-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S9Jt/7K6AQKRW8gh91vAxqDFmqk9adWR+luGq9RHONhsIHIE4nIPT77T9PRretTh jsoXjfdlI9U4RFdkhTp6Wg== 0000916641-96-000051.txt : 19960129 0000916641-96-000051.hdr.sgml : 19960129 ACCESSION NUMBER: 0000916641-96-000051 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951029 FILED AS OF DATE: 19960126 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PULASKI FURNITURE CORP CENTRAL INDEX KEY: 0000081112 STANDARD INDUSTRIAL CLASSIFICATION: WOOD HOUSEHOLD FURNITURE, (NO UPHOLSTERED) [2511] IRS NUMBER: 540594965 STATE OF INCORPORATION: VA FISCAL YEAR END: 1026 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00314 FILM NUMBER: 96507232 BUSINESS ADDRESS: STREET 1: P O BOX 1371 STREET 2: ONE PULASKI SQ CITY: PULASKI STATE: VA ZIP: 24301 BUSINESS PHONE: 7039807330 MAIL ADDRESS: STREET 1: P O BOX 1371 STREET 2: 1 PULASKI SQUARE CITY: PULASKI STATE: VA ZIP: 24301 10-K405 1 PULASKI FURNITURE CORPORATION 10K-405 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 October 29, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission file number 0-314 PULASKI FURNITURE CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-0594965 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P. O. Box 1371 24301 Pulaski, Virginia (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (703) 980-7330 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Preferred Stock Purchase Rights* (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the Common Stock held by non-affiliates of the registrant as of December 15, 1995: $43,828,886.** Number of shares of Common Stock outstanding as of December 15, 1995: 2,839,179. - --------------- * On December 3, 1987 the Board of Directors of the registrant approved a Rights Agreement pursuant to which a special dividend consisting of the Preferred Stock Purchase Rights was distributed to the holders of record of the registrant as of December 15, 1987. ** In determining this figure, the registrant has assumed that all of its officers, directors and persons known to the registrant to be the beneficial owners of more than five percent of the registrant's Common Stock are affiliates. Such assumption shall not be deemed to be conclusive for any other purpose. The aggregate market value has been computed based on the last sale price for December 15, 1995, as reported by The Wall Street Journal. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Pulaski Furniture Corporation's 1995 Annual Report to Security Holders are incorporated by reference into Parts II and IV of this Form 10-K. 2. Portions of Pulaski Furniture Corporation's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders (filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934) are incorporated by reference into Part III of this Form 10-K. -2- PART I Item 1. Business General Since its organization in 1955, Pulaski Furniture Corporation (the "Company") has engaged exclusively in the production and sale of furniture products. The Company presently manufactures medium-priced wooden bedroom, dining room and occasional furniture (in plants located in Pulaski, Dublin and Martinsville, Virginia), grandfather, mantel and wall clocks (in its plant in Ridgeway, Virginia), and higher-priced solid mahogany bedroom, dining room and occasional furniture (in the Company's plant in Mebane, North Carolina). During the 1990 fiscal year, the Company entered the upholstery business, which it currently operates out of a leased portion of a building in Christiansburg, Virginia. The Company's furniture is predominately in the traditional style. Furniture and clock styles are periodically updated, revised or discontinued by the Company in anticipation of the April and October markets in High Point, North Carolina. Also, the Company imports some specialized furniture items and furniture parts. The Company currently anticipates that its demand for these imports will increase in the future as some of the Company's product lines utilizing these imports mature. Over the course of the past several years the Company has increased substantially its production capacity, which has permitted increased sales when market conditions are favorable. This has resulted in a significant increase in the overall size of the Company. In 1973, the Company began operating its plant in Dublin and completed a renovation of the Pulaski plant. In 1975, the Company completed an expansion and renovation of the Martinsville plant. The Company acquired substantially all of the assets of Coleman Furniture Corporation in 1983. In 1985, the Company completed the renovation of a portion of the former Coleman plant and the construction of a new facility connecting the former Coleman plant to the existing Pulaski facility. Also, in 1985, the Company acquired Gravely Furniture Company, Incorporated (currently, Ridgeway Clock Company) of Ridgeway, Virginia. Ridgeway Clock Company manufactures grandfather, mantel and wall clocks. In 1988, the Company completed construction of a new finishing plant located at its Pulaski facilities. Also in 1988, the Company acquired Craftique, Inc. with manufacturing facilities located in Mebane and Durham, North Carolina. In 1994, the Company completed an expansion of its Pulaski operations by construction of a new manufacturing facility. The new facility houses highly-automated production lines, which should provide the Company with access to lower price points in the market. See Item 2--Properties. -3- Materials Lumber constitutes the principal material used by the Company in the manufacturing of its furniture products. The Company also uses lumber in its manufacturing of clock cases. The Company purchases lumber from sawmill operators and lumber dealers. Clock components are purchased from various domestic and foreign sources. Other materials essential to the Company's manufacturing include veneers, finishing materials, chipcore, sandpaper, lumber squares, fabric, glue, mirrors, hardware, glass, carvings, packing materials, wooden frames for use in its upholstery business and other product supplies. In 1983, the Company entered into a joint venture with three other companies to form Triwood, Inc. to own and operate plant facilities in Henry County, Virginia for the production of chipcore, an essential material used to manufacture the Company's furniture products. Triwood, Inc. began operations during 1985, and the Company entered into a firm purchase arrangement for chipcore with Triwood, Inc. In 1995, the Company sold its interest in Triwood, Inc. The Company's net investment in the venture, as of the end of the 1995 fiscal year, was approximately $1,172,014. The Company believes that chipcore and all other required materials can be obtained from suppliers as needed. Marketing and Promotion Through a sales force of about 100 persons, including 55 regular commission salesmen, the Company serves approximately 11,000 retail customers located in all fifty states of the United States, the District of Columbia, Puerto Rico, Canada, Mexico, Australia, New Zealand, the European Common Market and parts of the Far East. The substantial majority of the Company's sales are within the United States and its territories, however, the Company has experienced growth in its international sales over the course of the last few years. During the Company's fiscal years ended in 1995, 1994 and 1993, export sales by the Company aggregated approximately $10,046,000, $8,770,000 and $8,502,000, respectively. The sales force for the Company's products, other than its Craftique products, is organized into three geographical regions. A regional sales manager is responsible for the Company's sales in each region, and the regional managers report to the Vice President-Sales. The Company's Craftique products are sold through a sales force responsible to a national sales manager for the division. The national sales manager for the Craftique division reports to the Company's Vice President-Sales. In addition, most of the Company's foreign export sales are made through foreign representatives and distributors, who report to the Company's regional export sales manager. -4- The Company currently utilizes a small number of trademarks and tradenames in connection with certain lines of the Company's products and a few patents in connection with certain of its products. All trademarks, tradenames and patents utilized by the Company either are owned by the Company or one of its subsidiaries. From time to time, the Company may apply for the registration of additional trademarks or the issuance of additional patents in connection with its products. The Company permits its sales personnel to spend part of their time selling home furnishings (such as lines of accessories and lamps) manufactured by other companies. These secondary products are considered complementary to, and not competitive with, the Company's products. The Company's products are distributed to customers by truck and rail facilities. For the display of its products, the Company maintains permanent showrooms at the International Home Furnishings Market in High Point, North Carolina, the Tupelo Furniture Market in Tupelo, Mississippi and the San Francisco Mart in San Francisco, California. The annual rentals for these display facilities total approximately $338,626. As of October 29, 1995, the Company's unfilled customers' orders for furniture and clocks totalled approximately $26 million (compared with approximately $27.7 million as of October 30, 1994). The decrease in the backlog of unfilled orders since October 30, 1994 is primarily attributable to system improvements allowing for prompter shipments. The backlog of unfilled orders is valued at prices prevailing at the time the orders were taken. The Company expects to fill all of the unfilled customer orders for the 1995 fiscal year during the 1996 fiscal year. Demand for the Company's furniture products generally is highest in the period from September through January and lowest in June and August. Demand for the Company's clock products is generally highest in the period from August through December. Competition The business in which the Company is engaged is highly competitive with several manufacturers competing for product acceptability in the retail market. Competition within the markets for medium and higher-priced wooden bedroom, dining room and occasional furniture and for clocks occurs principally in the areas of style, quality and price. The Company has recently been successful introducing new lines that were favorably received by the market. Although it is difficult to compare manufacturers by size, the Company estimates that, based on its 1995 net sales, the Company ranks among the 25 largest furniture manufacturers in the United States. -5- Employees The Company employs approximately 2,200 persons on a full-time basis, approximately 10% of whom are salaried and none of whom is represented by a labor union. The Company considers its employee relations to be good. Item 2. Properties General The Company owns all of its manufacturing and warehouse facilities, except the portion of a facility in Christiansburg, Virginia, which houses the Company's upholstery business, and warehouse space in Pulaski and Martinsville, Virginia and in Mebane, North Carolina (each of which is rented on a monthly basis). The Company's operating plants are well-maintained and include many items of equipment and machinery of recent design. The Company believes that its present operating plant capacity is sufficient to meet current and projected future demand for its products. Insurance is maintained against certain risks, including fire and business interruption, and in such amounts as the Company deems desirable. Pulaski Facilities Pulaski, Virginia is the site of the Company's general offices and of two of its principal furniture manufacturing plants. The Company's buildings located in Pulaski are constructed primarily of brick and cinder block and were erected and have been renovated at various times from 1926 to the present. In 1983, the Company acquired real estate, improvements and equipment from Coleman Furniture Corporation, including land and building space adjoining the Company's original Pulaski plant. In 1985, the Company completed the renovation of a portion of the former Coleman plant adjoining the Company's original Pulaski plant and the integration of that portion of the plant with the original Pulaski facility. The cost of the renovation (including capitalized interest expense) was approximately $8,000,000. The remaining portion of the former Coleman property is being used for warehouse and office space or otherwise is being held for renovation and future expansion. In 1988, a new finishing plant was brought on line at a total project cost of $3,955,000. The new plant includes updated equipment providing improved finishing techniques and greater safety for employees. In 1994, the Company completed an expansion of its Pulaski facilities by the construction of a new 75,000 square foot -6- manufacturing facility. The total cost of the expansion was approximately $13.6 million. The new manufacturing facility is designed to utilize newer equipment and to provide for more efficient manufacturing of certain lines of the Company's furniture products. The complete Pulaski facility now contains approximately 980,000 square feet of production, warehouse and office space and approximately 120,000 square feet of additional building space available for future expansion at renovation costs. The facility is located on approximately twenty-nine acres. During the last year the Pulaski facility primarily produced occasional furniture (including curios, consoles, tables, chairs and other accent pieces) and served as a dimension plant (producing rough-cut materials) for the Company's other facilities. Dublin Plant The Dublin plant, which began operations in 1973, consists of approximately 570,000 square feet of factory and warehouse space located on a 153.5-acre parcel owned by the Company (including 106.5 acres acquired in 1983 from Coleman Furniture Corporation). The plant produces bedroom, dining room and occasional furniture (including curios, collectors cabinets, consoles and other accent pieces). This parcel fronts on State Route #100, close to Interstate Highway 81 and is served by the Norfolk & Southern Railroad. The Dublin plant also produces veneer in a 36,000 square foot brick and cinder block building constructed in 1964. Martinsville Plant The Martinsville plant manufactures occasional furniture, including curios, desks, consoles and other accent pieces. A major renovation and expansion program for the Martinsville plant was completed in fiscal 1975. The plant contains approximately 190,000 square feet of manufacturing, warehouse and office space and is located on a tract of about eight acres in the City of Martinsville, Virginia. Ridgeway Clock Company Plant In 1985, the Company acquired Gravely Furniture Company, Incorporated, located in Ridgeway, Virginia. Gravely Furniture Company, Incorporated was renamed Ridgeway Clock Company. Ridgeway Clock Company manufactures grandfather, mantel and wall clocks. Ridgeway Clock Company purchases clock parts from foreign and domestic sources and assembles the parts into manufactured wooden clock cases. The Ridgeway Clock Company plant contains -7- approximately 326,000 square feet of production, warehouse and office space located on approximately 79.5 acres. Craftique, Inc. Plant The Company's Craftique plant located in Mebane, North Carolina, manufactures solid mahogany bedroom, dining room and occasional furniture. The Craftique plants contains approximately 42,000 square feet of production and office space located on approximately thirty-one acres. Craftique also owns an industrial tract of approximately one acre in Durham, North Carolina. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None. Item *. Executive Officers of the Registrant The Company's executive officers are as follows: Year First Name Age Elected Office Bernard C. Wampler 64 1967 Chairman of the Board and Chief Executive Officer John G. Wampler 37 1988 President and Chief Operating Officer Ira S. Crawford 58 1978 Vice President - Administration, Secretary Jason A. Gibbs 62 1969 Treasurer, Controller and Assistant Secretary James H. Kelly 53 1971 Vice President - Product Development Randolph V. Chrisley 47 1983 Vice President - Sales James W. Peele 44 1995 Vice President - Manufacturing -8- John G. Wampler is the son of Bernard C. Wampler and the grandson of John W. Stanley, director of the Company. Each of the executive officers, other than Mr. Peele, has been an officer of the Company for the last five years. Mr. Peele previously had served as an assistant to the Vice President of Manufacturing of the Company (1992-1995). Prior to joining the Company, Mr. Peele was employed as Operations Manager for Mubeles Andes (1990-1991). The Company's executive officers are elected by and serve at the pleasure of the Company's Board of Directors. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information contained on page 2 of the Company's 1995 Annual Report to Security Holders is incorporated herein by reference. Item 6. Selected Financial Data The information contained on page 3 of the Company's 1995 Annual Report to Security Holders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information contained on pages 4 and 5 of the Company's 1995 Annual Report to Security Holders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The financial statements contained on pages 6 through the left column of the inside back cover of the Company's 1995 Annual Report to Security Holders are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. -9- PART III Item 10. Directors and Executive Officers of the Registrant The Company's 1996 Proxy Statement contains information on pages 1 through 4 concerning directors, persons nominated to become directors, and executive officers of the Company. Such information is incorporated herein by reference. Item 11. Executive Compensation The Company's 1996 Proxy Statement contains information on pages 4 through 8 concerning executive compensation. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The Company's 1996 Proxy Statement contains information on pages 3 and 4 concerning security ownership of certain beneficial owners and management and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The Company's 1996 Proxy Statement contains information on page 8 concerning certain relationships and related transactions and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) The following financial statements of the registrant, included in the 1995 Annual Report to Security Holders, are incorporated herein by reference in Item 8: Consolidated balance sheets -- October 29, 1995 and October 30, 1994 Consolidated statements of income and retained earnings - - Years ended October 29, 1995, October 30, 1994 and October 31, 1993 Consolidated statements of cash flows -- Years ended October 29, 1995, October 30, 1994 and October 31, 1993 -10- Notes to consolidated financial statements (a)(2) The following financial statement schedules of Pulaski Furniture Corporation are included in Item 14(d): Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (a)(3) Exhibits The following documents are filed as exhibits to this Form 10-K pursuant to Item 601 of Regulation S-K: 3.1 Restated Articles of Incorporation of Pulaski Furniture Corporation (8) 3.2 Bylaws of Pulaski Furniture Corporation (8) 4.1 Pulaski Furniture Corporation's Series A Company Note in the principal amount of $3,000,000, given to the Industrial Development Authority of Pulaski County (1) 4.2 Pulaski Furniture Corporation's Series B Company Note in the principal amount of $5,000,000, given to the Industrial Development Authority of Pulaski County (1) 4.3 Industrial Development Authority of Pulaski County's Industrial Development Revenue Note in the principal amount of $3,000,000, given to Sovran Bank, N.A. as Note Agent (Series A) (1) 4.4 Industrial Development Authority of Pulaski County's Industrial Development Revenue Note in the principal amount of $5,000,000, given to Sovran Bank, N.A., as Note Agent (Series B) (1) 4.5 Industrial Development Authority of Pulaski County's Industrial Development Revenue Note in principal amount of $2,000,000, given to Sovran Bank as Note Agent (Series A) (1) -11- 4.6 Pulaski Furniture Corporation's Series A Company Note in principal amount of $2,000,000 given to the Industrial Development Authority of Pulaski County (1) 4.7 Note Purchase Agreement and Agreement of Sale between Industrial Development Authority of Pulaski County, Sovran Bank, N.A., Planters Bank & Trust Co.; and Pulaski Furniture Company, dated April 1, 1984 (1) 4.8 Reimbursement, Purchase and Loan Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated April 1, 1984 (1) 4.9 UDAG Grant Agreement No. B-82-AB-51-0189, as executed and delivered by the Town of Pulaski and the United States Department of Housing & Urban Development (1) 4.10 Term Loan Agreement between Pulaski Furniture Corporation and Wachovia Bank and Trust Company, N.A., dated October 21, 1985 (4) 4.11 Term Loan Note in principal amount of $4,000,000 between Pulaski Furniture Corporation and Wachovia Bank and Trust Company, N.A., dated October 21, 1985 (4) 4.12 Term Loan Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated October 23, 1985 (4) 4.13 Term Loan Note in principal amount of $4,000,000 between Pulaski Furniture Corporation and Sovran Bank, N.A., dated October 23, 1985 (4) 4.14 Rights Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated as of December 3, 1987 (6) 4.15 Note Issuance Agreement and Revolving Credit Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A. in principal amount of $10,000,000, dated December 1, 1988 (7) 4.16 Form of Variable Rate Taxable Promissory Note in principal amount of $10,000,000 between Pulaski Furniture Corporation and Sovran Bank, N.A., dated December 9, 1988 (7) -12- 4.17 Form of Revolving Credit Facility Note in principal amount of $10,000,000 between Pulaski Furniture Corporation and Sovran Bank, N.A., dated December 9, 1988 (7) 4.18 Form of Credit Agreement in principal amount of $10,000,000 between Pulaski Furniture Corporation and Wachovia Bank of North Carolina, N.A., dated as of December 10, 1993 (9) 4.19 Form of Promissory Note in principal amount of $10,000,000 made by the Company to Wachovia Bank of North Carolina, N.A., dated December 10, 1993 (9) 4.20 Amendment to Term Loan Agreement between the Company and Wachovia Bank of North Carolina, N.A., dated July 25, 1994 4.21 Amendment to Promissory Note made by the Company to Wachovia Bank of North Carolina, N.A., dated July 25, 1994 10.1 Deferred Compensation Agreement between the Company and Bernard C. Wampler dated December 2, 1977 (2) 10.2 The Company's Stock Option Plan (8) 10.3 The Company's Executive Life Insurance Plan (5) 10.4 The Company's Production and Administrative Incentive Plans (5) 10.5 Conversion Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated as of March 3, 1986 (5) 11 Computation of Earnings Per Share 13 Pulaski Furniture Corporation's 1995 Annual Report to Security Holders (3) 20 Pulaski Furniture Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held February 9, 1996 21 Subsidiaries of Registrant 23 Consent of Ernst & Young LLP -13- Footnotes: (1) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 28, 1984 (2) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 1977 (3) With the exception of the information incorporated herein by reference to the Company's Annual Report for the fiscal year ended October 29, 1995, the Annual Report shall not be deemed "filed" as part of this report on Form 10-K (4) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 27, 1985 (5) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 26, 1986 (6) Incorporated herein by reference to the Company's Form 8-A, dated December 17, 1987, For Registration of Certain Classes of Securities Pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934 (7) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 1988 (8) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 29, 1989 (9) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993 (b) Reports on Form 8-K None. -14- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PULASKI FURNITURE CORPORATION (Registrant) Date: January 26, 1996 By /s/ John G. Wampler John G. Wampler, President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Date: January 26, 1996 By /s/ Bernard C. Wampler Bernard C. Wampler, Director, Chairman of the Board and Chief Executive Officer Date: January 26, 1996 By /s/ John W. Stanley John W. Stanley, Director Date: January 26, 1996 By /s/ Clifford A. Cutchins, III Clifford A. Cutchins, III, Director Date: January 26, 1996 By /s/ John D. Munford John D. Munford, Director Date: January 26, 1996 By /s/ John G. Wampler John G. Wampler, Director Date: January 26, 1996 By /s/ Harry H. Warner Harry H. Warner, Director Date: January 26, 1996 By /s/ Hugh V. White, Jr. Hugh V. White, Jr., Director Date: January 26, 1996 By /s/ Jason A. Gibbs Jason A. Gibbs, Treasurer, Controller, and Assistant Secretary (Principal Financial Officer) Report of Independent Auditors We have audited the accompanying consolidated balance sheets of Pulaski Furniture Corporation and Subsidiaries as of October 29, 1995 and October 30, 1994, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended October 29, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedules 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pulaski Furniture Corporation at October 29, 1995 and October 30, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 29, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 7 to the financial statements, effective November 1, 1993, the Corporation changed its method of accounting for income taxes. ERNST & YOUNG LLP Winston-Salem, North Carolina January 24, 1996 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E ADDITIONS Balances at Beginning (1) (2) Balance at End DESCRIPTION of Period Charged to Costs Charged to Other Deductions - Describe of Period and Expenses Accounts - Describe Year Ended October 29, 1995: Deducted from asset accounts Allowance for doubtful accounts $1,000,000 $704,112 $704,112 (1) $1,000,000 Year Ended October 30, 1994: Deducted from asset accounts Allowance for doubtful accounts $900,000 $303,845 $203,845 (1) $1,000,000 Year Ended October 31, 1993: Deducted from asset accounts Allowance for doubtful accounts $900,000 $600,776 $600,776 (1) $900,000
(1) Uncollectible accounts written off, net of recoveries EXHIBITS SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 PULASKI FURNITURE CORPORATION Exhibit Index Page 3.1 Restated Articles of Incorporation of Pulaski Furniture Corporation 3.2 Bylaws of Pulaski Furniture Corporation 4.1 Pulaski Furniture Corporation's Series A Company Note in the principal amount of $3,000,000, given to the Industrial Development Authority of Pulaski County 4.2 Pulaski Furniture Corporation's Series B Company Note in the principal amount of $5,000,000, given to the Industrial Development Authority of Pulaski County 4.3 Industrial Development Authority of Pulaski County's Industrial Development Revenue Note in the principal amount of $3,000,000, given to Sovran Bank, N.A. as Note Agent (Series A) 4.4 Industrial Development Authority of Pulaski County's Industrial Development Revenue Note in the principal amount of $5,000,000, given to Sovran Bank, N.A., as Note Agent (Series B) 4.5 Industrial Development Authority of Pulaski County's Industrial Development Revenue Note in principal amount of $2,000,000, given to Sovran Bank, N.A. as Note Agent (Series A) 4.6 UDAG Grant Agreement No. B-82-AB-51-0189, as executed and delivered by the Town of Pulaski and the United States Department of Housing & Urban Development 4.7 Note Purchase Agreement and Agreement of Sale between Industrial Development Authority of Pulaski County, Sovran Bank, N.A., Planters Bank & Trust Co., and Pulaski Furniture Company, dated April 1, 1984 Page 4.8 Reimbursement, Purchase and Loan Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated April 1, 1984 4.9 Pulaski Furniture Corporation's Series A Company Note in principal amount of $2,000,000 given to the Industrial Development Authority of Pulaski County 4.10 Term Loan Agreement between Pulaski Furniture Corporation and Wachovia Bank and Trust Company, N.A., in principal amount of $4,000,000, dated October 21, 1985 4.11 Term Loan Note in principal amount of $4,000,000 between Pulaski Furniture Corporation and Wachovia Bank and Trust Company, N.A., dated October 21, 1985 4.12 Term Loan Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., in principal amount of $4,000,000, dated October 23, 1985 4.13 Term Loan Note in principal amount of $4,000,000 between Pulaski Furniture Corporation and Sovran Bank, N.A., dated October 23, 1985 4.14 Rights Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated as of December 3, 1987 4.15 Note Issuance Agreement and Revolving Credit Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A. in principal amount of $10,000,000, dated December 1, 1988 4.16 Form of Variable Rate Taxable Promissory Note in principal amount of $10,000,000 between Pulaski Furniture Corporation and Sovran Bank, N.A., dated December 9, 1988 4.17 Form of Revolving Credit Facility Note in principal amount of $10,000,000 between Pulaski Furniture Corporation and Sovran Bank, N.A., dated December 9, 1988 4.18 Form of Credit Agreement in principal amount of $10,000,000 between Pulaski Furniture Corporation and Wachovia Bank of North Carolina, N.A., dated as of December 10, 1993 4.19 Form of Promissory Note in principal amount of $10,000,000 made by the Company to Wachovia Bank of North Carolina, N.A., dated December 10, 1993 4.20 Amendment to Term Loan Agreement between the Company and Wachovia Bank of North Carolina, N.A., dated July 25, 1994* Page 4.21 Amendment to Promissory Note made by the Company to Wachovia Bank of North Carolina, N.A., dated July 25, 1994* 10.1 Employment Agreement between the Company and Bernard C. Wampler, dated December 2, 1977 10.2 The Company's Stock Option Plan 10.3 The Company's Executive Life Insurance Plan 10.4 The Company's Production and Administrative Bonus Plans 10.5 Conversion Agreement between Pulaski Furniture Corporation and Sovran Bank, N.A., dated as of March 3, 1986 11 Computation of Earnings Per Share* 13 Pulaski Furniture Corporation's 1995 Annual Report to Security Holders 20 Pulaski Furniture Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held February 9, 1996 21 Subsidiaries of Registrant* 23 Consent of Ernst & Young LLP* - -------- *Filed with this Report on Form 10-K; all other exhibits are herein incorporated by reference EX-4 2 EXHIBIT 4.20 AMENDMENT TO TERM LOAN AGREEMENT Exhibit 4.20 THIS AMENDMENT TO TERM LOAN AGREEMENT, made this 25th day of July 1994 by and between PULASKI FURNITURE CORPORATION (hereinafter called the "Borrower"); and WACHOVIA BANK OF NORTH CAROLINA, N.A. (hereinafter called the "Bank"); WITNESSETH: WHEREAS, the Borrower and the Bank entered into a Term Loan Agreement dated the 10th day of December, 1993 (hereinafter called the "Term Loan Agreement"); and WHEREAS, the Borrower and the Bank now mutually desire to affect certain amendments to the Term Loan Agreement: NOW, THEREFORE, in consideration of the premises and the mutual covenants herein and in the Term Loan Agreement contained, the parties agree as follows: 1. Paragraph 2 of the Term Loan Agreement which paragraph begins on page one thereof, is hereby amended and restated to read as follows: The Borrower has requested the Bank to make a term loan to the Borrower in the principal amount of up to $13,000,000.00 and the Bank is willing to extend such term loans on the terms and conditions herein after set forth. 2. Section 2.01 of the Term Loan Agreement, which paragraph begins on page 13 thereof, is hereby amended and restated to read as follows: SECTION 2.01. Agreement to Lend. The Bank agrees, on the terms and conditions set forth herein, to make from time to time during the Drawdown Period Advances (collectively, the "Loan") to the Borrower up to but not exceeding the agreement principal amount of Thirteen Million and No/100 Dollars ($13,000,000.00) (the "Commitment"). Each advance shall be in an aggregate principal amount of $500,000.00 or any larger multiple of $100,000.00 (except that any advance may be in the aggregate amount of the Unused Commitment). No more than three (3) Advances may be requested by the Borrower during an Interest Period when the Loan is a Eurodollar Loan. The Advances shall be evidenced by a note of the Borrower in the principal amount equal to Thirteen Million and No/100 Dollars ($13,000,000.00) to the order of the Bank (the "Note"). The Note shall be substantially in the form annexed hereto as Exhibit "A" dated the Closing Date. The loan shall bear interest and shall be repaid as set forth in the Note and this Agreement. 3. Except as herein amended, the terms and provisions of the Term Loan Agreement shall be and remain in full force in effect. IN WITNESSETH WHEREOF, the parties hereto have caused this amendment to Term Loan Agreement to be executed as of the year and day first above written. ATTEST: BORROWER: PULASKI FURNITURE CORPORATION By: /s/ James Gibbs By: /s/John G. Wampler James Gibbs John G. Wampler Treasurer President BANK: WACHOVIA BANK OF NORTH CAROLINA, N.A. By: /s/John J. Carlin John J. Carlin AVP EX-4 3 EXHIBIT 4.21 AMENDMENT TO PROMISSORY NOTE Exhibit 4.21 THIS AMENDMENT TO PROMISSORY NOTE, made this 25th day of July, 1994, by and between PULASKI FURNITURE CORPORATION (hereinafter called the "Borrower"); and WACHOVIA BANK OF NORTH CAROLINA, N.A. (hereinafter called the "Bank"); WHEREAS, the Borrower and the Bank entered into a Credit Agreement dated the 10 day of December, 1993; and WHEREAS, the Borrower and the Bank entered into a Promissory Note dated the 10 day of December, 1993; and WHEREAS, the Borrower and the Bank now mutually desire to effect certain amendments to the Promissory Note; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein and in the Credit Agreement and in the Promissory Note contained, the parties agree as follows: 1. Paragraph 1 of the Promissory Note, which paragraph begins on page 1 thereof, is hereby amended and restated to read as follows: FOR VALUE RECEIVED, the undersigned PULASKI FURNITURE CORPORATION, a Virginia corporation, (the "Borrower"), hereby promises to pay to the order of WACHOVIA BANK OF NORTH CAROLINA, N.A., a national banking association (together with its endorsers, successors and assigns, the "Bank"), the principal sum of Thirteen Million and No/100th Dollars ($13,000,000.00) or such lesser amount as shall equal the unpaid principal amount of the Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Note on the dates and at the rate or rates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the rate or rates as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other funds immediately available at the principal office of the Bank located at 301 North Main Street, Winston-Salem, North Carolina, 27150-3099, or at such other locations as the holder of this Note may designate in writing. 2. Except as herein amended, the terms and provisions of the Promissory Note shall be and remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Promissory Note to be executed as of the year and day first above written. PULASKI FURNITURE CORPORATION ATTEST: /s/ JASON GIBBS By: /s/ JOHN S. WAMPLER Asst. Secretary Title: President [CORPORATE SEAL] EX-11 4 EXHIBIT 11 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE PULASKI FURNITURE CORPORATION AND SUBSIDIARIES
Year Ended Oct. 29, 1995 Oct. 30, 1994 Oct. 31, 1993 PRIMARY Average shares outstanding 2,841,426 2,853,711 2,818,094 Dilutive stock options - based on treasury stock method using average market prices 8,255 24,150 22,153 Dilutive shares under Salaried Employer Stock Purchase Plan - based on average shares issuable 13,447 10,801 11,372 ---------- ---------- ---------- TOTAL 2,863,128 2,888,662 2,851,619 Income before cumulative effect of accounting change $4,475,171 $2,772,402 $4,352,176 Cumulative effect of accounting change 396,092 ---------- ---------- ---------- Net income $4,475,171 $3,168,494 $4,352,176 ---------- ---------- ---------- Income per share before cumulative effect of accounting change $1.56 $0.96 1.53 Cumulative effect of accounting change 0.14 ---------- ---------- ---------- Net Income per share $1.56 $1.10 $1.53 FULLY DILUTED Average shares outstanding 2,841,426 2,853,711 2,818,094 Dilutive stock options - based on treasury stock method using year-end market value or average market price if average is greater 8,255 24,150 22,153 Dilutive shares under Salaried Employee Stock Purchase Plan - based on average shares issuable 13,447 10,801 11,372 ---------- ---------- ---------- TOTAL 2,863,128 2,888,662 $2,851,619 Income before cumulative effect of accounting change $4,475,171 $2,772,402 $4,352,176 Cumulative effect of accounting change 396,092 ---------- ---------- ---------- Net income $4,475,171 $3,168,494 $4,352,176 Income per share before cumulative effect of accounting change $1.56 $0.96 $1.53 Cumulative effect of accounting change 0.14 ---------- ---------- ---------- Net income per share $1.56 $1.10 $1.53 ---------- ---------- ----------
EX-13 5 EXHIBIT 13 [LOGO] PULASKI FURNITURE CORPORATION 1995 ANNUAL REPORT OFFICERS BERNARD C. WAMPLER Chairman of the Board and Chief Executive Officer JOHN G. WAMPLER President and Chief Operating Officer IRA S. CRAWFORD Vice President- Administration; Secretary RANDOLPH V. CHRISLEY Vice President- Sales JAMES H. KELLY Vice President- Product Development JASON A. GIBBS Treasurer, Controller and Assistant Secretary JAMES W. PEELE Vice President- Manufacturing DIRECTORS BERNARD C. WAMPLER Chairman of the Board and Chief Executive Officer CLIFFORD A. CUTCHINS, III* Retired Chairman of the Board of Sovran Financial Corporation, Norfolk, Va. JOHN D. MUNFORD* Retired Vice Chairman of Union Camp Corporation, Franklin, Va. JOHN W. STANLEY Retired Chairman of the Board of Blue Ridge Transfer Company, Inc., Roanoke, Va. JOHN G. WAMPLER President and Chief Operating Officer of Pulaski Furniture Corporation HARRY H. WARNER* Financial Consultant, Lexington, Va. HUGH V. WHITE, JR. Partner of Hunton & Williams- Attorneys, Richmond, Va. - ----------- *Member of Audit Committee TABLE OF CONTENTS Message to Stockholders..................................... 1 General Information ........................................ 2 Selected Financial Data .................................... 3 Management's Discussion and Analysis ....................... 4 Consolidated Balance Sheets.................................. 6 Consolidated Statements of Income and Retained Earnings........................................ 8 Consolidated Statements of Cash Flows........................ 9 Notes to Consolidated Financial Statements...................10 Report of Independent Auditors................Inside Back Cover CORPORATE DATA CORPORATE OFFICES Pulaski Furniture Corporation One Pulaski Square P.O. Box 1371 Pulaski, Virginia 24301 (540) 980-7330 STOCK TRANSFER AGENT AND DIVIDEND DISBURSING AGENT First Union National Bank of North Carolina Two First Union Center, M-12 Charlotte, NC 28288 (800) 829-8432 STOCK LISTING Traded Over-The-Counter NASDAQ Symbol-PLFC LEGAL COUNSEL Hunton & Williams Richmond, Virginia ANNUAL MEETING The Annual Meeting of Stockholders of Pulaski Furniture Corporation will be held on Friday, February 9, 1996 at 10 a.m. at the Roanoke Airport Marriott, Roanoke, Virginia. ADDITIONAL INFORMATION A copy of Form 10-K, the Annual Report filed with the Securities and Exchange Commission, is available without charge to stockholders upon written request directed to the Corporation, attention Secretary. [PHOTO GOES HERE] This piece was selected by Home Magazine to receive a 1995 American Furniture award. The award recognizes and honors excellence and creativity in American design. The Croquet Information Center was chosen because its design so clearly responds to the demands for form and function required by today's lifestyles. The Croquet Information Center acknowledges that the kitchen is family central. This practical desk holds family files, messages, and cookbooks in one functional piece. It's sized to fit even a nook or cranny. MESSAGE TO STOCKHOLDERS In Megatrends, a well-read book published in 1983, John Naisbitt encouraged us to think globally and act locally. When reflecting on 1995, and thinking about the challenges facing our industry and your Corporation, it is obvious that just thinking globally and acting locally is not enough. We must excel in both arenas. The world has gotten smaller, and it has effected major changes in our industry. Your Corporation is prepared to perform well in this new environment. Nineteen ninety-five was a challenging year for furniture manufacturers because of limited growth. Business for the industry as a whole increased less than 3 percent and actually saw a decline in shipped units. In addition to this challenge, consumers shopped for furniture intermittently throughout the year, which resulted in significant peaks and valleys of demand. Given this background, we are pleased to report that your Corporation outperformed the industry. Sales increased to $172,842,000 from $148,698,000 in 1994. Net Income increased to $4,475,000 compared to $3,168,000 for 1994. The improved performance required significant contributions from the many stakeholders of your Corporation. It started with our employees and sales representatives, at all levels of the Corporation, who worked together as a team to produce quality products and to place those products with the right retailers. It continued with our suppliers, who helped us to control inflation and to provide well-made components and appropriate services. Of course, it was all made possible by our customers, who represent the best retailers in our industry. Their vast command of market share allowed us to grow this year. Your Corporation worked in all 50 states, several territories, and over 30 foreign countries in 1995. We need a worldwide network of customers, employees, suppliers, and partners to meet the challenges of the future. A great deal of the Corporation's resources have been employed in recent years to help establish the right network. We are starting to reap more of the benefits of this network. Our export sales grew in 1995 and remained at 6 percent of total sales. Our import business showed another year of gains and will continue to grow as we use it to augment our domestic production and to increase our market share with American retailers. We divested ourselves of the Corporation's holdings in Triwood. The changes in our product line have resulted in decreased demand for this facility's product so it made sense to deploy company assets elsewhere. We sold our share of Triwood above its value on our books which resulted in a one time gain of $327,986. When we think about 1996, we anticipate a business climate that will be very similar to 1995. Influences such as lower interest rates and continued strong housing starts will be positive for our industry; however, high consumer debt could have a negative impact. Your Corporation will strive to make 1996 a more successful year. The Board of Directors increased the first quarter dividend to $.16 per share in 1996 from $.15 per share for the first quarter of 1995. We thank our stockholders and Board of Directors for their continued support. Sincerely, /s/ Bernard C. Wampler Bernard C. Wampler Chairman and CEO /s/ John G. Wampler John G. Wampler President and COO [PHOTO GOES HERE] 1 PULASKI FURNITURE CORPORATION AND SUBSIDIARIES GENERAL INFORMATION Organized in Virginia in 1955, the Corporation manufactures and sells medium-priced wooden bedroom, dining room and occasional furniture produced in its manufacturing plants located in Pulaski, Dublin, and Martinsville, Virginia. The Corporation also has a veneer plant located in Dublin, Virginia, which produces veneer used at all manufacturing plants. The Corporation's Ridgeway Clock Company plant manufactures grandfather, mantel and wall clocks and is located in Ridgeway, Virginia. The Corporation's Craftique plant in Mebane, North Carolina produces solid mahogany bedroom, dining room and occasional furniture. The Corporation leases a building of approximately 100,000 square feet in Christianburg, Virginia to house the Corporation's upholstery operations. At the end of 1995 fiscal year, 2,827,882 shares of the Corporation's 10 million authorized shares of Common Stock were outstanding. In addition, the Corporation has authorized one million shares of Cumulative Preferred stock of which no shares were outstanding. MARKET AND DIVIDEND INFORMATION Pulaski Furniture Corporation's stock is listed on the NASDAQ National Market System, which is the most active listing of over-the-counter quotations. During the fiscal year 1995, the Corporation believes that Wheat First Securities, Inc., of Richmond, Virginia, was the most active market-maker for the stock. The Corporation had approximately 875 stockholders of record as of October 29, 1995. The range of closing sales prices as reported by the NASDAQ and cash dividends for the last two fiscal years are listed in the following chart. The market quotations reflect interdealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. SALES PRICES OF COMMON STOCK 1995 1994 DIVIDENDS FISCAL DECLARED QUARTER HIGH LOW HIGH LOW 1995 1994 First... 20.50 16.00 27.00 18.625 $0.15 $0.14 Second.. 21.375 17.50 26.75 22.75 $0.15 $0.14 Third... 20.00 17.00 23.50 18.00 $0.15 $0.14 Fourth.. 18.50 16.00 21.00 17.50 $0.15 $0.14 [PHOTO GOES HERE] Pulaski's Collector Curios are available in a variety of styles and finishes featuring mirrored backs and canister lighting that create the ultimate showcase. 2 SELECTED FINANCIAL DATA
YEARS ENDED OCTOBER 29, OCTOBER 30, OCTOBER 31, NOVEMBER 1, NOVEMBER 3, 1995 1994 1993 1992 1991 Net Sales .................. $172,842,105 $148,698,029 $137,650,721 $123,918,019 $120,575,933 Net Income ................. 4,475,171 3,168,494 4,352,176 2,599,059 1,800,066 Earnings Per Share ......... 1.56 1.10 1.53 0.91 0.63 Total Assets................ 118,675,813 112,750,099 99,336,183 91,075,577 92,074,129 Long-Term Debt.............. 29,354,804 31,398,173 20,357,425 22,369,346 23,878,691 Cash Dividends Per Share.... 0.60 0.56 0.52 0.52 0.52 Book Value Per Share........ 19.78 18.69 18.29 17.38 16.98 Net Working Capital......... 51,787,988 47,203,234 44,291,637 43,682,801 43,317,362 Current Ratio............... 2.9 3.1 3.1 3.9 4.0
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the fiscal years ended October 29, 1995 and October 30, 1994. (dollars in thousands, except earnings per share).
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL (12 WEEKS IN (12 WEEKS IN (12 WEEKS IN (16 WEEKS IN (52 WEEKS IN 1995 AND 1994 1995 AND 1994 1995 AND 1994 1995 AND 1994 1995 AND 1994 October 29, 1995 Net Sales............. $41,270 $38,989 $30,236 $62,347 $172,842 Gross Profit.......... 8,238 7,390 7,390 $10,978 33,996 Net Income............ 1,373 1,094 (602) $2,610 4,475 Earnings per share.... 0.48 0.38 (0.21) 0.91 1.56 October 30, 1994 Net Sales............. $32,150 $32,901 $27,691 $55,956 $148,698 Gross Profit.......... 6,410 6,685 5,085 9,121 27,301 Net Income............ 1,125(1) 877 319 847 3,168(1) Earnings per share.... 0.39(1) 0.30 0.11 0.30 1.10(1)
(1) Net income includes the cumulative effect of accounting change for income taxes. The cumulative effect of the accounting change increased net income by $396,092 or $0.14 per share. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 1995 COMPARED TO 1994 The improvement in earnings from 1994 to 1995 and particularly the fourth quarter of 1995 was primarily attributable to the increase in sales, and to the lower cost of products sold as a percentage of sales. Net sales increased 16.2% or $24,144,076 from 1994 to 1995. The Corporation shipped approximately 29% more units in 1995 at an average unit price of approximately 7.5% less. The large increase in units shipped and the lower unit price was attributable primarily to products produced in the new factory. The new factory in Pulaski began operations in May, 1994, and produces occasional furniture. Export sales for fiscal 1994 and 1995 were approximately 6% of net sales. Cost of products sold decreased from 81.64% of net sales in fiscal 1994 to 80.33% of net sales in fiscal 1995. The percentage decreases were primarily in factory labor, factory supplies, fuel and insurance. There was no appreciable difference in selling, general and administrative expenses as a percentage of net sales between fiscal 1995 and fiscal 1994. The increase in interest expense in fiscal 1995 from fiscal 1994 reflected the increase in average outstanding debt and higher interest rates. The Corporation's average amount of outstanding indebtedness for borrowed money was $41,675,218 in fiscal 1995 and $37,919,172 in fiscal 1994. The weighted average borrowing rates for the three fiscal years of 1993, 1994 and 1995 were 5.13%, 4.77% and 6.44% respectively. The weighted averages excluding the interest rate swap costs would have been 3.26%, 3.74% and 5.94%. The interest rate swap costs increased interest expense by $439,932, $389,925 and $206,595 in 1993, 1994 and 1995 respectively. Net income was reduced by approximately $63,000 for fiscal 1995 and $10,000 for fiscal 1994, as a result of the Corporation's proportionate share of the losses incurred by the Triwood, Inc. joint venture. On October 6, 1995, the Corporation sold its proportionate share of the investment in Triwood, and recorded a gain of $327,986, which is included in other income. 1994 COMPARED TO 1993 The decrease in income before cumulative effect of accounting change of $1,579,774 from 1993 to 1994 was attributed mostly to increases in manufacturing costs and selling and administrative costs, not adequately absorbed by price increases, and also attributed to start up costs of approximately $780,000 related to a new plant. Net sales increased 8.0% or $11,047,308 from 1993 to 1994. The Corporation shipped approximately 4% more units in 1994 at an average unit price of approximately 3.0% more. Export sales for fiscal 1993 and 1994 were approximately 6% of net sales. The increase in cost of products sold as a percentage of net sales in fiscal 1994 compared with fiscal 1993 was primarily due to increases in factory labor, factory supplies, and the cost of employee insurance. The increase in factory labor was caused by an overall increase in the number of employees, primarily relating to the new plant, and to rate increases. The increase in selling, general and administrative expenses as a percentage of net sales in fiscal 1994 from fiscal 1993, was due primarily to increases in expenses related to marketing, information systems and the cost of employee insurance. The increase in marketing expenses was caused by increased emphasis on the promotion and marketing of the Corporation's products. The increase in information systems expenses was caused primarily by improvements in the manufacturing and administrative systems. The increase in interest expense in fiscal 1994 from fiscal 1993 reflected the increase in average outstanding debt partially offset by lower interest rates. The Corporation's average amount of outstanding indebtedness for borrowed money was $37,919,172 in fiscal 1994 and $23,545,048 in fiscal 1993. The weighted average borrowing rates for the three fiscal years of 1992, 1993 and 1994 were 5.36%, 5.13% and 4.77% respectively. The weighted averages excluding the interest rate swap costs would have been 4.03%, 3.26% and 3.74%. The interest rate swap costs increased interest expense by $330,020, $439,932 and $389,925 in 1992, 1993 and 1994 respectively. The increase in miscellaneous other income reflects a gain of $691,000 from insurance proceeds related to storm damage of the contents of a finished goods warehouse. Net income was reduced by approximately $10,000 for fiscal 1994 and $65,000 for fiscal 1993, as a result of the Corporation's proportionate share of the losses incurred by the Triwood, Inc. joint venture. The cumulative effect of accounting change in 1994 was a net addition to income of $396,092, and is described in Note 7 of the Consolidated Financial Statements. The Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 119 "Disclosure about Derivative Financial Instruments and Fair Value". and No. 123 "Accounting for Stock-based Compensation". The Company is required to adopt these standards in fiscal years 1995 and 1996. The adoption will not have any material impact on the Company's operations or financial position. CAPITAL RESOURCES, LIQUIDITY AND EFFECTS OF INFLATION Net Cash from Operating Activities for the year totaled approximately $2,080,000. Accounts receivable increased approximately $2,246,000, and inventories increased approximately $6,466,000. These increases were the primary reasons for the short-term borrowings during the year. 4 The Corporation has short-term lines of credit totaling $16,000,000 with interest not to exceed prime rates. At October 29, 1995, which was approximately the middle of the Corporation's heaviest shipping season, the Corporation had $12,000,000 outstanding under these credit lines. Because of the available lines of credit, the strong working capital position, and its ability to generate cash through operations, the Corporation believes it has adequate liquidity to meet its short-term and long-term debt obligations, cover its capital expenditures, pay cash dividends and to continue controlled growth indefinitely. The Corporation has no plans to borrow any additional long-term debt or to sell additional equity securities. The Corporation uses the LIFO method of accounting for its inventories. Under this method, the cost of products sold reported in the financial statements approximates current costs and thus reduces distortion in reported income due to increasing costs. Under the LIFO method, the Corporation increased its inventory reserve in 1995 by approximately $1,075,000, the effect of which decreased net income by approximately $726,000 or 25 cents per share. The charges to operations for depreciation represent the allocation of historical costs incurred over past years and are significantly less than if they were based on current cost of productive capacity being consumed. Construction of the Corporation's Dublin, Virginia plant was completed in 1973, the Martinsville plant was renovated in 1974, and the renovation and expansion of the Pulaski facilities were completed in 1986, with further expansions in 1988 and 1994. The Ridgeway division was acquired in 1985, and the Craftique division was acquired in 1988. The Accentrics division began operations in leased facilities in November 1989. The replacement costs for assets acquired in prior years will likely exceed the original costs of the replaced assets. However, increased costs of replacement assets will result in higher depreciation charges which will be taken into consideration in setting pricing policies. Provision for depreciation for fiscal 1995 was approximately $5,243,000. The Corporation's financial statements are prepared in accordance with generally accepted accounting principles using historical costs, which are not adjusted to reflect changes in purchasing power. However, use of the LIFO method of valuing inventories in the Corporation's financial statements compensates for some of the effects of inflation. DISCUSSION-FOURTH QUARTER The increase in sales in the fourth quarter ended October 29, 1995, was due primarily to the increased demand for the Corporation's furniture. The increase in earnings was due primarily to the increase in sales. The Board of Directors at its December 8, 1995, meeting increased the dividend to 16 cents per common share payable on January 2, 1996 to stockholders of record December 15, 1995, and authorized the purchase by the Corporation of up to 200,000 shares of its common stock presently outstanding. [PHOTO GOES HERE] HOME OFFICE The new Home Office/Library Collection is targeted for the customer that is seeking unparalleled elegance, distinctive styling and functionally engineered cases to accommodate the latest computer equipment. This Armoire features file drawer, pull-out keyboard and printer shelves, bulletin board, CD and disk storage, surge protected control center and faux book doors. [PHOTO GOES HERE] 5 Consolidated Balance Sheets
October 29 October 30 1995 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents............................................... $ 1,721,546 $ 1,088,322 Short-term investments.................................................. 14,615 64,615 Trade receivables, less allowance of $1,000,000 in 1995 and 1994........................................ 35,674,329 33,427,941 Inventories: Finished furniture................................................. 22,936,830 18,084,326 Furniture in process............................................... 4,422,309 4,302,708 Lumber and purchased veneers....................................... 5,260,981 4,290,592 Manufacturing supplies............................................. 7,788,751 7,265,510 40,408,871 33,943,136 Prepaid expenses........................................................ 407,186 465,309 Deferred income taxes................................................... 578,727 493,064 TOTAL CURRENT ASSETS 78,805,274 69,482,387 PROPERTY, PLANT AND EQUIPMENT: Land.................................................................... 640,979 640,979 Buildings............................................................... 31,179,684 30,903,196 Machinery and equipment................................................. 49,029,973 46,896,444 Furniture, fixtures and office equipment................................ 3,510,526 3,096,041 Vehicles................................................................ 651,732 660,439 85,012,894 82,197,099 Less allowances for depreciation........................................ 46,118,654 41,128,037 38,894,240 41,069,062 OTHER ASSETS: Investment in and advances to investee company.......................... 1,235,170 Cash surrender value of life insurance, less loans of $728,408 in 1995 and $625,445 in 1994................ 976,299 963,480 976,299 2,198,650 $118,675,813 $112,750,099
6
OCTOBER 29 OCTOBER 30 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses: Accounts payable....................................... $ 9,764,380 $ 8,543,642 Wages and commissions.................................. 2,213,933 2,395,963 Payroll taxes and taxes withheld from employees........ 733,928 578,601 12,712,241 11,518,206 Notes Payable............................................ 12,000,00 8,000,000 Current portion of long-term debt........................ 2,047,618 2,004,249 Federal and state income taxes...................... 257,427 756,693 TOTAL CURRENT LIABILITIES 27,017,286 22,279,148 DEFERRED COMPENSATION....................................... 2,268,749 1,937,923 DEFERRED INCOME TAXES....................................... 4,094,245 3,871,331 LONG-TERM DEBT.............................................. 29,354,804 31,398,173 STOCKHOLDERS' EQUITY: Common Stock (authorized 10,000,000 shares, issued shares, 2,827,882 in 1995 and 2,849,159 in 1994)........ 5,827,093 6,084,210 Retained earnings......................................... 50,296,885 47,529,123 Unamortized restricted stock.............................. (183,249) (349,809) Total stockholders' equity................................ 55,940,729 53,263,524 $118,675,813 $112,750,099
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 7 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended OCTOBER 29 OCTOBER 30 OCTOBER 31 1995 1994 1993 Net sales.................................................. $172,842,105 $148,698,029 $137,650,721 Cost of products sold...................................... 138,845,650 121,397,370 109,369,585 33,996,455 27,300,659 28,281,136 Selling, general and administrative expenses............... 25,122,493 22,223,313 20,302,921 8,873,962 5,077,346 7,978,215 Other income: Interest........................................... 27,940 134,866 146,570 Miscellaneous...................................... 600,559 698,291 62,917 628,499 833,157 209,487 9,502,461 5,910,503 8,187,702 Other deductions Interest expense................................... 2,738,021 1,748,330 1,296,464 Miscellaneous...................................... 68,613 39,693 59,310 Proportionate share of loss in investee company.... 63,156 10,078 64,752 2,869,790 1,798,101 1,420,526 Income before income taxes and cumulative effect of accounting change..................................... 6,632,671 4,112,402 6,767,176 Income taxes............................................... 2,157,500 1,340,000 2,415,000 Income before cumulative effect of accounting change....... 4,475,171 2,772,402 4,352,176 Cumulative effect of accounting change..................... 396,092 Net income................................................. 4,475,171 3,168,494 4,352,176 Retained earnings at beginning of year..................... 47,529,123 45,959,916 43,074,546 Cash dividends (per share: 1995-$.60 1994 - $.56; 1993 - $.52)................................ (1,707,409) (1,599,287) (1,466,806) Retained earnings at end of year........................... $ 50,296,885 $ 47,529,123 $ 45,959,916 EARNINGS PER SHARE Income before cumulative effect of accounting change....... $1.56 $0.96 $1.53 Cumulative effect of accounting change..................... 0.14 Net income................................................. $1.56 $1.10 $1.53
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 29 OCTOBER 30 OCTOBER 31 1995 1994 1993 OPERATING ACTIVITIES Net income.............................................. $ 4,475,171 $ 3,168,494 $4,352,176 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization........... 5,242,754 4,495,436 3,724,465 Provision for deferred income taxes................... 137,251 (196,084) (462,000) Provision for deferred compensation................... 330,826 139,470 276,714 Proportionate share of loss in investee company....... 63,156 10,078 64,752 Gain on sale of investee company...................... (327,986) Loss on sale of property, plant and equipment......... 28,370 13,636 59,296 Cumulative effect of accounting change................ (396,092) Changes in operating assets and liabilities: Increase in trade receivables......................... (2,246,388) (2,597,950) (3,044,925) Increase in inventories....................... (6,465,735) (3,165,285) (4,693,333) Increase (decrease) in accounts payable and accrued expenses....................... 1,194,035 661,436 (224,393) Increase (decrease) in federal income taxes payable.................................... (499,266) (618,516) 540,601 Other......................................... 148,267 (54,636) (167,496) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,080,455 1,459,987 425,857 INVESTING ACTIVITIES Purchases of property, plant and equipment.............. (2,950,513) (13,554,857) (5,036,788) Proceeds from sale of property, plant and equipment..... 20,772 27,246 48,375 Proceeds from sale of investee stock and collection of advances........................ 1,500,000 Purchases of investments................................ (2,240,000) Sales of investments.................................... 50,000 142,000 2,431,200 NET CASH USED IN INVESTING ACTIVITIES (1,379,741) (13,385,611) (4,797,213) FINANCING ACTIVITIES Issuance of common stock................................ 422,632 590,278 716,166 Repurchase of common stock.............................. (679,750) (656,891) (541,144) Payment of dividends.................................... (1,707,409) (1,599,287) (1,466,806) Proceeds from long-term debt............................ 13,000,000 Payments on long-term debt.............................. (2,000,000) (2,001,203) (1,500,002) Increase in notes payable............................... 4,000,000 1,000,000 7,000,000 Other................................................... (102,963) (16,658) (27,417) NET CASH PROVIDED BY FINANCING ACTIVITIES (67,490) 10,316,239 4,180,797 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 633,224 (1,609,385) (190,559) Cash and cash equivalents at beginning of year.......... 1,088,322 2,697,707 2,888,266 CASH AND CASH EQUIVALENTS AT END OF YEAR $1,721,546 $ 1,088,322 $2,697,707
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS: The Corporation is engaged exclusively in the production and sale of furniture products. FISCAL YEAR: The Corporation uses a 52-53 week year. All fiscal years presented include 52 weeks. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, Craftique, Inc., and Pulaski Foreign Sales Corporation, Inc. Significant intercompany accounts and transactions have been eliminated. The Corporation owned until October, 1995 a 25% interest in Triwood, Inc. which is accounted for under the equity method. CASH EQUIVALENTS: The Corporation considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVESTMENTS: Investments, which consist principally of tax exempt bonds, are stated at cost which approximates market. INVENTORIES: Inventories are stated at the lower of LIFO (last-in, first-out) cost or market. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation has been computed on a straight-line basis over the estimated useful lives of the related assets. EARNINGS PER SHARE: Earnings per share are computed based on the weighted average number of common and common equivalent shares (stock options) outstanding during each year. RECLASSIFICATION: Certain reclassifications were made in prior years' financial statements to conform to the 1995 presentation. NOTE 2. INVENTORIES Current cost of the LIFO inventories exceeded the carrying amount by approximately $14,852,000 and $13,777,000 at October 29, 1995 and October 30, 1994, respectively. NOTE 3. FINANCING ARRANGEMENTS AND COMMITMENTS Long-term debt consists of the following: OCTOBER 29 OCTOBER 30 1995 1994 Industrial Development Revenue Notes, due in installments of $5,000,000 in 2004 and 2009.............. $10,000,000 $10,000,000 Notes payable under revolving credit facility 9,000,000 9,000,000 Notes payable to bank, due in quarterly installments of $428,572 beginning December, 1995 through December, 2002 12,000,000 13,000,000 Notes payable to banks, due in varying quarterly installments through October, 2000................. 402,422 1,245,268 Notes payable at 3% interest to the Town of Pulaski, Virginia, due in quarterly installments through April 30, 1995 157,154 31,402,422 33,402,422 Less current maturities............. 2,047,618 2,004,249 $29,354,804 $31,398,173 Future maturities of long-term debt at October 29, 1995 are as follows: 1996..................................... $ 2,047,618 1997..................................... 10,783,375* 1998..................................... 1,714,286 1999..................................... 1,714,286 2000..................................... 1,714,286 2001 and thereafter...................... 13,428,571 $31,402,422 * Of this amount, $9,000,000 is extended automatically unless the bank providing the revolving credit facility gives notice of termination as described below. The Industrial Development Revenue Notes, which may be called prior to maturity, bear interest at tax-exempt market rates. Interest cost (including related letter of credit and servicing fees) averaged 4.78% during 1995. At the option of the Corporation, or if called prior to maturity, the notes may be placed with a bank under a letter of credit arrangement. In this event, the notes would bear interest at two-thirds of the prime rate. The Corporation has a note and revolving credit agreement with a bank which provides for $10 million in notes supported by a revolving credit facility. The notes bear interest at current market rates (averaged 6.04% in 1995) and are renewable on an annual basis subject to minimum annual reductions of long term debt. The agreement requires annual commitment fees of one quarter of one percent of the total amount of the revolving credit facility. At the option of the bank, the revolving credit facility may be terminated on February 28 of any year if the bank gives notice of termination not later than 60 days before March 1 of the preceding year. The Corporation has a term loan agreement with a bank that had an outstanding amount of $12 million at October 29, 1995. The note bears interest at a variable rate not to exceed LIBOR plus 3/8% (averaged 6.36% in 1995). The agreement requires annual commitment fees of one eighth of one percent of the unused commitment. Notes payable to banks bear interest at variable rates not to exceed the London Interbank Offered Rate (LIBOR) plus five-eighths of one percent. The average interest rate for the year was 6.92%. To manage the interest rate exposure under its long-term obligations, the Corporation has entered into a swap agreement with a major financial institution in the notional amount of $8 million. Under the terms of the agreement, the Corporation makes payments at a fixed rate (8.87%) and receives payments at variable rates based on LIBOR, the net of which is included as an adjustment to interest expense. The weighted average variable rate received by the Corporation was 2.58%, 4.00%, and 3.37% for 1995, 1994 and 1993, respectively. The increase to interest expense totaled $206,595, $389,925 and $439,932 for 1995, 1994 and 1993, respectively. The agreements contain various conditions which provide, among other things, restrictions relating to the maintenance of working capital, payment of dividends and additional indebtedness. The Corporation was in compliance with these conditions at October 29, 1995. At October 29, 1995, retained earnings available for payment of dividends amounted to approximately $21,934,000. Under short term line of credit arrangements, the Corporation may borrow up to $16 million at October 29, 1995 which would bear interest at rates not to exceed the prime rate. At October 29, 1995, the Corporation had $12 million outstanding under these arrangements. In connection with the purchase of inventory from foreign suppliers, the Corporation has available letters of credit of approximately $11 million, with $8.1 million outstanding at October 29, 1995. 10 Interest paid in 1995, 1994, and 1993 was $2,715,441, $1,691,686, and $1,316,104, respectively. Of these amounts, $104,399 was capitalized during 1994. NOTE 4. COMMON STOCK Changes in Common Stock for the two years in the period ended 1995 were as follows: COMMON STOCK SHARES AMOUNT BALANCE AT OCTOBER 31, 1993....................... 2,814,776 $5,645,373 Shares issued under Salaried Employee Stock Purchase Plan....................... 20,914 388,163 Common Stock acquired and retired........... (27,331) (656,891) Shares issued under Stock Incentive Plan for Non-Employee Directors........... 800 20,800 Shares issued under Stock Incentive Plan.... 12,500 181,315 Restricted shares issued under Stock Incentive Plan............................ 27,500 505,450 BALANCE AT OCTOBER 30, 1994....................... 2,849,159 $6,084,210 Shares issued under Salaried Employee Stock Purchase Plan.............. 19,923 405,632 Common Stock acquired and retired........... (42,000) (679,750) Shares issued under Stock Incentive Plan for Non-Employee Directors................ 800 17,000 BALANCE AT OCTOBER 29, 1995....................... 2,827,882 $5,827,092 In 1988, as part of a shareholder rights plan, the Board of Directors declared a dividend distribution of one preferred share purchase right for each outstanding share of common stock. Each right entitles its holder to buy one one-hundredth of a share of the Corporation's Series A Cumulative Preferred Stock at an exercise price currently in excess of market value. The rights will become exercisable only if a person or group acquires or obtains the right to acquire, 20% or more of the Corporation's common stock (an "Acquiring Person") or commences a tender offer that would result in the offeror owning 30% or more of the Corporation's outstanding common stock ("Triggering Events"). If an Acquiring Person acquires 30% or more of the Corporation's common stock or engages in certain other transactions with the Corporation, each right will entitle the holder, other than an Acquiring Person, to acquire the Corporation's Series A Preferred Stock or, at the option of the Corporation, other securities or property, having a value equal to twice the right's exercise price. Likewise, if the Corporation is acquired in a merger or other business combination, or the Corporation sells more than 50% of its earnings power or assets, each right will entitle the holder, other than an Acquiring Person, to purchase securities of the acquiring entity with a market value equal to twice the right's exercise price. The rights expire December 15, 1997, and are subject to redemption at the discretion of the Corporation's Board of Directors at a price of $0.01 per right within 10 days following the occurrence of a Triggering Event, subject to extension of the period by the Board of Directors. The Corporation has authorized one million shares of cumulative preferred stock, of which 500,000 shares have been designated as Series A Cumulative Preferred Stock reserved for issuance upon exercise of such rights. NOTE 5. STOCK PURCHASE AND INCENTIVE PLANS The Salaried Employees Stock Purchase Plan provides for the sale of Common Stock annually based on payroll deductions of up to 8% of employee compensation at a price equal to 70.7% of market price on the date of purchase. Compensation expense recognized in 1995, 1994, and 1993 related to the Plan was $179,003, $171,554, and $164,075, respectively. At October 29, 1995, 25,297 shares are to be issued pursuant to the Plan's provisions, after which there will remain 36,166 shares available for purchase in the future. Under the Stock Incentive Plan, as amended in 1989, key employees were granted options to purchase Common Stock at a price determined by a committee appointed by the Board of Directors or determined pursuant to a formula approved by the committee. The committee was also able to grant stock appreciation rights (SARs) in relation to the grants of stock options. The stock options and SARs expire ten years after the date of grant. At October 29, 1995, outstanding options and SARs under the Stock Incentive Plan were as follows: NUMBER OF SHARES OPTION PRICE OR DATE AND SARS UNDER FAIR MARKET VALUE AT GRANT GRANTED OPTION PER SHARE December 6, 1986....... 5,000 18.75 December 3, 1987....... 5,000 15.00 December 8, 1988....... 22,500 17.375 December 8, 1989....... 22,500 18.75 December 7, 1990....... 22,500 16.125 December 6, 1991....... 20,000 14.75 All shares under option at October 29, 1995 are exercisable. All shares issued upon exercise of options during the three years ended October 29, 1995 related to options granted between December 5, 1985 and December 6, 1991. The Stock Incentive Plan, as amended in 1991, permits the committee of the Board of Directors to make awards of the Corporation's common stock upon such terms and conditions as may be established by the committee. Restrictions on shares issued under the plan lapse at the rate of 20% of the stock per year. Upon issuance of restricted stock under the plan, unearned compensation equivalent to the market value at the date of grant is charged to stockholders' equity and subsequently amortized on the ratable vesting period method. Amortization of $166,560 and $291,321 was recorded in fiscal 1995 and 1994 respectively. At October 29, 1995, there were 156,000 shares available for future issuance. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which established accounting and reporting standards for stock-based employee compensation plans. The new standard encourages companies to adopt a fair value method of accounting for an employee stock compensation plan. However, it also allows companies to continue to measure compensation cost using the intrinsic value based method prescribed by APB Opinion No. 25 so long as certain pro forma disclosures are made in the footnotes. SFAS No. 123 is effective for fiscal years beginning after December 15, 1995, the Corporation's 1997 fiscal year. The Corporation has not determined the method it will use, and the precise future effect of these rules on the Corporation's reported operating results will depend upon the method adopted. NOTE 6. PENSION PLAN The Corporation has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's highest five year average compensation. The Corporation's funding policy is to contribute annually the amount required to fund current service cost plus an amortization of prior service cost and actuarial gains and losses over approximately 30 years to the extent such amounts are currently deductible for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets: OCTOBER 29 OCTOBER 30 1995 1994 Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefits of $8,689,660 and $7,947,566 in 1995 and 1994, respectively. $ 8,852,453 $ 8,093,025 Projected benefit obligation for service rendered to date.............. $11,964,876 $11,069,551 Plan assets at fair value........... 11,801,453 9,884,534 Projected benefit obligation (greater) than plan assets................... (163,423) (1,185,017) Unrecognized net loss from past experience different from that assumed... 190,308 1,388,507 Unrecognized net asset at November 2, 1987.............. (350,639) (400,730) Net pension liability recognized in balance sheet.............. $(323,754) $ (197,240) Net pension cost included the following components: 1995 1994 1993 Service cost.................... $ 513,188 $ 458,138 $ 395,793 Interest cost on projected benefit obligation........ 814,413 690,469 629,933 Actual gain on plan assets...... (1,948,326) (86,444) (737,221) Net amortization and deferral... 1,104,832 (699,131) 16,067 Net periodic pension cost....... $ 484,107 $ 363,032 $ 304,572 Assumptions used in accounting for the pension plan were: 1995 1994 1993 Weighted average discount rate................ 7.50% 7.50% 7.50% Rate of increase in compensation level....... 6.0% 6.0% 6.0% Expected long term rate of return on assets.. 8.0% 8.0% 8.0% Approximately 99.7% of plan assets at October 29, 1995 are invested in listed stocks and bonds, and the remaining plan assets are held in interest bearing investments, primarily a common trust fund. The Corporation also sponsors an unfunded Supplemental Executive Retirement Program (SERP), which is a nonqualified plan that provides additional retirement benefits to certain key employees. Pension expense recognized in 1995, 1994 and 1993 related to the SERP was $305,652, $247,173 and $321,563, respectively. At October 29, 1995, the projected benefit obligation for this plan totaled $2,438,763, of which an unrecognized net obligation of $67,411 and unamortized prior service cost of $380,106 are subject to later amortization. The remaining $1,991,246 is an additional pension liability recognized in the balance sheet at October 29, 1995. NOTE 7. INCOME TAXES Effective November 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of SFAS 109, income tax expense was determined using the deferred method. Deferred tax expense was based on the items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. As permitted by SFAS 109, the Corporation has elected not to restate the financial statements of any prior years. The cumulative effect of the change increased net income for 1994 by $396,092 (or $.14 per share). The provisions for income taxes consisted of the following: DEFERRED LIABILITY METHOD METHOD 1995 1994 1993 Current: Federal.......... $1,871,828 $1,495,441 $2,741,186 Tax credits...... (86,583) (97,467) (144,186) 1,785,245 1,397,974 2,597,000 State.................. 235,004 138,110 280,000 2,020,249 1,536,084 2,877,000 Deferred: Federal.......... 108,755 (175,974) (409,369) State............ 28,496 (20,110) (52,631) 137,251 (196,084) (462,000) $2,157,500 $1,340,000 $2,415,000 The total provision for income taxes varied from the U.S. federal statutory rate for the following reasons: 1995 1994 1993 Statutory federal income tax rate... 34.0% 34.0% 34.0% Tax credits......................... (1.3) (1.6) (1.4) State income tax, net of federal tax benefit 2.6 1.9 2.2 Change in valuation allowance....... (3.8) Other............................... 1.0 (1.7) .9 Effective tax rate.................. 32.5% 32.6% 35.7% Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows: OCTOBER 29, OCTOBER 30, 1995 1994 Deferred tax liabilities: Depreciation............................... $(4,914,903) $(4,584,441) Inventory valuation........................ (15,103) (31,487) Total deferred tax liabilities.......... (4,930,006) (4,615,928) 12 Deferred tax assets: Deferred compensation......... 835,761 744,597 Receivable allowance.......... 368,380 368,380 Investment and advances to investee company.. 250,442 Net operating loss carryforwards............. 132,522 166,944 Other........................................ 210,347 124,684 Total deferred tax assets.................... 1,547,010 1,655,047 Valuation allowance for deferred tax assets.. (132,522) (417,386) Net deferred tax assets...................... 1,414,488 1,237,661 Net deferred liabilities.....................$(3,515,518) $(3,378,267) Deferred tax liability.......................$(4,094,245) $(3,871,331) Deferred tax assets.......................... 578,727 493,064 Net deferred tax liability...................$(3,515,518) $(3,378,267) The valuation allowance was reduced in 1995 by $250,442 as a result of the collection of advances to and sale of investment in the investee company. At October 29, 1995, the Corporation has net operating tax loss carryforwards of approximately $2,600,000 for state income tax purposes that expire in years 1996 through 2000. Deferred income taxes result from timing differences in the recognition of income and expenses for financial reporting and tax purposes. The sources of these differences and the net tax provisions for the year ended October 31, 1993 are: DEFERRED METHOD 1993 Depreciation........................ $ (311,126) Pension Expense..................... 40,058 Deferred Compensation............... (167,789) Other............................... (23,143) $ (462,000) The Corporation made income tax payments of $2,520,000, $2,155,000, and $2,324,000, in 1995, 1994, and 1993, respectively. NOTE 8. CONCENTRATION OF CREDIT RISK Pulaski Furniture manufactures medium-priced bedroom, dining room and occasional furniture for a variety of customers in the retail furniture industry. Ridgeway Clock manufactures grandfather, mantel and wall clocks. Craftique produces solid mahogany bedroom, dining room and occasional furniture. Substantially all of the Corporation's accounts receivable are due from companies in the retail furniture industry. Management periodically performs credit evaluations of its customers and generally does not require collateral. NOTE 9. OTHER INCOME Other income for 1995 includes a gain of $327,986 for the sale of the Corporation's investment in the investee company on October 6, 1995. In August, 1994, the contents of one of the Corporation's finished goods warehouses was damaged by a storm. The Corporation has received insurance proceeds equal to the wholesale value of the inventory destroyed. Accordingly, a gain of $691,000 on the insurance settlement is included in other income on the 1994 Consolidated Statements of Income. REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS Board of Directors and Stockholders Pulaski Furniture Corporation We have audited the accompanying consolidated balance sheets of Pulaski Furniture Corporation and Subsidiaries as of October 29, 1995 and October 30, 1994, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended October 29, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pulaski Furniture Corporation and Subsidiaries at October 29, 1995 and October 30, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 29, 1995 in conformity with generally accepted accounting principles. As discussed in Note 7 to the financial statements, effective November 1, 1993, the Corporation changed its method of accounting for income taxes. /s/ Ernest & Young LLP Ernest & Young LLP Winston-Salem, North Carolina November 22, 1995 [Inside Back Cover] [PULASKI LOGO] [ACCENTRICS LOGO] [CRAFTIQUE LOGO] [RIDGEWAY LOGO] PLANTS LOCATED AT PULASKI, MARTINSVILLE, DUBLIN, RIDGEWAY AND CHRISTIANSBURG, VIRGINIA AND MEBANE, NORTH CAROLINA [PHOTO] Ridgeway's Croquet Floor Clock features a triple chime movement, brass finish dial with blue moon, Croquet emblem embossed on a polished brass bob and beveled glass. Beautifully carved foliate posts accent the Newport Cherry finish. EX-21 6 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries of Registrant Jurisdiction Name of Incorporation 1. Craftique, Inc. North Carolina 2. Pulaski Foreign Sales Corporation, Inc. U.S. Virgin Islands EX-23 7 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in Post Effective Amendment No. 1 to Registration Statement Number 2-75876 on Form S-8 dated January 20, 1983, of our report dated November 22, 1995 with respect to the consolidated financial statements and schedule included in the Annual Report on Form 10-K of Pulaski Furniture Corporation for the year ended October 29, 1995. ERNST & YOUNG LLP Winston-Salem, North Carolina January 24, 1996 EX-27 8 FINANCIAL DATA SCHEDULE (ARTICLE 5)
5 1,000 12-MOS OCT-29-1995 OCT-29-1995 1,722 15 35,674 0 40,409 78,805 85,013 46,119 118,676 27,017 29,355 0 0 5,827 50,114 118,676 172,842 172,842 138,846 163,499 0 757 2,710 6,633 2,158 4,475 0 0 0 4,475 1.56 1.56
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