May 14, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
RE: Form 10-Q
Furniture Brands International, Inc.
Dear Sir or Madam:
Submitted herewith for filing is the above-referenced report.
This filing is being affected by direct transmission to the Commission's
EDGAR system.
Very truly yours,
/s/ Robert L. Kaintz
Assistant General Counsel
RLK/rsl
Enclosure
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 March 31, 2001 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
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Furniture Brands International, Inc.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
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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
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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.
50,264,650 Shares as of April 30, 2001
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PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended March 31, 2001.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended March 31, 2001
Three Months Ended March 31, 2000
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2001
Three Months Ended March 31, 2000
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 ended March 31, 2001 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)
March 31, December 31,
2001 2000
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 8,038 $ 14,606
Receivables, less allowances of $22,459
($23,075 at December 31, 2000)............... 349,675 351,804
Inventories.........................(Note 1)... 296,621 294,454
Prepaid expenses and other current assets...... 32,927 30,717
------------ -----------
Total current assets......................... 687,261 691,581
------------ -----------
Property, plant and equipment.................... 595,697 590,342
Less accumulated depreciation.................. 299,335 287,107
------------ -----------
Net property, plant and equipment............ 296,362 303,235
------------ -----------
Intangible assets................................ 286,507 289,895
Other assets..................................... 21,579 20,127
------------ -----------
$ 1,291,709 $ 1,304,838
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense....................... $ 1,760 $ 7,646
Accounts payable and other accrued expenses.... 149,098 135,472
------------ -----------
Total current liabilities.................... 150,858 143,118
------------ -----------
Long-term debt................................... 415,000 462,000
Other long-term liabilities...................... 115,377 115,815
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 March 31, 2001 and
December 31, 2000............................ 52,277 52,277
Paid-in capital................................ 114,286 118,360
Retained earnings.............................. 482,154 462,473
Treasury stock at cost (2,022,141 shares at
March 31, 2001 and 2,601,759 shares at
December 31, 2000)........................... (38,243) (49,205)
------------ -----------
Total shareholders' equity................... 610,474 583,905
------------ -----------
$ 1,291,709 $ 1,304,838
============ ===========
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
March 31, March 31,
2001 2000
------------ -------------
Net sales...................................... $ 506,182 $ 563,947
Costs and expenses:
Cost of operations........................... 370,416 404,719
Selling, general and administrative expenses. 84,411 86,963
Depreciation and amortization................ 15,258 15,549
------------ ------------
Earnings from operations....................... 36,097 56,716
Interest expense............................... 6,769 9,609
Other income, net.............................. 809 735
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Earnings before income tax expense............. 30,137 47,842
Income tax expense............................. 10,456 17,242
------------ ------------
Net earnings................................... $ 19,681 $ 30,600
============ ============
Net earnings per common share:
Basic........................................ $ 0.39 $ 0.62
====== ======
Diluted...................................... $ 0.39 $ 0.61
====== ======
Weighted average common shares outstanding:
Basic........................................ 50,021,578 49,373,755
========== ==========
Diluted...................................... 51,082,872 50,351,176
========== ==========
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net earnings......................................... $ 19,681 $ 30,600
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment...... 12,243 12,534
Amortization of intangible and other assets........ 3,015 3,015
Noncash interest and other expense................. 353 491
(Increase) decrease in receivables................. 2,129 (31,919)
Increase in inventories............................ (2,167) (6,625)
Increase in prepaid expenses and other assets...... (4,053) (580)
Increase in accounts payable, accrued interest
expense and other accrued expenses............... 11,738 39,053
Decrease in net deferred tax liabilities........... (1,000) (1,301)
Increase in other long-term liabilities............ 1,231 686
------------ ------------
Net cash provided by operating activities............ 43,170 45,954
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Cash flows from investing activities:
Proceeds from the disposal of assets................. 48 12
Additions to property, plant and equipment........... (5,534) (9,732)
------------ ------------
Net cash used by investing activities................ (5,486) (9,720)
------------ ------------
Cash flows from financing activities:
Payments of long-term debt........................... (47,000) (33,100)
Proceeds from the issuance of treasury stock......... 2,748 150
------------ ------------
Net cash used by financing activities................ (44,252) (32,950)
------------ ------------
Net increase (decrease) in cash and cash equivalents... (6,568) 3,284
Cash and cash equivalents at beginning of period....... 14,606 7,409
------------ ------------
Cash and cash equivalents at end of period............. $ 8,038 $ 10,693
============ ============
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 170 $ 1,824
============ ============
Cash payments for interest........................... $ 13,184 $ 3,696
============ ============
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:
March 31, December 31,
2001 2000
----------- -----------
Finished products $ 132,887 $ 125,491
Work-in-process 57,572 61,932
Raw materials 106,162 107,031
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$ 296,621 $ 294,454
=========== ===========
(2) Weighted average shares used in the computation of basic and diluted net
earnings per common share are as follows:
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
------------ ------------
Weighted average shares used for
basic net earnings per common
share 50,021,578 49,373,755
Effect of dilutive securities:
Stock options 1,061,294 977,421
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Weighted average shares used for
diluted net earnings per common
share 51,082,872 50,351,176
========== ==========
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 Ended March 31, 2001 and 2000
- --------------------------------------------------------
Selected financial information for the three months ended March 31, 2001 and
March 31, 2000 is presented below:
(Dollars in millions except per share data)
Three Months Ended
----------------------------------------
March 31, 2001 March 31, 2000
------------------- -------------------
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $506.2 100.0% $563.9 100.0%
Earnings from operations 36.1 7.1 56.7 10.1
Interest expense 6.8 1.3 9.6 1.7
Income tax expense 10.4 2.1 17.2 3.1
Net earnings 19.7 3.9% 30.6 5.4%
Net earnings per common share-diluted 0.39 - 0.61 -
Gross profit (1) $125.3 24.8% $148.4 26.3%
(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
March 31,
-------------------
2001 2000
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Net sales $506.2 $563.9
Cost of operations 370.4 404.7
Depreciation (associated with
cost of goods sold) 10.5 10.8
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Gross profit $125.3 $148.4
====== ======
Net sales for the three months ended March 31, 2001 were $506.2 million,
compared to $563.9 million in the three months ended March 31, 2000, a decrease
of $57.7 million or 10.2%. This sales decline reflects the continuation of the
significant slowdown which began during the second half of 2000. Also, the
Company is experiencing some carry-over effect from major retailer bankruptcy
filings in the second half of 2000 and has sacrificed additional volume as the
Company has backed away from other business due to credit concerns.
Earnings from operations for the three months ended March 31, 2001 decreased by
$20.6 million or 36.4% from the comparable prior year period. Earnings from
operations for the three months ended March 31, 2001 and March 31, 2000 were
7.1% and 10.1% of net sales, respectively. Earnings from operations for the
three months ended March 31, 2001 were negatively impacted by decreased plant
utilization - off by some 16-17% - resulting both from the volume shortfall and
from increased focus on imported products.
Interest expense totaled $6.8 million for the three months ended March 31, 2001
compared to $9.6 million in the prior year comparable period. The decrease in
interest expense in the three months ended March 31, 2001 resulted both from
lower long-term debt levels and lower interest rates.
The effective income tax rate was 34.7% and 36.0% for the three months ended
March 31, 2001 and March 31, 2000, respectively. The effective tax rate for the
three months ended March 31, 2001 was less adversely impacted than the
comparable prior year period due in part to a lower provision for state and
local taxes.
Net earnings per common share for basic and diluted were $0.39 and $0.39,
respectively, for the three months ended March 31, 2001, compared with $0.62 and
$0.61, respectively, for the same period last year. Average common and common
equivalent shares outstanding used in the calculation of net earnings per common
share on a basic and diluted basis were 50,022,000 and 51,083,000, respectively,
for the three months ended March 31, 2001 and 49,374,000 and 50,351,000,
respectively, for the three months ended March 31, 2000.
FINANCIAL CONDITION
Working Capital
- ---------------
Cash and cash equivalents at March 31, 2001 amounted to $8.0 million, compared
with $14.6 million at December 31, 2000. During the three months ended March 31,
2001, net cash provided by operating activities totaled $43.2 million, net cash
used by investing activities totaled $5.5 million and net cash used by financing
activities totaled $44.3 million.
Working capital was $536.4 at March 31, 2001, compared with $548.5 million at
December 31, 2000. The current ratio was 4.6-to-1 at March 31, 2001, compared to
4.8-to-1 at December 31, 2000.
Financing Arrangements
- ----------------------
As of March 31, 2001, long-term debt consisted of the following, in millions:
Revolving credit facility $399.8
Other 15.2
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$415.0
======
To meet short-term capital and other financial requirements, the Company
maintains a $630.0 million revolving credit facility with a group of financial
institutions. The 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 March 31, 2001 there
were $399.8 million in cash borrowings and $28.3 million in letters of credit
outstanding, leaving an excess of $201.9 million available under the facility.
Cash borrowings under the revolving credit facility bear interest at a base rate
or at an adjusted Eurodollar rate plus an applicable margin which varies,
depending upon the type of loan the Company executes. The applicable margin over
the base rate and Eurodollar rate is subject to adjustment based upon achieving
certain credit ratings. At March 31, 2001, loans outstanding under the revolving
credit facility consisted of $385.0 million based on the adjusted Eurodollar
rate and $14.8 million based upon the base rate, for a weighted average interest
rate of 6.07%.
The Company believes that its revolving credit facility, together with cash
generated from operations, will be adequate to meet liquidity requirements for
the foreseeable future.
Recently Issued Statements of Financial Accounting Standards
- ------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133) "Accounting for Derivative
Instruments and Hedging Activities." This statement standardizes the accounting
for derivative instruments by requiring that an entity recognize the items as
assets and liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133, as amended, is effective for fiscal years beginning
after June 15, 2000. The Company adopted SFAS No. 133 effective January 1, 2001.
The adoption of this standard has not had a material impact on the consolidated
financial position, results of operations or cash flows of the Company.
OUTLOOK
- -------
Current order trends indicate a continuation of weak consumer spending in most
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
second quarter sales should be down in the high single digits from those
reported for the same period last year, with a recovery toward the end of the
second half of the year; however, the recovery will not be soon enough, or
strong enough, to offset the first half weakness. Assuming that level of sales
activity, second quarter earnings per share are anticipated to be $0.35 to $0.40
compared to $0.60 last year. For the full year ending December 31, 2001,
earnings per share are projected to be $1.85 to $1.95 versus last year's $2.15.
Capital expenditures are forecasted at $30 - $35 million for the year.
Depreciation and amortization are anticipated to be $58 to $60 million for the
year. Selling, general and administrative expenses for the year are expected to
be in the range of 16.25% to 16.50% of net sales. Based upon current interest
rates, interest expense is expected to be approximately $25 million. The Company
should generate upwards of $100 million in cash flow this year, which is
currently expected to be used primarily for repayment of long-term debt.
Earnings before interest expense, income taxes and depreciation and amortization
(EBITDA) as a percent of net sales is expected to be in the 11.00% to 11.75%
range for the full 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 to add approximately 25 new stores per year with a goal
of 250 stores. Finally, The Home Depot is completing the rollout to all of its
stores of kitchen and bath cabinetry marketed using the "Thomasville" name in
accordance with the previously reported licensing agreement.
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 statements containing the words
"expects," "anticipates," "estimates," "believes," and words of similar import.
The Company cautions investors that any such forward-looking statements 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. In May 2001, in order to reduce the impact of changes in
interest rates on its floating rate long-term debt, the Company entered into
three interest rate swap agreements each having a notional amount of $100.0
million and a termination date in May 2004. The swap agreements effectively
convert $300.0 million of the Company's floating rate long-term debt to a fixed
rate. The Company pays the counterparties a blended fixed rate of 4.93% per
annum and receives payment based upon the floating three-month LIBOR rate.
PART II OTHER INFORMATION
-------------------------
Item 6. Exhibits and Reports on Form 8-K
(b) A Form 8-K was filed on January 25, 2001 announcing fourth quarter
operating results and projections of first quarter and full year sales
and earnings. A Form 8-K was filed on February 23, 2001 announcing
projections of first quarter and full year sales and earnings. A Form
8-K was filed on April 27, 2001 announcing first quarter operating
results and projections of second quarter and full year sales and
earnings.
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: May 14, 2001