FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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 I-91
Furniture Brands International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-0337683
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri ___ 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
49,643,723 Shares as of October 31, 2000
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended September 30, 2000.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended September 30, 2000
Three Months Ended September 30, 1999
Nine Months Ended September 30, 2000
Nine Months Ended September 30, 1999
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 2000
Nine Months Ended September 30, 1999
Notes to Consolidated Financial Statements
The financial statements are unaudited, but include all adjustments (consisting
of normal recurring adjustments) which the management of the Company considers
necessary for a fair presentation of the results of the period. The results for
the three months and nine months ended September 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
2000 1999
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 7,720 $ 7,409
Receivables, less allowances of $22,670
($19,057 at December 31, 1999)............... 361,249 345,385
Inventories.........................(Note 1)... 326,126 285,395
Prepaid expenses and other current assets...... 32,148 33,711
------------- -----------
Total current assets......................... 727,243 671,900
------------- -----------
Property, plant and equipment.................... 574,807 545,634
Less accumulated depreciation.................. 278,868 247,888
------------- -----------
Net property, plant and equipment............ 295,939 297,746
------------- -----------
Intangible assets................................ 293,283 303,446
Other assets..................................... 14,154 15,742
------------- -----------
$ 1,330,619 $ 1,288,834
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense....................... $ 2,838 $ 1,762
Accounts payable and other accrued expenses.... 165,379 152,102
------------ -----------
Total current liabilities.................... 168,217 153,864
------------ -----------
Long-term debt........................(Note 2)... 485,000 535,100
Other long-term liabilities...................... 118,280 125,673
Shareholders' equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued, none.......... - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 52,277,066
shares at September 30, 2000 and
December 31, 1999............................ 52,277 52,277
Paid-in capital................................ 118,560 120,326
Retained earnings.............................. 438,166 356,572
Treasury stock at cost (2,637,543 shares at
September 30, 2000 and 2,907,059 shares at
December 31, 1999)........................... (49,881) (54,978)
--- ---- ------------ ----------
Total shareholders' equity................... 559,122 474,197
------------ ----------
$ 1,330,619 $ 1,288,834
============ ===========
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
------------ ------------
Net sales...................................... $ 499,746 $ 512,980
Costs and expenses:
Cost of operations........................... 363,122 368,440
Selling, general and administrative expenses. 77,382 78,478
Depreciation and amortization................ 14,548 14,174
------------ ------------
Earnings from operations....................... 44,694 51,888
Interest expense............................... 8,727 8,934
Other income, net.............................. 404 593
------------ ------------
Earnings before income tax expense............. 36,371 43,547
Income tax expense............................. 12,998 16,087
------------ ------------
Net earnings................................... $ 23,373 $ 27,460
============ ============
Net earnings per common share:
Basic........................................ $ 0.47 $ 0.53
====== ======
Diluted...................................... $ 0.46 $ 0.52
====== ======
Weighted average common and common equivalent
shares outstanding:
Basic........................................ 49,636,740 51,451,745
========== ==========
Diluted...................................... 50,469,708 52,767,789
========== ==========
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
------------ ------------
Net sales...................................... $ 1,596,772 $ 1,566,943
Costs and expenses:
Cost of operations........................... 1,148,830 1,121,736
Selling, general and administrative expenses. 245,676 243,607
Depreciation and amortization................ 45,395 43,796
------------ ------------
Earnings from operations....................... 156,871 157,804
Interest expense............................... 27,644 28,356
Other income, net.............................. 2,098 1,786
------------ ------------
Earnings before income tax expense and
extraordinary item........................... 131,325 131,234
Income tax expense............................. 47,209 48,475
------------ ------------
Net earnings before extraordinary item......... 84,116 82,759
Extraordinary item - early extinguishment of
debt, net of tax benefit....(Note 3)......... (2,522) -
- ------------ -----------
Net earnings................................... $ 81,594 $ 82,759
============ ============
Net earnings per common share - basic:
Net earnings before extraordinary item....... $ 1.70 $ 1.61
Extraordinary item - early extinguishment
of debt.................................... (0.05) -
------ ------
Net earnings per common share - basic.......... $ 1.65 $ 1.61
====== ======
Net earnings per common share - diluted:
Net earnings before extraordinary item....... $ 1.67 $ 1.56
Extraordinary item - early extinguishment
of debt.................................... (0.05) -
------ ------
Net earnings per common share - diluted........ $ 1.62 $ 1.56
====== ======
Weighted average common and common equivalent
shares outstanding:
Basic........................................ 49,491,919 51,485,214
========== ==========
Diluted...................................... 50,423,588 52,933,771
========== ==========
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
------------ ------------
Cash flows from operating activities:
Net earnings......................................... $ 81,594 $ 82,759
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net loss on early extinguishment of debt......... 2,522 -
Depreciation of property, plant and equipment.... 36,350 34,751
Amortization of intangible and other assets...... 9,045 9,045
Noncash interest and other expense............... 1,355 1,670
Increase in receivables.......................... (15,864) (42,437)
(Increase) decrease in inventories............... (40,731) 23,402
Increase in prepaid expenses and other assets.... (2,176) (2,213)
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 15,873 16,485
Decrease in net deferred tax liabilities......... (4,141) (4,219)
Increase in other long-term liabilities.......... 1,723 1,026
----------- ------------
Net cash provided by operating activities............ 85,550 120,269
----------- ------------
Cash flows from investing activities:
Proceeds from the disposal of assets................. 42 29
Additions to property, plant and equipment........... (35,995) (34,665)
----------- ------------
Net cash used by investing activities................ (35,953) (34,636)
----------- ------------
Cash flows from financing activities:
Payments for debt issuance costs..................... (2,090) -
Additions to long-term debt.......................... 486,500 -
Payments of long-term debt........................... (536,600) (49,600)
Proceeds from the issuance of treasury stock......... 2,904 6,103
Purchase of treasury stock........................... - (45,331)
------------ ------------
Net cash used by financing activities................ (49,286) (88,828)
------------ ------------
Net increase (decrease) in cash and cash equivalents... 311 (3,195)
Cash and cash equivalents at beginning of period....... 7,409 13,220
------------ ------------
Cash and cash equivalents at end of period............. $ 7,720 $ 10,025
============ ============
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 47,831 $ 50,154
============ ============
Cash payments for interest........................... $ 26,300 $ 27,530
============ ============
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
(1) Inventories are summarized as follows:
September 30, December 31,
2000 1999
------------ ------ ----
Finished products $ 143,175 $ 112,389
Work-in-process 58,599 58,479
Raw materials 124,352 114,527
------------ -----------
$ 326,126 $ 285,395
============ ===========
(2) On June 7, 2000, the Company refinanced its secured credit agreement. The
new credit facility is an unsecured, five-year, revolving credit facility
with a commitment of $630.0 million.
The new revolving credit facility allows for the issuance of letters of
credit and cash borrowings. Letter of credit outstandings are limited to no
more than $150.0 million, with cash borrowings limited only by the
facility's maximum availability less letters of credit outstanding. On
September 30, 2000 there were $469.0 million in cash borrowings and $37.3
million in letters of credit outstanding, leaving an excess of $123.7
million available under the facility.
Cash borrowings under the new credit facility bear interest at a base rate
or at an adjusted London Interbank Offered Rate (LIBOR) plus an applicable
margin which varies, depending upon the type of loan the Company executes.
The applicable margin over the base rate and LIBOR is subject to adjustment
based upon the credit ratings the facility receives from Standard & Poor's
and Moody's. At September 30, 2000, loans outstanding under the credit
facility consisted of $455.0 million based upon LIBOR and $14.0 million
based upon the base rate for a weighted average interest rate of 7.44%.
In July 2000, the Company executed an unwind of the remaining $200.0
million of the $300.0 million interest rate swap agreement maturing in
January 2002. The gain from the transaction is being amortized over the
original life of the swap agreement.
(3) In conjunction with the June 7, 2000 refinancing of the secured credit
agreement, the Company charged to results of operations $2.5 million, net
of taxes of $1.5 million, representing the deferred financing fees and
expenses pertaining to the refinanced credit facility. The charge was
recorded as an extraordinary item.
(4) Weighted average shares used in the computation of basic and diluted net
earnings per common share are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2000 1999 2000 1999
-------------- ----------- -------------- -------------
Weighted average shares used
for basic net earnings per
common share 49,636,740 51,451,745 49,491,919 51,485,214
Effect of dilutive securities:
Stock options 832,968 1,316,044 931,669 1,448,557
---------- ---------- ---------- ---------
Weighted average shares used
for diluted net earnings
per common share 50,469,708 52,767,789 50,423,588 52,933,771
========== ========== ========== ==========
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Furniture Brands International, Inc. (referred to herein as the "Company") is
one of the largest home furniture manufacturers in the United States. The
Company has three primary operating subsidiaries: Broyhill Furniture Industries,
Inc.; Lane Furniture Industries, Inc.; and Thomasville Furniture Industries,
Inc.
Comparison of Three Months and Nine Months Ended September 30, 2000 and 1999
- ----------------------------------------------------------------------------
Selected financial information for the three months and nine months ended
September 30, 2000 and September 30, 1999 is presented below:
(Dollars in millions except per share data)
Three Months Ended
------------------
September 30, 2000 September 30, 1999
------------------ ------------------
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $499.8 100.0% $512.9 100.0%
Earnings from operations 44.7 8.9% 51.9 10.1%
Interest expense 8.7 1.7% 9.0 1.7%
Income tax expense 13.0 2.6% 16.0 3.1%
Net earnings 23.4 4.7% 27.5 5.4%
Net earnings per common share-diluted 0.46 - 0.52 -
Gross profit (1) $126.8 25.4% $134.7 26.3%
Nine Months Ended
-----------------
September 30, 2000 September 30, 1999
------------------ ------------------
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $1,596.8 100.0% $1,566.9 100.0%
Earnings from operations 156.9 9.8% 157.8 10.1%
Interest expense 27.6 1.7% 28.4 1.8%
Income tax expense 47.2 3.0% 48.4 3.1%
Net earnings before extraordinary item 84.1 5.3% 82.8 5.3%
Net earnings per common share before
extraordinary item -- diluted 1.67 - 1.56 -
Gross profit (1) $416.8 26.1% $414.6 26.5%
(1) The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit has been
calculated by subtracting cost of operations and the portion of
depreciation associated with cost of goods sold from net sales.
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $499.8 $512.9 $1,596.8 $1,566.9
Cost of operations 363.1 368.4 1,148.8 1,121.7
Depreciation (associated with 9.9 9.8 31.2 30.6
------ ------ -------- --------
cost of goods sold)
Gross profit $126.8 $134.7 $ 416.8 $ 414.6
====== ====== ======== ========
Net sales for the three months ended September 30, 2000 were $499.8 million,
compared to $512.9 million in the three months ended September 30, 1999, a
decrease of $13.1 million or 2.6%. This sales decline reflects a softening
business environment, failure of a major customer, and realignment of the
Company's customer base. For the nine months ended September 30, 2000, net sales
increased $29.9 million or 1.9% to $1,596.8 million from $1,566.9 million for
the nine months ended September 30, 1999.
Earnings from operations for the three months ended September 30, 2000 decreased
by $7.2 million or 13.9% from the comparable prior year period. Earnings from
operations for the three months ended September 30, 2000 and September 30, 1999
were 8.9% and 10.1% of net sales, respectively. Earnings from operations for the
three months ended September 30, 2000 were negatively impacted by the
unfavorable sales performance, marketplace retail disruptions, as well as
efforts to begin the slowdown of production levels to balance inventories with a
weakening incoming order trend. Selective downtime was taken in a number of
manufacturing facilities, which adversely affected cost of operations. Each
operating company was impacted to a varying degree, depending upon its
manufacturing overhead cost structure and its reliance on a growing import
program. Selling, general and administrative expenses remained under tight
control. For the nine months ended September 30, 2000, earnings from operations
decreased by $0.9 million, or 0.6% from the comparable nine months of 1999. As a
percentage of net sales, earnings from operations for the nine months ended
September 30, 2000 and September 30, 1999 were 9.8% and 10.1%, respectively.m
operations for the nine months ended September 30, 2000 and September 30, 1999
were 9.8% and 10.1%, respectively.
Interest expense totaled $8.7 million and $27.6 million for the three months and
nine months ended September 30, 2000, respectively, compared to $9.0 million and
$28.4 million for the prior year comparable periods. The decrease in interest
expense during the periods resulted from lower long-term debt levels partially
offset by higher interest rates.
The effective income tax rates were 35.7% and 36.9% for the three months ended
September 30, 2000 and September 30, 1999, respectively, and 35.9% and 36.9% for
the nine months ended September 30, 2000 and September 30, 1999, respectively.
The effective tax rates for each period were adversely impacted by certain
nondeductible expenses incurred and provisions for state and local income taxes.
Net earnings per common share for basic and diluted were $0.47 and $0.46 for the
three months ended September 30, 2000, respectively, compared with $0.53 and
$0.52 for the same period last year, respectively. For the nine months ended
September 30, 2000 and September 30, 1999, net earnings per common share before
extraordinary item for basic and diluted were $1.70 and $1.67, respectively, and
$1.61 and $1.56, respectively. Average common and common equivalent shares
outstanding used in the calculation of net earnings per common share on a basic
and diluted basis were 49,637,000 and 50,470,000, respectively, for the three
months ended September 30, 2000, and 51,452,000 and 52,768,000, respectively,
for the three months ended September 30, 1999. For the nine months ended
September 30, 2000 and September 30, 1999, average common and common equivalent
shares outstanding used in the calculation of net earnings per common share on a
basic and diluted basis were 49,492,000 and 50,424,000, respectively, and
51,485,000 and 52,934,000, respectively.
FINANCIAL CONDITION
Working Capital
- ---------------
Cash and cash equivalents at September 30, 2000 amounted to $7.7 million,
compared with $7.4 million at December 31, 1999. During the nine months ended
September 30, 2000, net cash provided by operating activities totaled $85.6
million, net cash used by investing activities totaled $36.0 million and net
cash used by financing activities totaled $49.3 million.
Working capital was $559.0 at September 30, 2000, compared with $518.0 million
at December 31, 1999. The current ratio was 4.3-to-1 at September 30, 2000,
compared to 4.4-to-1 at December 31, 1999.
Financing Arrangements
- ----------------------
As of September 30, 2000, long-term debt consisted of the following, in
millions:
Revolving credit facility $469.0
Other 16.0
------
$485.0
======
On June 7, 2000, the Company refinanced its secured credit agreement. The new
credit facility is an unsecured, five-year, revolving credit facility with a
commitment of $630.0 million.
The new revolving credit facility allows for the issuance of letters of credit
and cash borrowings. Letter of credit outstandings are limited to no more than
$150.0 million, with cash borrowings limited only by the facility's maximum
availability less letters of credit outstanding. On September 30, 2000 there
were $469.0 million in cash borrowings and $37.3 million in letters of credit
outstanding, leaving an excess of $123.7 million available under the facility.
Cash borrowings under the new credit facility bear interest at a base rate or at
an adjusted London Interbank Offered Rate (LIBOR) plus an applicable margin
which varies, depending upon the type of loan the Company executes. The
applicable margin over the base rate and LIBOR is subject to adjustment based
upon the credit ratings the facility receives from Standard & Poor's and
Moody's. At September 30, 2000, loans outstanding under the credit facility
consisted of $455.0 million based upon LIBOR and $14.0 million based upon the
base rate for a weighted average interest rate of 7.44%.
The Company believes its revolving credit facility, together with cash generated
from operations, will be adequate to meet liquidity requirements for the
foreseeable future.
OUTLOOK
- -------
Current order trends indicate a continuation of weak consumer spending in
certain segments of the Company's business. This economic environment, coupled
with recent retailer failures and the Company's ongoing strategy for realigning
its customer base to focus on long-term, profitable sales growth, suggests that
fourth quarter sales should be even with or modestly below those reported for
the same period last year. Assuming that level of sales activity, fourth quarter
earnings are anticipated to be $0.48 to $0.53 compared to $0.58 last year. For
the full year ending December 31, 2000, earnings per share would then be $2.15
to $2.20 versus last year's $2.14.
The Company is implementing plans to reduce inventories to budgeted levels of
approximately $295 to $300 million by year-end. The operating profit margin for
the fourth quarter will be impacted by the reduction of domestic production;
however this cut back in operations should produce strong operating cash flow
for the remainder of the year, enabling the Company to continue its deleveraging
commitment.
Capital expenditures are forecasted at $55 million for the year with an
anticipated decrease to the $40 million range next year. Depreciation and
amortization are anticipated to be $58 to $60 million this year with an
anticipated increase to $60 to $62 million next year. Selling, general and
administrative expenses for the year are expected to be in the range of 15% to
15.5% of net sales. Interest expense is expected to decrease next year. The
Company will probably repay between $80 and $85 million of its debt this year.
Earnings before interest expense, income taxes and depreciation and amortization
(EBITDA) as a percent of net sales is expected to approach 13% next year.
The percentage of the Company's product lines represented by imports will
continue to increase. Also, the Company continues to pursue its dedicated
distribution strategy. The Thomasville Home Furnishings Stores development
program is on schedule and the Company is exploring the possibility of pursuing
a similar concept with Broyhill and Lane. Finally, The Home Depot is continuing
the rollout of Thomasville kitchen and bath cabinetry to The Home Depot stores.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Company herein has made forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include the Company's expected sales,
earnings per share, profit margins, and cash flow for the fourth quarter, the
effects of certain manufacturing realignments and other business strategies, the
prospects for the overall business environment, and other statements containing
the words "expects," "anticipates," "estimates," "believes," and words of
similar import. The Company cautions investors that any such forward-looking are
not guarantees of future performance and that certain factors may cause actual
results to differ materially from those in the forward-looking statements. Such
factors may include: overall business and economic conditions and growth in the
furniture industry; changes in customer spending patterns and demand for home
furnishings; competitive factors, such as design and marketing efforts by other
furniture manufacturers; pricing pressures; success of the marketing efforts of
retailers and the prospects for further customer failures; the Company's success
in furniture design and manufacture; the effects of manufacturing realignments
and cost savings programs; and other risk factors listed from time to time in
the Company's future public releases and SEC reports.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company's exposure to interest rate risk consists of its floating rate revolving
credit facility.
PART II OTHER INFORMATION
Item 5. Other Information
On October 26, 2000, the Company announced it had authorized the
repurchase of $100 million of its outstanding common stock over the
next twenty-four months. The timing and amounts purchased will depend
upon market conditions. Repurchases will be effected from time to time
in open market or privately negotiated transactions. The shares of
common stock repurchased will be kept as treasury shares and will be
used for general corporate purposes.
Item 6. Exhibits and Reports on Form 8-K
(a) 27. Financial Data Schedule.
(b) A Form 8-K was not required to be filed during the quarter ended
September 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Furniture Brands International, Inc.
(Registrant)
By: Steven W. Alstadt
---------------------
Steven W. Alstadt
Controller and
Chief Accounting Officer
Date: November 13, 2000