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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 March 30, 1996 Commission File No. 0-11577
LADD FURNITURE, INC.
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(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
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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
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As of May 10, 1996 there were 7,724,259 shares of Common Stock ($.30 par value)
of the registrant outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the thirteen weeks ended March 30, 1996 and April 1, 1995
(Amounts in thousands, except share data)
(Unaudited)
13 Weeks Ended
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March 30, April 1,
1996 1995
----------- -----------
Net sales $ 138,844 153,388
Cost of sales 119,264 126,560
----------- -----------
Gross profit 19,580 26,828
Selling, general and
administrative expenses 21,788 23,816
Restructuring expense 5,149 --
----------- -----------
Operating income (loss) (7,357) 3,012
----------- -----------
Other deductions:
Interest expense 2,660 2,803
Other, net 1,642 174
----------- -----------
4,302 2,977
----------- -----------
Earnings (loss) before income taxes (11,659) 35
Income tax expense (benefit) (4,664) 11
----------- -----------
Net earnings (loss) $ (6,995) 24
=========== ===========
Net earnings (loss) per common share $ (0.91) 0.00
=========== ===========
Weighted average number of
common shares outstanding 7,724,770 7,705,024
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2
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 30, 1996 and December 30, 1995
(Amounts in thousands, except share data)
ASSETS
March 30,
1996 December 30,
(Unaudited) 1995 *
----------- -----------
Current assets:
Cash $ 1,049 1,272
Trade accounts receivable, less allowances
for doubtful receivables, discounts,
returns and allowances of $5,012 and $4,057,
respectively 77,579 38,288
Inventories 91,386 89,466
Prepaid expenses and other current assets 20,263 13,663
--------- --------
Total current assets 190,277 142,689
--------- --------
Property, plant and equipment, net 82,652 82,586
Businesses held for sale, net -- 8,052
Intangible and other assets, net 78,900 79,659
--------- --------
$ 351,829 312,986
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,563 309
Short-term bank borrowings 5,000 3,037
Trade accounts payable 25,984 28,419
Accrued expenses and other current liabilit 32,620 31,396
--------- --------
Total current liabilities 67,167 63,161
--------- --------
Long-term debt, excluding current installments 148,687 112,598
Deferred compensation and other liabilities 8,211 6,593
Deferred income taxes 9,338 5,437
--------- --------
Total liabilities 233,403 187,789
--------- --------
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 7,724,259 and
7,726,993 shares, respectively 2,317 2,318
Additional paid-in capital 49,832 49,905
Retained earnings 66,834 73,829
--------- --------
118,983 126,052
Less unamortized value of restricted stock (557) (855)
--------- --------
Total shareholders' equity 118,426 125,197
--------- --------
$ 351,829 312,986
========= ========
* Derived from the Company's 1995 audited Consolidated Financial Statements.
3
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the thirteen weeks ended March 30, 1996 and April 1, 1995
(Amounts in thousands)
(Unaudited)
13 Weeks Ended
-----------------------
March 30, April 1,
1996 1995
--------- --------
Cash flows from operating activities:
Net earnings (loss) $ (6,995) 24
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation of property, plant and equipment 2,837 3,659
Amortization 1,607 895
Restructuring expense 5,149 --
Provision for losses on trade accounts receivable 1,359 315
(Gain) loss on sales of assets 3 (141)
Provision for deferred income taxes (2,149) 138
Increase in deferred compensation and
other liabilities 402 227
Change in assets and liabilities, net of effects
from divestitures and classification of businesses
held for sale:
Increase in trade accounts receivable (2,724) (8,677)
Increase in inventories (2,037) (2,098)
Increase in prepaid expenses and other
current assets (361) (462)
Decrease in trade accounts payable (1,106) (3,319)
Increase in accrued expenses and other
current liabilities 206 4,552
--------- --------
Total adjustments 3,186 (4,911)
--------- --------
Net cash used in operating activities (3,809) (4,887)
--------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (2,890) (3,158)
Purchase of leased manufacturing equipment (4,648) --
Proceeds from sales of property, plant and equipment 22 7
Proceeds from sale of business 5,764 --
(Additions to) reductions in other assets 115 (796)
--------- --------
Net cash used in investing activities (1,637) (3,947)
--------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings 43,725 9,731
Proceeds from short-term bank borrowings 1,963 25
Proceeds (repayments) from sale of accounts receivable (36,000) 1,330
Principal payments of long-term debt (4,401) (243)
Proceeds from common stock issued -- 7
Purchase of restricted stock (74) --
Dividends paid -- (695)
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Net cash provided by financing activites 5,213 10,155
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Effect of exchange rate changes on cash 10 (110)
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Net increase (decrease) in cash (223) 1,211
Cash at beginning of period 1,272 576
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Cash at end of period $ 1,049 1,787
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,400 2,512
Cash paid during the period for income taxes 26 163
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4
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Amounts in thousands, except share data)
Currency Unamortized
Number Addition trans- value of Total
of shares Common paid-in lation Retained restricted shareholders'
issued stock capital adjustment earnings stock equity
--------- ---------- --------- ---------- ---------- ------------ -------------
BALANCE AT DECEMBER 31, 1994 7,700,151 $ 2,310 49,516 (208) 101,105 (817) 151,906
Purchase of restricted
stock (2,452) (1) (68) -- -- 68 (1)
Shares issued in connection
with and amortization of
employee restricted
stock awards 29,294 9 457 -- -- (106) 360
Currency translation
adjustment -- -- -- (66) -- -- (66)
Reclassification to businesses
held for sale -- -- -- 274 -- -- 274
Net loss -- -- -- -- (25,190) -- (25,190)
Dividends paid -- -- -- -- (2,086) -- (2,086)
----------- -------- ------- --------- --------- -------- ----------
BALANCE AT DECEMBER 30, 1995 7,726,993 2,318 49,905 0 73,829 (855) 125,197
Purchase of restricted
stock (2,734) (1) (73) -- -- 73 (1)
Amortization of employee
restricted stock awards -- -- -- -- -- 225 225
Net loss -- -- -- -- (6,995) -- (6,995)
----------- -------- ------- --------- --------- -------- ----------
BALANCE AT MARCH 30, 1996
(UNAUDITED) 7,724,259 $2,317 49,832 0 66,834 (557) 118,426
=========== ======== ======= ========= ========= ======== ==========
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.
All such adjustments are of a normal recurring nature except as
disclosed in Note 2 to the financial statements.
(2) Restructuring and Planned Divestiture
During the first quarter of 1996, the Company recorded a $5.1 million
non-cash restructuring charge resulting from the continued
reorganization of the Company's remaining businesses and the further
write-down of the Company's businesses sold or held for sale to their
estimated fair value, less disposition costs. The restructuring charge
consisted of: (a) an aggregate $4.2 million charge for the shortfall in
the actual net proceeds, in comparison to the anticipated proceeds,
from the sale of Fournier Furniture and to provide for the anticipated
costs of liquidating Daystrom Furniture, including the write-down of
assets to their estimated liquidation value; and (b) $945,000 to
provide for severance expense related to the further restructuring of
the Company's casegoods and upholstery groups. Included in the $945,000
severance expense was $130,000 which was an adjustment to shareholders'
equity for the vesting of restricted stock.
Businesses held for sale at March 30, 1996 is valued using management's
best estimate of the amounts expected to be realized on the liquidation
of the Company's remaining business to be divested. However, the amount
the Company will ultimately realize could differ materially from the
amounts assumed in arriving at the loss on the write-down to the
estimated fair value of the business.
The following unaudited pro forma information shows consolidated
operating results for the periods presented as though the Company had
divested the four businesses and closed its company-owned retail stores
(announced in the second quarter of 1995) as of January 1, 1995,
excluding the restructuring expense recorded during the first quarter
of 1996 (in thousands):
13 Weeks Ended
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Mar. 30, Apr. 1,
1996 1995
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Net sales $128,242 126,258
Earnings (loss) before interest
and income taxes (1,719) 3,613
-6-
The following unaudited information shows the components included in
businesses held for sale at March 30, 1996 (in thousands):
Current assets $ 3,376
Property, plant and equipment, net 2,997
Current liabilities (1,549)
--------
Total assets, net 4,824
Reserve for loss (4,824)
--------
Businesses held for sale $ -
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The costs charged against restructuring reserves accrued in the second
quarter of 1995 and the first quarter of 1996 are as follows (in
thousands):
Restructuring reserve, December 30, 1995 $ 3,964
First quarter 1996 reserve additions 815
Costs:
Write-off leasehold improvements (31)
Lease termination costs (87)
Severance (374)
Other (394)
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Restructuring reserve, March 30, 1996 $ 3,893
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(3) Inventories
A summary of inventories follows (in thousands):
March 30, December 30,
1996 1995
----------- -----------
Inventories on the FIFO cost method:
Finished goods $ 51,492 50,847
Work in process 18,167 17,165
Raw materials and supplies 33,413 33,140
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Total inventories on
the FIFO cost method 103,072 101,152
Less adjustments of certain inven-
tories to the LIFO cost method (11,686) (11,686)
------------ ------------
$ 91,386 89,466
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(4) Trade Accounts Receivable Securitization Program
On March 28, 1996, the Company's trade accounts receivable
securitization program (the Securitization Program) was terminated. The
funds provided by the Securitization Program will be replaced by
borrowings available under the revolving credit line of the Company's
bank credit facility.
(5) Short-term Bank Borrowings and Long-term Debt
At March 30, 1996, the Company was in violation of certain financial
covenants contained in the Amended and Restated Credit Agreement with
NationsBank, N.A., as agent, dated October 19, 1994, as amended (the
Amended Facility). On March 29, 1996 and April 30, 1996, the Company
obtained waivers of violations of those financial covenants and
amendment to the security provisions of the Amended Facility. In
connection with obtaining the waivers, the company pledged as security
for the Amended Facility the personal property assets of the Company.
In anticipation of the refinancing of the Amended Facility discussed
below, the Company obtained an amendment relating to a requirement to
pledge the Company's interests in real estate to secure its obligations
under the Amended Facility. The amendment provides that if the Company
has not refinanced the Amended Facility by May 15, 1996, the Company
may be required to provide by June 15, 1996 a lien on real estate owned
by the Company as security for its obligations under the Amended
Facility.
The Company is in the process of refinancing its long-term and
short-term bank credit facilities. The refinancing is expected to be in
the form of a term loan and a revolving credit facility secured by
substantially all the assets of the Company, including equipment,
inventory, receivables and real property. Borrowings under such a
facility are expected to bear interest at rates above the Company's
borrowing rate at March 30, 1996. In anticipation of such a
refinancing, $890,000 of unamortized financing costs were charged to
operations during the first quarter of 1996. The Company anticipates
the planned refinancing will be finalized during the second quarter of
1996.
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(6) Postretirement Benefits Other Than Pensions
On May 10, 1996, the Company amended the postretirement features
of its healthcare benefit program, effective July 1, 1996, in an effort
to reduce operating costs. The effect of this action is to eliminate
the Company's financial obligation for postretirement healthcare costs.
As a result of the plan amendment, during the second quarter the
Company will credit to earnings approximately $4.5 to $5.0 million
of the noncurrent liability existing at March 30, 1996. The
remaining liability balance, in the range of $800,000 to $1.3
million, will be classified as a current liability. The amendment of
the postretirement healthcare program will result in an annual cost
savings of over $2.0 million, of which approximately $1.2 million is
a cash flow savings.
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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
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Mar. 30, Apr. 1,
1996 1995
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Net sales 100.0% 100.0%
Cost of sales 85.9 82.5
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Gross profit 14.1 17.5
Selling, general and
administrative expenses 15.7 15.5
Restructuring expense 3.7 --
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Operating income (loss) (5.3) 2.0
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Other deductions
Interest expense 1.9 1.9
Other, net 1.2 0.1
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3.1 2.0
------ -----
Earnings (loss) before income
taxes (8.4) 0.0
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Income tax expense (benefit) (3.4) --
------ -----
Net earnings (loss) (5.0)% 0.0%
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Net sales for the first quarter of 1996 decreased 9.5% from the first
quarter of 1995, with the decrease entirely attributable to the sale of Brown
Jordan Company and Lea Lumber & Plywood Company on December 29, 1995, the sale
of Fournier Furniture on February 26, 1996, and the closing of four
company-owned retail stores in the fourth quarter of 1995. On a pro forma basis,
assuming the divestitures and the closing of the retail stores had occurred at
the beginning of fiscal 1995, 1996 first quarter net sales would have increased
from prior year levels by 1.6%. The increase in 1996 pro forma net sales over
1995 pro forma amounts was primarily due to the resurgence of the Company's
contract business.
Cost of sales as a percentage of net sales increased to 85.9% in the
first quarter of 1996 from 82.5% in the first quarter of 1995, decreasing the
quarter's gross profit margin to 14.1% from 17.5% in 1995. The most significant
factor that reduced gross margins in the first quarter was plant downtime taken
at the Company's casegoods
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operations to control inventories in light of the weak furniture retail
environment early in the year which resulted in unabsorbed overhead expenses.
Additionally, due principally to the decision to liquidate Daystrom Furniture
and a significant product return from a Fournier Furniture customer, the gross
margins of these divested companies were depressed as well.
Selling, general and administrative (SG&A) expenses were 15.7% of net
sales for the first quarter of 1996 compared to 15.5% in the year-earlier
quarter. As a result of the weakness in the retail environment during the first
quarter of 1996, the Company increased its provision for bad debts by $1.0
million compared to the same period of 1995. The Company will continue to
monitor its provision for bad debts during this period of softness in the retail
market.
During the first quarter 1996, the Company recorded a $5.1 non-cash
restructuring charge as a result of: (i) the Company's decision to liquidate
Daystrom Furniture; (ii) a shortfall in the net proceeds anticipated from
selling Fournier Furniture; and (iii) additional severance expense relating to
the continued restructuring of the Company's remaining businesses.
Other deductions were 3.1% of net sales for the first quarter of 1996,
compared to 2.0% for the same period in 1995. The increase was primarily
attributable to the write-off of unamortized financing costs in anticipation of
the Company refinancing its current bank facility.
For the first quarter of 1996, the Company's net loss was $7.0 million,
compared with net earnings of $24,000 in the year-earlier period. The Company's
estimated annual effective income tax rate for the first quarter 1996 was 40.0%,
as compared to a 42.0% actual rate for the year ended December 30, 1995, and a
31.4% estimated annual rate for the first quarter of 1995. The differences in
the tax rates for the respective periods result from various permanent taxable
income, deductions, or credit items that increase or decrease the normal U.S.
Federal tax rate of 34.0% when applied to the Company's estimated annualized
pre-tax income or loss during each interim period, or actual annual pre-tax
income or loss in the case of each fiscal year end.
Liquidity and Capital Resources
Effective March 28, 1996, the Company's trade accounts receivable
securitization program was terminated in anticipation of the Company refinancing
its current long-term credit facility. At December 30, 1995, the Company had
generated cash of $36.0 million from this program which was replaced with
borrowings under the revolving credit line of the Company's long-term credit
facility.
As a result of refinancing of the accounts receivable securitization program
with long-term debt, the Company's current ratio at March 30, 1996 increased to
2.8 to 1 compared to 2.3 to 1 at December 30, 1995.
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Net working capital totaled $123.1 million at March 30, 1996, compared to $79.5
million at December 30, 1995.
During the first three months of 1996, the Company used cash in
operating activities of $3.8 million, compared to a use of $4.9 million in the
1995 period. The cash used in the first quarter of 1996 and 1995 was partially
due to increases in working capital.
During the first three months of 1996, capital spending totaled $2.9
million, compared to $3.2 million during the same period in 1995. The Company's
1996 capital expenditures are expected to approximate the current annual
depreciation rate of almost $12.0 million. The majority of the capital spending
during the first quarters of both 1995 and 1996 was to complete capital projects
initiated in the prior fiscal years.
During the first quarter of 1996, the Company increased its long-term
borrowings by $36.1 million, principally to fund the additional working capital
related to the termination of the Company's trade accounts receivable
securitization program. At March 30, 1996, the Company had $151.2 outstanding
under its long-term credit facility comprised of a $43.7 million term loan and
short-term and long-term borrowings totalling $107.5 million under a $115.0
million revolving credit line. Additionally, the Company had other long-term
indebtedness outstanding at March 30, 1996, primarily fixed-rate industrial
revenue bonds, aggregating $6.0 million. In total, long-term and short-term debt
(funded debt) represented 53.6% of total capitalization at March 30, 1996,
compared to 45.8% of total capitalization at December 30, 1995. At March 30,
1996, the Company had $7.5 million in unused and available long-term revolving
bank credit lines to meet future cash requirements.
The Company is in the process of refinancing its long-term and
short-term bank credit facilities. The refinancing is expected to be in the form
of a term loan and a revolving credit facility secured by substantially all the
assets of the Company, including equipment, inventory, receivables and real
property. Borrowings under such a facility are expected to bear interest at
rates above the Company's borrowing rate at March 30, 1996. At current borrowing
levels and interest rates, the effect of expected interest rates under the new
facility would be to lower profit before income taxes by approximately $1.1
million annually. The Company expects that the term loan repayment under the new
facility will commence in 1997. In anticipation of the refinancing, $890,000 of
unamortized financing costs were charged to operations during the first quarter
of 1996.
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PART II. OTHER INFORMATION
Item 5. Other Information
On May 10, 1996, the Company amended the postretirement
features of its healthcare benefit program, effective
July 1, 1996, in an effort to reduce operating
costs. The effect of this action is to eliminate the Company's
financial obligation for postretirement healthcare costs. As a
result of the plan amendment, during the second quarter the
Company will credit to earnings approximately $4.5 to $5.0
million of the noncurrent liability existing at March 30,
1996. The remaining liability balance, in the range of
$800,000 to $1.3 million, will be classified as a current
liability. The amendment of the postretirement healthcare
program will result in an annual cost savings of over
$2.0 million, of which approximately $1.2 million is a
cash flow savings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Press release dated May 13, 1996 relating to an
amendment to the Company's postretirement healthcare
program.
(b) Reports on Form 8-K
During the quarter, the Company filed a Form 8-K dated
December 29, 1995 which reported under Item 2 the
Company's sale of all of the outstanding stock and
certain related intellectual property rights of Brown
Jordan Company, and substantially all the assets of Lea
Lumber & Plywood, a division of the Company.
During the quarter, the Company filed a Form 8-K dated
February 26, 1996 which reported under Item 2 the
Company's sale of all of the outstanding stock of
Fournier Furniture, Inc.
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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: May 14, 1996 By: s/William S. Creekmuir
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William S. Creekmuir
Executive Vice President
and Chief Financial Officer
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