INFORMATION
FOR IMMEDIATE RELEASE
FURNITURE BRANDS INTERNATIONAL REPORTS
SALES AND EARNINGS FOR THE SECOND QUARTER OF 2006
St. Louis, Missouri, July 26, 2006 -- Furniture Brands International (NYSE:FBN) announced today its financial results for the second quarter of 2006.
Operating Results - Second Quarter
Net sales for the second quarter of 2006 were $601.3 million, compared with $593.8 million in the second quarter of 2005, an increase of 1.3%. Net earnings for the second quarter were $17.0 million, up from $9.6 million in the second quarter of last year. Net earnings per diluted common share were $0.35, as compared to $0.18 in the second quarter of last year ($0.16 pro forma for $1.1 million of net stock option expense).
Included in the 2006 second quarter net earnings were restructuring, asset impairment and severance charges totaling $0.5 million ($0.8 million before income tax benefits) or $0.01 per diluted common share. Also included in the 2006 second quarter net earnings was the effect of $0.02 in increased expense due to the upfront recognition of the gain on interest rate swaps at the end of the first quarter, as previously announced. The 2005 second quarter net earnings were negatively impacted by restructuring, asset impairment and severance charges totaling $7.9 million ($12.2 million before income tax benefits) or $0.15 per diluted common share.
Operating Results - First Half
Net sales for the first half of 2006 were $1,262.7 million, compared with $1,235.3 million in the first half of 2005, an increase of 2.2%. Net earnings were $47.2 million, compared with $34.4 million in the first half of 2005. Diluted net earnings per common share were $0.96 as compared to $0.65 in the first half of 2005 ($0.61 pro forma for $2.2 million of net stock option expense).
Included in the 2006 first half net earnings were restructuring, asset impairment and severance charges totaling $1.0 million ($1.6 million before income tax benefits) or $0.02 per diluted common share. Also included in the 2006 first half net earnings was
$5.4 million ($0.11 per diluted common share) from the recognition of an accounting gain on interest rate swaps as a result of the refinancing of the company’s revolving credit facility, which occurred early in the second quarter. Offsetting this gain was the effect of $0.02 in increased interest expense due to the upfront recognition of the gain on the interest rate swaps. Included in the 2005 first half net earnings were restructuring, asset impairment and severance charges of $10.5 million ($16.2 million before income tax benefits) or $0.19 per common share.
Management Comments
W. G. (Mickey) Holliman, Chairman and Chief Executive Officer, commented: “As the quarter progressed we witnessed an increasingly challenging retail environment. Despite this, we delivered a positive year-over-year sales comparison and a meaningful earnings improvement over the prior year.”
Mr. Holliman continued, “Our net sales and net earnings were also up for the first half compared to the prior year. Earnings per share (excluding restructuring charges, severance, and the impact of the termination of hedge accounting) were 89 cents for the first half of the year. This compares to first half 2005 adjusted net earnings per share of 80 cents. I believe this is the most meaningful year-over-year comparison. We continue to make steady, measurable improvements to the company’s performance.
“We also continue to drive change throughout the entire company to gain the benefits afforded us by our strong brands, the leverage of our size, and our talented and unified leadership team. We will continue to focus on building our brands, optimizing our logistics and supply chain processes, and other strategic initiatives to drive both growth and margin expansion throughout the company.”
Mr. Holliman added, “We continue to repurchase shares of our common stock using available free cash flow. During the second quarter we repurchased 0.7 million shares, bringing the total for the first half of 2006 to 1.7 million shares at a total cost of $40 million.”
Outlook
Mr. Holliman concluded, “With respect to the third quarter, we currently expect net sales to be up in the low single digits versus the third quarter of last year and net earnings per diluted common share to be in the $0.18 to $0.22 range. This includes the effect of $0.07 in previously disclosed restructuring, asset impairment and severance charges. This also includes the effect of $0.03 in increased interest expense due to the upfront recognition of the gain on the interest rate swaps, also previously disclosed. As is our practice, we will provide an update on our third quarter expectations in early September.”
A conference call will be held to discuss the second quarter results at 7:30 a.m. (Central Time) on July 27, 2006. The call can be listened to on the company’s
website - www.furniturebrands.com.
Furniture Brands International is one of America’s largest residential furniture companies. The company produces, sources and markets its products under six of the
best-known brand names in the industry - Broyhill, Lane, Thomasville, Henredon, Drexel Heritage and Maitland-Smith.
Statements in this release that are not strictly historical may be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties, and Furniture Brands undertakes no obligation to update any such statement to reflect later developments. These include economic conditions, competitive factors, raw material pricing and restructuring efforts, among others, as set forth in the Company's most recent Form 10-K filed with the SEC.
In this press release, our financial results are provided both in accordance with generally accepted accounting principles (GAAP), and using certain non-GAAP financial measures. In particular, we provide historic and estimated future net earnings per diluted common share excluding certain charges which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because we believe these non-GAAP financial measures help indicate underlying trends in our business and provide useful information to both management and investors by excluding certain items that are not indicative of our core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.
FURNITURE BRANDS INTERNATIONAL
CONSOLIDATED OPERATING RESULTS
(Dollars in thousands except per share)
(Unaudited)
| | | Three Months Ended | Six Months Ended |
| | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
| | | | | | | | | | | | | | |
| Net sales | | $ | 601,275 | | $ | 593,753 | | $ | 1,262,720 | | $ | 1,235,318 | |
| Cost of sales | | | 465,120 | | | 460,457 | | | 972,626 | | | 952,085 | |
| Gross profit | | | 136,155 | | | 133,296 | | | 290,094 | | | 283,233 | |
| Selling, general and administrative expenses | | | 106,020 | | | 116,670 | | | 222,584 | | | 228,086 | |
| Earnings from operations | | | 30,135 | | | 16,626 | | | 67,510 | | | 55,147 | |
| Interest expense | | | 4,727 | | | 2,846 | | | 7,688 | | | 5,948 | |
| Other income, net | | | 2,040 | | | 644 | | | 12,578 | | | 2,534 | |
| Earnings before income tax expense | | | 27,448 | | | 14,424 | | | 72,400 | | | 51,733 | |
| Income tax expense | | | 10,470 | | | 4,833 | | | 25,200 | | | 17,358 | |
| Net earnings | | $ | 16,978 | | $ | 9,591 | | $ | 47,200 | | $ | 34,375 | |
| | | | | | | | | | | | | | |
| Net earnings per common share (diluted) | | $ | 0.35 | | $ | 0.18 | | $ | 0.96 | | $ | 0.65 | |
| | | | | | | | | | | | | | |
| Average diluted common shares | | | | | | | | | | | | | |
| outstanding (in thousands) | | | 48,853 | | | 52,822 | | | 49,186 | | | 53,152 | |
Included in the above Consolidated Statements of Operations are charges for stock option compensation (beginning January 1, 2006), gain on termination of cash flow hedges, restructuring and severance. The following reconciliation of net earnings shows the breakdown of these charges and their impact on operations. We believe this reconciliation provides a meaningful comparison of our ongoing operations.
| | | Three Months Ended | | Six Months Ended | |
| | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
| | | | | | | | | | | | | | |
| Net earnings | | $ | 16,978 | | $ | 9,591 | | $ | 47,200 | | $ | 34,375 | |
| Stock option compensation, net | | | - | | | (1,121 | ) | | - | | | (2,220 | ) |
| Net earnings - pro forma | | | 16,978 | | | 8,470 | | | 47,200 | | | 32,155 | |
| | | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | | |
| Restructuring charges (1) | | | | | | | | | | | | | |
| Cost of sales | | | 1,084 | | | 1,653 | | | 1,514 | | | 3,033 | |
| Selling, general, administrative expenses | | | (300 | ) | | 9,641 | | | 44 | | | 11,009 | |
| Severance (executive) | | | - | | | 1,011 | | | - | | | 2,111 | |
| Swap impact (2) | | | - | | | - | | | (8,503 | ) | | - | |
| Adjustments - total | | | 784 | | | 12,305 | | | (6,945 | ) | | 16,153 | |
| Income tax benefit | | | 274 | | | 4,307 | | | (2,431 | ) | | 5,654 | |
| Adjustments - net | | | 510 | | | 7,998 | | | (4,514 | ) | | 10,499 | |
| | | | | | | | | | | | | | |
| Adjusted - net earnings | | $ | 17,488 | | $ | 16,468 | | $ | 42,686 | | $ | 42,654 | |
| | | | | | | | | | | | | | |
| Adjusted - earnings per share - diluted | | $ | 0.36 | | $ | 0.31 | | $ | 0.87 | | $ | 0.80 | |
(1) Restructuring charges include asset impairment charges, severance and other closing costs associated with the previously announced plant shutdowns.
(2) Excludes impact of $0.02 per share for the second quarter and first half of 2006 related to the increased interest expense due to the termination of hedge accounting on an interest rate swap, offset by additional gain on the swaps recorded in the second quarter.
FURNITURE BRANDS INTERNATIONAL
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
| | | | June 30, | | | December 31, | |
| | | | 2006 | | | 2005 | |
| Assets | | | | | | | |
| | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 58,978 | | $ | 114,322 | |
| Receivables, net | | | 371,531 | | | 349,202 | |
| Inventories | | | 488,760 | | | 432,814 | |
| Prepaid expenses and other current assets | | | 36,680 | | | 35,330 | |
| Total current assets | | | 955,949 | | | 931,668 | |
| Property, plant and equipment, net | | | 238,490 | | | 250,817 | |
| Intangible assets | | | 352,178 | | | 352,178 | |
| Other assets | | | 43,007 | | | 47,561 | |
| | | $ | 1,589,624 | | $ | 1,582,224 | |
| | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | |
| | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable | | $ | 110,369 | | $ | 101,860 | |
| Accrued expenses and other current liabilities | | | 100,470 | | | 111,625 | |
| Total current liabilities | | | 210,839 | | | 213,485 | |
| Long-term debt | | | 300,800 | | | 301,600 | |
| Other long-term liabilities | | | 176,487 | | | 163,187 | |
| | | | | | | | |
| Shareholders’ equity | | | 901,498 | | | 903,952 | |
| | | $ | 1,589,624 | | $ | 1,582,224 | |
FURNITURE BRANDS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | Three Months Ended | Six Months Ended |
| | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
| Cash flows from operating activities: | | | | | | | | | | | | | |
| Net earnings | | $ | 16,978 | | $ | 9,591 | | $ | 47,200 | | $ | 34,375 | |
| Adjustments to reconcile net earnings to net cash | | | | | | | | | | | | | |
| provided by operating activities: | | | | | | | | | | | | | |
| Depreciation and amortization | | | 9,304 | | | 11,773 | | | 19,397 | | | 23,576 | |
| Compensation expense related to stock option | | | | | | | | | | | | | |
| grants and restricted stock awards | | | 1,531 | | | 24 | | | 3,154 | | | 111 | |
| Provision (benefit) for deferred income taxes | | | (3,043 | ) | | (521 | ) | | (6,382 | ) | | (2,726 | ) |
| Other, net | | | (826 | ) | | 9,612 | | | (5,525 | ) | | 11,029 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | |
| Accounts receivable | | | 21,685 | | | 38,595 | | | (22,329 | ) | | 17,744 | |
| Inventories | | | (49,448 | ) | | (10,396 | ) | | (55,946 | ) | | 4,681 | |
| Prepaid expenses and other assets | | | 3,100 | | | (2,648 | ) | | 2,701 | | | (11,822 | ) |
| Accounts payable and other accrued expenses | | | (13,048 | ) | | (11,217 | ) | | 4,095 | | | (2,019 | ) |
| Other long-term liabilities | | | 4,819 | | | 3,767 | | | 8,878 | | | 9,324 | |
| Net cash provided (used) by operating activities | | | (8,948 | ) | | 48,580 | | | (4,757 | ) | | 84,273 | |
| | | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | | |
| Proceeds from the disposal of assets | | | 1,313 | | | 1,173 | | | 4,496 | | | 3,312 | |
| Additions to property, plant and equipment | | | (9,108 | ) | | (7,566 | ) | | (14,464 | ) | | (15,507 | ) |
| Net cash used by investing activities | | | (7,795 | ) | | (6,393 | ) | | (9,968 | ) | | (12,195 | ) |
| | | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | | |
| Proceeds from the termination of swaps | | | 8,623 | | | - | | | 8,623 | | | - | |
| Payments for debt issuance costs | | | (1,185 | ) | | - | | | (1,185 | ) | | - | |
| Additions to long-term debt | | | 450,000 | | | - | | | 450,000 | | | - | |
| Payments of long-term debt | | | (450,800 | ) | | (800 | ) | | (450,800 | ) | | (800 | ) |
| Proceeds from the exercise of stock options | | | 1,326 | | | 3,170 | | | 8,095 | | | 3,742 | |
| Tax benefit from the exercise of stock options | | | 123 | | | - | | | 527 | | | - | |
| Payments of cash dividends | | | (7,845 | ) | | (7,906 | ) | | (15,804 | ) | | (15,892 | ) |
| Payments for the purchase of treasury stock | | | (15,075 | ) | | (19,933 | ) | | (40,075 | ) | | (24,933 | ) |
| Net cash used by financing activities | | | (14,833 | ) | | (25,469 | ) | | (40,619 | ) | | (37,883 | ) |
| | | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (31,576 | ) | | 16,718 | | | (55,344 | ) | | 34,195 | |
| Cash and cash equivalents at beginning of period | | | 90,554 | | | 68,725 | | | 114,322 | | | 51,248 | |
| Cash and cash equivalents at end of period | | $ | 58,978 | | $ | 85,443 | | $ | 58,978 | | $ | 85,443 | |
| | | | | | | | | | | | | | |
| Supplemental Disclosure: | | | | | | | | | | | | | |
| Cash payments for income taxes, net | | $ | 24,306 | | $ | 16,950 | | $ | 42,339 | | $ | 32,450 | |
| | | | | | | | | | | | | | |
| Cash payments for interest expense | | $ | 2,718 | | $ | 2,887 | | $ | 4,397 | | $ | 6,040 | |
