four operating companies (businesses held
for sale), close four Company-owned retail stores and reorganize
the remaining companies to improve operating performance. The
restructuring charge consisted of: (a) $19.5 million to write-down
the businesses held for sale to the lower of carrying value or
estimated fair value, net of disposition expenses; (b) $3.3
million to increase reserves for costs associated with closing
four retail stores (principally lease termination costs); (c) $1.7
million to write-down selected machinery to estimated fair value
as a result of changes in manufacturing processes; and (d) $1.2
million to provide for severance expense and other costs. In
connection with recording the restructuring charge, the Company
adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (FAS 121).
Adoption of FAS 121 was not material and had no effect on earlier
interim periods.
The following unaudited pro forma information shows consolidated
operating results for the periods presented as though the Company
had divested the four businesses held for sale as of January 1,
1994, and excluding the restructuring expense recorded during the
second quarter of 1995 (in thousands):
13 Weeks Ended 26 Weeks Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
Net sales $ 120,888 121,964 248,402 235,161
Earnings (loss) before
interest and income taxes (12,441) 4,301 (8,476) 8,067
-6-
The Company expects that the businesses being divested will be
sold by the end of 1995. The Company intends to use the net cash
proceeds from the sale of the businesses to reduce long-term debt.
The following unaudited information shows the components included
in businesses held for sale at July 1, 1995 (in thousands):
Current assets $ 38,590
Property, plan and equipment, net 17,179
Other noncurrent assets 5,363
Current liabilities (10,713)
Currency translation adjustment 265
Total assets, net 50,684
Reserve for loss (19,500)
Businesses held for sale $ 31,184
(3) Inventories
A summary of inventories follows (in thousands):
July 1, December 31,
1995 1994
Inventories on the FIFO
cost method:
Finished goods $ 55,704 65,046
Work in process 15,498 23,084
Raw materials and supplies 31,342 47,997
Total inventories on
the FIFO cost method 102,544 136,127
Less adjustments of certain inven-
tories to the LIFO cost method (11,417) (14,044)
$ 91,127 122,083
At July 1, 1995, businesses held for sale in the consolidated
balance sheet included inventories totaling $23.7 million.
(4) Reverse Stock Split
On May 12, 1995, shareholders approved a one-for-three reverse
split of the Company's common stock which became effective May 16,
1995. This reverse split increased the par value of the common
stock to $0.30 per share from $0.10 per share and decreased the
issued shares to 7,725,236 from 23,171,799 prior to the reverse
split. All per share data presented in the accompanying financial
statements have been restated for the one-for-three stock split.
-7-
(5) Amendment of Long-Term Credit Facility
Effective August 14, 1995, the Company's $190.0 million long-term
credit facility was amended (the Amended Facility). Borrowings
under the Amended Facility bear interest at rates selected
periodically by the Company of LIBOR (6.0% at July 1, 1995) plus
1 1/4% to 2 3/4 %, prime (9.0% at July 1, 1995) plus 1/4% to
1 3/4 %, or at a lesser rate based on the availability of bank
funds. Under the Amended Facility, the Company pays a commitment
fee of 3/8 % to 1/2% per annum on the unused portion of the
revolving credit loan.
The pricing of the Amended Facility is determined by a ratio of
debt levels to cash flows, as specified. For the period August
14, 1995 through April 1996, the Amended Facility will bear
interest at LIBOR plus 2 1/4% or prime plus 1 1/4%, and the Company
will pay a commitment fee of 1/2%. When the Company reduces its
debt levels by $20.0 million or $40.0 million from the cash proceeds
of the sale of companies as discussed in Note 2, the interest rate on
the Amended Facility will be reduced by 1/8% or 1/4%, respectively.
Borrowings under the facility prior to the amendment included
interest at rates selected periodically by the Company of LIBOR
plus 7/8%, prime or at a lesser rate based on the availability of
bank funds. Commitment fees under this prior facility were 1/4% per
annum on the unused portion of the revolving credit loan.
At current borrowing levels and interest rates, the effect of the
Amended Facility would be to lower profit before income taxes by
approximately $2.1 million annually. In connection with amending
the long-term credit facility, during the quarter ended July 1,
1995 the Company charged approximately $525,000 in unamortized
financing fees to operations.
Borrowings under the Amended Facility are unsecured but will
become subject to a lien on substantially all the assets of the
Company effective March 30, 1996 if the term loan component of the
facility has not been reduced by $40.0 million by that date. The
Amended Facility requires the maintenance of certain ratios
pertaining to shareholders' equity, operating earnings, and
operating cash flows and contains covenants which relate to future
borrowings, liens on assets, specified amounts of consolidated net
worth and capital spending, and the operations of the Company. At
July 1, 1995, the Company was in compliance with covenants under
the prior credit facility or had obtained waivers where violations
existed thereto.
-8-
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 1, July 2, July 1, July 2,
1995 1994 1995 1994
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.6 80.1 86.0 80.8
Gross profit 10.4 19.9 14.0 19.2
Selling, general and
administrative expenses 19.1 15.6 17.2 15.6
Restructuring expense 17.2 - 8.5 -
Operating income (loss) (25.9) 4.3 (11.7) 3.6
Other deductions
Interest expense 1.9 1.4 1.9 1.3
Other, net 1.8 .4 .9 .2
3.7 1.8 2.8 1.5
Earnings (loss) before
income taxes (29.6) 2.5 (14.5) 2.1
Income tax expense (benefit) (11.2) .7 (5.5) .6
Net earnings (loss) (18.4)% 1.8% (9.0)% 1.5%
Net sales for the second quarter and first six months of 1995 were
$149.0 million and $302.4 million, respectively, compared with $153.2
million and $292.2 million during the comparable 1994 periods. Net
sales in 1995 decreased from prior year levels by 2.7% for the second
quarter and increased by 3.5% for the year-to-date. The decrease in
the second quarter 1995 net sales was primarily due to decreased
consumer demand for furniture. On a pro forma basis assuming the
acquisition of Pilliod had occurred at the beginning of fiscal year
1994, 1995 year-to-date net sales would have increased from prior year
levels by 1.0%.
Cost of sales as a percentage of net sales increased to 89.6% for
the second quarter of 1995 and 86.0% for the year-to-date, compared to
80.1% and 80.8%, respectively, in 1994. This increase resulted in a
decrease in the gross profit margins to 10.4% for the second quarter
and 14.0% for the year-to-date, from 19.9% and 19.2%, respectively, in
1994. The increase in the cost of sales was primarily attributable to
a $5.3 million non-cash charge to increase reserves for slow-moving and
discontinued inventories. The charge was recorded as a result of a
change in industry conditions requiring further discounting for sale of
such goods. High raw material costs continued to negatively impact
gross margins in the second quarter and first six months of 1995.
Also, due to
-9-
the recent sluggish sales pace in the furniture industry, several of
the Company's plants took increased downtime in the second quarter to
reduce inventories. These temporary plant shutdowns resulted in
unabsorbed fixed costs, which further reduced the quarter's gross
margins.
Selling, general and administrative (SG&A) expenses increased to
19.1% of net sales for the second quarter of 1995 from 15.6% for the
same period in 1994, while first half SG&A expenses increased to 17.2%
from 15.6% in 1994. During the second quarter, the Company recorded a
$2.3 million non-cash charge to increase bad debt reserves due to
current industry conditions, and to provide for other miscellaneous
expenses. Additionally, higher marketing expenses were incurred during
the second quarter in conjunction with the large number of new products
introduced at the Spring furniture market.
The $25.7 million restructuring expense incurred in the second
quarter of 1995 resulted from the Company's plans to divest four
operating companies and restructure its remaining operating companies
to improve operating performance. As set forth in Note 2, the reserves
included a non-cash charge to write-down the businesses held for sale
to the lower of carrying value or estimated fair values, to provide for
expected losses from the closing of four Company-owned retail stores,
to write-down selected machinery due to changes in manufacturing
processes, and to provide for severance expense and other costs.
Other deductions were 3.7% of net sales for the second quarter and
2.8% for the first six months of 1995, compared to 1.8% and 1.5%,
respectively, in 1994. The increase in other deductions was primarily
due to an increase in interest expense resulting from an increase in
a v e r a ge outstanding borrowings, coupled with an increase of
approximately 2% in the average quarterly and first six months interest
rate compared to the same periods of 1994. Included in other
deductions in the second quarter of 1995 were non-cash charges totaling
$2.2 million attributable to the write-off of bank financing fees and
other noncurrent assets, and the recognition of other liabilities.
The significant pre-tax operating loss recorded for the first half
of 1995, as well as the anticipated realization by year-end of the
restructuring charges included therein, caused the current year
effective income tax rate to rise to 38%, as compared with 30% for the
year earlier period. The financial reporting effect of the anticipated
1995 net operating loss (which will be carried back three years and
then forward 15 years or until used in full) on the tax rate is to
defer recognition of the rate-reducing benefits of previously initiated
tax planning efforts until realization is reasonably assured.
The Company's net loss was $27.3 million, or $3.54 per share, for
the second quarter of 1995, compared with net earnings of $2.7 million,
or $.35 per share for the same quarter of 1994. The first half net
loss was $27.3 million, or $3.54 per share for 1995, compared with net
earnings of $4.4 million, or $.57 per share, for 1994.
-10-
Liquidity and Capital Resources
The Company's current ratio at July 1, 1995 was 2.6 to 1 compared
to 3.0 to 1 at December 31, 1994. Net working capital totaled $89.1
million at July 1, 1995 compared to $123.7 million at December 31,
1994. The decline in the current ratio and the decrease in net working
capital were primarily attributable to the current assets and
liabilities of the companies to be divested being reclassified to a
noncurrent asset, businesses held for sale. Exclusive of the
reclassification and the $5.3 million increase in reserves recorded in
the second quarter for slow moving and discontinued inventories,
inventories declined year-to-date by $2.0 million as a result of
shipments and plant downtown taken during the year.
During the first six months of 1995, the Company generated cash
from net earnings plus depreciation, amortization and restructuring
expense of $7.8 million compared to $12.6 million in 1994. The cash
generated in 1995 and 1994's first half of the year was utilized to
fund working capital needs and capital expenditures.
During the first six months of 1995, capital spending totaled $6.7
million compared to $17.8 million during the same period in 1994.
Capital expenditures in the first half of 1994 were funded largely from
borrowings under the Company's long-term and short-term revolving
credit lines. A majority of the capital spent during the first six
months of 1995 was to complete capital projects initiated in 1994 and
early 1995.
During the second quarter of 1995, the Company's short-term bank
borrowings declined $3.1 million and long-term borrowings declined $7.8
million resulting in a $10.9 million reduction in total debt. The
quarterly decrease in debt resulted from working capital reductions and
a $6.7 million sale/leaseback of selected machinery and equipment. The
Company had outstanding long-term borrowings of $145.3 million at July
1, 1995, representing 51.8% of total capitalization at that date,
compared to $143.6 million or 45.3% at December 31, 1994. At July 1,
1995, the Company had $50.1 million in unused and available long-term
revolving bank credit lines to meet future cash requirements.
As a result of the Company's 1995 second quarter operating
performance and restructuring, the Company would have violated certain
covenants in its long-term credit facility if waivers had not been
obtained from the Company's bank group. On August 14, 1995, the
Company's long-term credit facility was amended as discussed in Note 5.
The amended long-term credit facility will result in higher interest
expense for the Company in the foreseeable future. At current
borrowing levels and interest rates, the effect of the Amended Facility
would be to lower profit before income taxes by approximately $2.1
million annually.
-11-
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 May 12, 1995. Of the 23,171,799
shares of common stock outstanding on the record date,
19,495,679 shares were present in person or by proxy. The
share information is stated at the amount prior to the one-
for-three reverse stock split as the split did not become
effective until May 16, 1995. Those shares were voted on the
following matters as set forth below:
A. Election of Directors:
Richard R. Allen Fred L. Schuermann, Jr.
For: 19,110,452 For: 19,114,415
Abstentions: 385,227 Abstentions: 381,264
Broker Non-Votes: 0 Broker Non-Votes: 0
William B. Cash Don A. Hunziker
For: 18,785,427 For: 19,110,882
Abstentions: 710,252 Abstentions: 384,797
Broker Non-Votes: 0 Broker Non-Votes: 0
James H. Corrigan, Jr. Thomas F. Keller
For: 18,809,325 For: 18,808,725
Abstentions: 686,354 Abstentions: 686,954
Broker Non-Votes: 0 Broker Non-Votes: 0
O. William Fenn, Jr
For: 19,115,652
Abstentions: 380,027
Broker Non-Votes: 0
B. Proposal to ratify the election of KPMG Peat Marwick LLP
as independent auditors of the Company for 1995:
For: 19,395,369
Against: 74,907
Abstentions: 25,403
Broker Non-votes: 0
C. Proposal to approve the amendment to the Company's
Articles of Incorporation and the concurrent one-for-
three reverse stock split:
For: 17,026,510
Against: 2,469,169
Abstentions: 0
Broker Non-votes: 0
-12-
Item 5. Other Information
On August 14, 1995 the Company entered into the Third
Amendment to Amended and Restated Credit Agreement with
Nationsbank, N.A. (Carolinas), as agent, amending various
financial covenants, increasing the interest rates applicable
to borrowings, providing for prepayment of term loan
borrowings upon divesture of certain operating units of the
Company, and providing for the possible pledging of
essentially all of the assets of the Company and its
subsidiaries as security for the borrowings, if the term loan
is not reduced by $40.0 million prior to March 30, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Articles of Amendment of LADD Furniture, Inc.
10.2 Amendment Agreement No. 1 dated as of June 7, 1995
amending Exhibit A-1 to the Equipment Leasing
Agreement dated as of December 15, 1994 between
Unionbanc Leasing Corporation and LADD Furniture,
Inc.
10.3 Amendment Agreement No. 1 dated as of June 7, 1995
amending Exhibit A-1 to the Equipment Leasing
Agreement dated as of December 15, 1994 between
BOT Financial Corporation and LADD Furniture, Inc.
10.4 Amendment Agreement No. 1 dated as of June 15,
1995 amending Lease Supplement No. One to the
Equipment Leasing Agreement dated as of December
15, 1994 between BOT Financial Corporation and
LADD Furniture, Inc.
10.5 Third Amendment to Amended and Restated Credit
Agreement dated as of August 14, 1995, between the
Company, Nationsbank, N.A., as agent and each of
the banks signatory thereto.
(b) Reports on Form 8-K
During the quarter, the Company filed a Form 8-K/A-2
dated April 24, 1995 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 (Pilliod). The Form 8-K/A-2
also amended the Form 8-K/A-1 dated April 8, 1994 which
included the audited financial statements for Pilliod
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.
-13-
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 15, 1995 By: s/William S. Creekmuir
William S. Creekmuir
Senior Vice President
and Chief Financial Officer
-14-