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, 1996 or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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(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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
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.
61,426,281 Shares as of September 30, 1996
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended September 30,
1996.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended September 30, 1996
Three Months Ended September 30, 1995
Nine Months Ended September 30, 1996
Nine Months Ended September 30, 1995
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1996
Nine Months Ended September 30, 1995
Notes to Consolidated Financial Statements
Separate financial statements and other disclosures with respect to
the Company's subsidiaries are omitted as such separate financial
statements and other disclosures are not deemed material to investors.
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, 1996 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,
1996 1995
ASSETS ------------ -----------
Current assets:
Cash and cash equivalents....................... $ 21,456 $ 26,412
Receivables, less allowances of $25,349
($20,724 at December 31, 1995)................ 292,669 276,116
Inventories...........................(Note 3).. 280,977 269,677
Prepaid expenses and other current assets....... 17,608 17,888
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Total current assets.......................... 612,710 590,093
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Property, plant and equipment..................... 410,553 389,429
Less accumulated depreciation................... 114,763 83,023
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Net property, plant and equipment............. 295,790 306,406
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Intangible assets, net............................ 345,383 370,307
Other assets...................................... 14,682 24,933
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$ 1,268,565 $ 1,291,739
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............ $ - $ 18,639
Accrued interest expense........................ 2,461 1,304
Accounts payable and other accrued expenses..... 150,937 115,114
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Total current liabilities..................... 153,398 135,057
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Long-term debt, less current maturities.(Notes 4
and 6).......................................... 578,600 705,040
Other long-term liabilities....................... 133,626 150,486
Shareholders' equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued none............ - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 61,426,281
shares at September 30, 1996 and 50,120,079
shares at December 31, 1995.........(Note 4).. 61,426 50,120
Paid-in capital................................. 279,273 218,156
Retained earnings............................... 62,242 32,880
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Total shareholders' equity.................... 402,941 301,156
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$ 1,268,565 $ 1,291,739
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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,
1996 1995
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Net sales...................................... $ 417,921 $ 258,626
Costs and expenses:
Cost of operations........................... 301,667 182,349
Selling, general and administrative expenses. 69,266 49,721
Depreciation and amortization................ 13,353 9,049
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Earnings from operations....................... 33,635 17,507
Interest expense............................... 10,592 8,212
Other income, net.............................. 566 1,081
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Earnings before income tax expense and
extraordinary item........................... 23,609 10,376
Income tax expense............................. 9,284 4,180
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Net earnings before extraordinary item......... 14,325 6,196
Extraordinary item - early extinguishment of
debt, net of tax benefit....(Note 7)......... (7,417) -
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Net earnings................................... $ 6,908 $ 6,196
============ ============
Net earnings per common share - primary:
Net earnings before extraordinary item....... $ 0.22 $ 0.12
Extraordinary item - early extinguishment
of debt.................................... (0.11) -
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Net earnings per common share - primary........ $ 0.11 $ 0.12
====== ======
Net earnings per common share - fully diluted:
Net earnings before extraordinary item....... $ 0.22 $ 0.12
Extraordinary item - early extinguishment
of debt.................................... (0.11) -
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Net earnings per common share - fully diluted.. $ 0.11 $ 0.12
====== ======
Weighted average common and common equivalent
shares outstanding:
Primary...................................... 64,093,194 50,597,623
============ ============
Fully diluted................................ 64,754,201 51,403,855
============ ============
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,
1996 1995
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Net sales...................................... $ 1,262,610 $ 794,866
Costs and expenses:
Cost of operations........................... 913,207 562,479
Selling, general and administrative expenses. 214,038 149,101
Depreciation and amortization................ 41,411 28,387
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Earnings from operations....................... 93,954 54,899
Interest expense............................... 35,672 25,409
Other income, net.............................. 1,978 3,352
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Earnings before income tax expense and
extraordinary item........................... 60,260 32,842
Income tax expense............................. 23,467 13,416
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Net earnings before extraordinary item......... 36,793 19,426
Extraordinary item - early extinguishment
of debt, net of tax benefit..(Note 7)........ (7,417) -
------------ ------------
Net earnings................................... $ 29,376 $ 19,426
============ ============
Net earnings per common share - primary:
Net earnings before extraordinary item....... $ 0.60 $ 0.38
Extraordinary item - early extinguishment
of debt.................................... (0.12) -
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Net earnings per common share - primary........ $ 0.48 $ 0.38
====== ======
Net earnings per common share - fully diluted:
Net earnings before extraordinary item....... $ 0.59 $ 0.38
Extraordinary item - early extinguishment
of debt.................................... (0.12) -
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Net earnings per common share - fully diluted.. $ 0.47 $ 0.38
====== ======
Weighted average common and common
equivalent shares outstanding:
Primary...................................... 61,227,139 50,597,623
============ ============
Fully diluted................................ 62,764,804 51,403,855
============ ============
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,
1996 1995
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Cash Flows from Operating Activities:
Net earnings.................... $ 29,376 $ 19,426
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Net loss on early extinguishment
of debt.................... 7,417 -
Depreciation of property, plant
and equipment.............. 32,406 21,087
Amortization of intangible and
other assets............... 9,005 7,300
Noncash interest expense..... 1,756 1,670
Increase in receivables...... (16,553) (4,085)
Increase in inventories...... (11,300) (2,386)
Decrease in prepaid expenses
and intangible and other assets.. 17,179 2,783
Increase in accounts payable,
accrued interest expense and other
accrued expenses................. 42,502 25,250
Decrease in net deferred tax
liabilities...................... (605) (3,173)
Decrease in other long-term
liabilities...................... (16,010) (13)
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Net cash provided by operating
activities.......................... 95,173 67,859
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Cash Flows from Investing Activities:
Proceeds from the disposal of
assets............................. 2,140 147
Additions to property, plant
and equipment..................... (23,930) (12,311)
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Net cash used by investing activities. (21,790) (12,164)
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Cash Flows from Financing Activities:
Payments for debt issuance costs...... (4,630) -
Additions to long-term debt........... 380,000 -
Payments of long-term debt............ (524,279) (23,875)
Proceeds from the sale of common stock 81,292 -
Proceeds from the issuance of common
stock............................... 9,239 199
Payments for the repurchase of common
stock warrants...................... (19,961) (2,789)
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Net cash used by financing activities (78,339) (26,465)
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Net increase (decrease) in cash and
cash equivalents.................... (4,956) 29,230
Cash and cash equivalents at beginning
of period........................... 26,412 32,145
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Cash and cash equivalents at end
of period........................... $ 21,456 $ 61,375
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Supplemental Disclosure:
Cash payments for income taxes, net. $ 20,225 $ 6,549
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Cash payments for interest expense.. $ 32,834 $ 22,548
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See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) 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, 1996 are not
necessarily indicative of the results to be expected for the
full year.
(2) In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Under SFAS No. 123, companies can either measure the
compensation cost of equity instruments issued under employee
compensation plans using a fair value based method, or can
continue to recognize compensation cost under the provisions of
Accounting Principles Board Opinion No. 25 ("Opinion No. 25")
with pro forma disclosures of net income and earnings per share
as if the fair value method had been applied. The Company
adopted SFAS No. 123 as of January 1, 1996 and has elected to,
as permitted under the statement, continue recognition of
compensation costs under the provisions of Opinion No. 25 with
appropriate disclosure, if material. The effect on net earnings
for the three-month and nine-month period ended September 30,
1996 is not material and, accordingly, no disclosure has been
made. Further, based on current and anticipated use of stock
options for the foreseeable future, it is not envisioned that
the impact of the pronouncement would be material in subsequent
periods.
(3) Inventories are summarized as follows, in thousands:
September 30, December 31,
1996 1995
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Finished products $ 124,094 $ 114,857
Work-in-process 54,017 51,259
Raw materials 102,866 103,561
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$ 280,977 $ 269,677
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(4) On March 1, 1996, the Company completed its offering of ten
million common shares generating net cash proceeds of $81.3
million which were used to repay long-term debt. This long-term
debt payment was applied in reverse order of maturity to the
term loan "C" facility of the Company's secured credit
agreement.
(5) In February 1996, the Company entered into interest rate swap
agreements with two financial institutions to reduce the impact
of changes in interest rates on its floating rate long-term
debt. The two agreements, having a total notional principal
amount of $300.0 million, mature in three years. The swap
agreements effectively convert a portion of the Company's
floating rate long-term debt to a fixed rate. The Company pays
the counterparties a fixed rate of 5.14% per annum and receives
payments based upon the floating three month London interbank
offered rate (LIBOR). The Company is exposed to credit loss in
the event of nonperformance by the counterparties; however, the
Company does not anticipate nonperformance by the counterparties.
(6) On September 6, 1996, the Company refinanced its secured credit
agreement. The new secured credit agreement is a five-year,
reducing revolving credit facility with an initial commitment
totaling $475.0 million. The revolving credit facility has no
mandatory principal payments; however, the commitment is reduced
to $400.0 million on September 30, 1999, $300.0 million on
September 29, 2000, with remaining commitment maturing on
September 15, 2001.
The revolving credit facility allows for issuance of letters of
credit and cash borrowings. Letter of credit outstandings are
limited to no more than $60.0 million, with cash borrowings
limited only by the facility's maximum availability less letters
of credit outstanding. On September 30, 1996, $365.0 million in
cash borrowings were outstanding under the revolving credit
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
certain financial performance ratios. At September 30, 1996,
all cash borrowings were Eurodollar loans having an interest
rate of 6.375%, which included an applicable margin of 0.875%.
(7) In conjunction with the September 6, 1996 refinancing of the
secured credit agreement, the Company charged to results of
operations $7.4 million, net of taxes of $4.5 million,
representing the deferred financing fees and expenses pertaining
to such credit facilities. The charge was recorded as an
extraordinary item.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS
Furniture Brands International, Inc. (the "Company") is a major
manufacturer of residential furniture. The Company has three primary
operating subsidiaries; Broyhill Furniture Industries, Inc., The Lane
Company, Incorporated and Thomasville Furniture Industries, Inc.
On December 29, 1995, the Company acquired Thomasville Furniture
Industries, Inc. ("Thomasville"). The transaction was accounted for
as a purchase and, since the acquisition occurred as of the last
business day of 1995, has been reflected in the Company's consolidated
balance sheet as of December 31, 1995. The Company's results of
operations for 1995 do not include any of the operations of
Thomasville.
Comparison of Three Months and Nine Months Ended September 30, 1996
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and 1995
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Selected financial information for the three months and nine months
ended September 30, 1996 and 1995 is presented below:
($ in millions, except per share data)
Three Months Ended
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September 30, 1996 September 30, 1995
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% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $417.9 100.0% $258.6 100.0%
Cost of operations 301.7 72.2 182.4 70.5
Selling, general and
administrative expenses 69.3 16.6 49.7 19.2
Depreciation and amortization 13.3 3.2 9.0 3.5
------ ----- ------ -----
Earnings from operations 33.6 8.0 17.5 6.8
Interest expense 10.6 2.5 8.2 3.2
Other income, net 0.6 0.1 1.1 0.4
------ ----- ------ -----
Earnings before income tax
expense and extraordinary
item 23.6 5.6 10.4 4.0
Income tax expense 9.3 2.2 4.2 1.6
------ ----- ------ -----
Net earnings before
extraordinary item $ 14.3 3.4% $ 6.2 2.4%
====== ===== ====== =====
Gross Profit (1) $107.1 25.6% $ 70.5 27.3%
EBITDA (2) 46.9 11.2 26.5 10.2
Nine Months Ended
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September 30, 1996 September 30, 1995
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% of % of
Dollars Net Sales Dollars Net Sales
-------- --------- ------- ---------
Net sales $1,262.6 100.0% $794.9 100.0%
Cost of operations 913.2 72.3 562.5 70.8
Selling, general and
administrative expenses 214.0 17.0 149.1 18.7
Depreciation and amortization 41.4 3.3 28.4 3.6
------- ------ ------ -----
Earnings from operations 94.0 7.4 54.9 6.9
Interest expense 35.7 2.8 25.4 3.2
Other income, net 2.0 0.2 3.3 0.4
------- ------ ------ -----
Earnings before income tax
expense and extraordinary
item 60.3 4.8 32.8 4.1
Income tax expense 23.5 1.9 13.4 1.7
------- ------ ------ -----
Net earnings before
extraordinary item $ 36.8 2.9% $ 19.4 2.4%
======= ====== ====== =====
Gross Profit (1) $ 320.8 25.4% $214.3 27.0%
EBITDA (2) 135.4 10.7 83.3 10.5
(1) The Company believes that gross profit provides useful
information regarding a company's financial performance. Gross
profit should not be considered in isolation or as an
alternative to net earnings, an indicator of the Company's
operating performance, or an alternative to the Company's cash
flow from operating activities as a measure of liquidity. 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,
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1996 1995 1996 1995
------- ------- ------- ------
Net sales $417.9 $258.6 $1,262.6 $794.9
Cost of operations 301.7 182.4 913.2 562.5
Depreciation (associated
with cost of good sold) 9.1 5.7 28.6 18.1
------ ------ -------- ------
Gross Profit $107.1 $ 70.5 $ 320.8 $214.3
====== ====== ======== ======
(2) EBITDA is defined as caring from operations before depreciation and
amortization and therefore does not include other income, net, EBITDA
is not intended to represent cash flows for the period as measured
in accordance with generally accepted accounting principles. Nor
has it been presented as an alternative to net income from
operations as an indicator of operating performance, and it should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted
accounting principles. EBITDA is presented solely as supplemental
disclosure because the Company believes that it is a good measure
of the operating cash flow generated by the Company to enable it
to make capital expenditures and meet its other obligations.
The Company believes that EBITDA may be a better indicator for this
purpose than earnings from operations because of the significant
fresh-start depreciation and amortization charges described
herein. Because all companies and analysts do not calculate
EBITDA in an identical manner, EBITDA as presented above may not
necessarily be comparable to similarly-titled measures of other
companies.
Three Months Ended September 30, 1996 Compared to Three Months Ended
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September 30, 1995
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Net sales for the three months ended September 30, 1996 increased to
$417.9 million from $258.6 million for the three months ended
September 30, 1995. The improved sales performance resulted primarily
from the acquisition of Thomasville. Had Thomasville been acquired at
the beginning of 1995, net sales for the three months ended September
30, 1996 would have increased 6.7% over those for the three months
ended September 30, 1995.
Cost of operations for the three months ended September 30, 1996 was
$301.7 million, compared to $182.4 million for the three months ended
September 30, 1995. The large increase was a result of the Company's
acquisition of Thomasville. Cost of operations as a percentage of net
sales increased from 70.5% for the three months ended September 30,
1995 to 72.2% for the three months ended September 30, 1996. This
increase was due to the acquisition of Thomasville which had higher
cost of operations as a percentage of net sales than the Company's
other operating subsidiaries. Had Thomasville been included on a pro
forma basis for the three months ended September 30, 1995, cost of
operations as a percentage of net sales would have been 73.4%.
Selling, general and administrative expenses increased to $69.3
million for the three months ended September 30, 1996 from $49.7
million for the three months ended September 30, 1995. The large
increase was a result of the Company's acquisition of Thomasville. As
a percentage of net sales, selling, general and administrative
expenses were 16.6% for the three months ended September 30, 1996
compared to 19.2% for the three months ended September 30, 1995,
reflecting the Company's acquisition of Thomasville.
Depreciation and amortization for the three months ended September 30,
1996 was $13.3 million, compared to $9.0 million for the three months
ended September 30, 1995. The large increase was a result of the
Company's acquisition of Thomasville. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $3.9
million and $3.7 million for the three months ended September 30, 1996
and September 30, 1995, respectively.
Interest expense for the three months ended September 30, 1996 totaled
$10.6 million, compared to $8.2 million for the prior year comparable
period. The increase in interest expense reflects additional debt
incurred for the acquisition of Thomasville.
Other income, net for the three months ended September 30, 1996,
totaled $0.6 million compared to $1.1 million for the three months
ended September 30, 1995. For the three months ended September 30,
1996, other income consisted of interest on short term investments of
$0.3 million and other miscellaneous income and (expense) items
totaling $0.3 million.
For the three months ended September 30, 1996, the Company provided
for income taxes totaling $9.3 million on earnings before income tax
expense and extraordinary item, producing an effective tax rate of
39.3% compared to an effective tax rate for the prior year comparable
period of 40.3%. The effective tax rates for such periods were
adversely impacted by certain nondeductible expenses incurred and
provisions for state and local income taxes.
Net earnings per common share before extraordinary item on a fully
diluted basis were $0.22 for the three months ended September 30, 1996
compared with $0.12 for the prior year comparable period. Weighted
average shares outstanding used in the calculation of net earnings per
common share on a primary and fully diluted basis were 64,093,000 and
64,754,000 in 1996, respectively, and 50,598,000 and 51,404,000 in
1995, respectively.
Gross profit for the three months ended September 30, 1996 was $107.1
million, representing an increase of 51.9% over gross profit for the
prior year comparable period of $70.5 million. The increase resulted
primarily from the acquisition of Thomasville. The decrease in gross
profit margin to 25.6% for the three months ended September 30, 1996
from 27.3% for the comparable period for the prior year was due to the
acquisition of Thomasville, which had lower gross profit margins than
the Company's other operating subsidiaries. Had Thomasville been
included on a pro forma basis in 1995, gross profit margin would have
been 24.4% for the three months ended September 30, 1995.
EBITDA for the three months ended September 30, 1996 was $46.9
million, representing an increase of 76.9% over EBITDA of $26.5
million for the comparable period of the prior year. This increase
resulted primarily from the acquisition of Thomasville. EBITDA as a
percentage of net sales increased to 11.2% for the three months ended
September 30, 1996 from 10.2% for the comparable period for the prior
year. Had Thomasville been included on a pro forma basis for the 1995
period, EBITDA as a percentage of net sales would have been 9.5% for
the three months ended September 30, 1995. This increase in EBITDA
margin reflects efficient manufacturing activity as well as the
Company's continuing efforts to enhance profitability.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
-------------------------------------------------------------------
September 30, 1995
------------------
Net sales for the nine months ended September 30, 1996 increased to
$1,262.6 million from $794.9 million for the nine months ended
September 30, 1995. The improved sales performance resulted primarily
from the acquisition of Thomasville. Had Thomasville been acquired at
the beginning of 1995, net sales for the nine months ended September
30, 1996 would have increased 4.9% over those for the nine months
ended September 30, 1995.
Cost of operations for the nine months ended September 30, 1996 was
$913.2 million, compared to $562.5 million for the nine months ended
September 30, 1995. The large increase was a result of the Company's
acquisition of Thomasville. Cost of operations as a percentage of net
sales increased from 70.8% for the nine months ended September 30,
1995 to 72.3% for the nine months ended September 30, 1996. This
increase was due to the acquisition of Thomasville which had higher
cost of operations as a percentage of net sales than the Company's
other operating subsidiaries. Had Thomasville been included on a pro
forma basis for the nine months ended September 30, 1995, cost of
operations as a percentage of net sales would have been 73.3%.
Selling, general and administrative expenses increased to $214.0
million for the nine months ended September 30, 1996 from $149.1
million for the nine months ended September 30, 1995. The large
increase was a result of the Company's acquisition of Thomasville. As
a percentage of net sales, selling, general and administrative
expenses were 17.0% for the nine months ended September 30, 1996
compared to 18.7% for the nine months ended September 30, 1995,
reflecting the Company's acquisition of Thomasville.
Depreciation and amortization for the nine months ended September 30,
1996 was $41.4 million, compared to $28.4 million for the nine months
ended September 30, 1995. The large increase was a result of the
Company's acquisition of Thomasville. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $12.3
million and $11.8 million for the nine months ended September 30, 1996
and September 30, 1995, respectively.
Interest expense for the nine months ended September 30, 1996 totaled
$35.7 million, compared to $25.4 million for the prior year comparable
period. The increase in interest expense reflects additional debt
incurred for the acquisition of Thomasville.
Other income, net for the nine months ended September 30, 1996,
totaled $2.0 million compared to $3.3 million for the nine months
ended September 30, 1995. For the nine months ended September 30,
1996, other income consisted of interest on short term investments of
$1.1 million and other miscellaneous income and (expense) items
totaling $0.9 million.
For the nine months ended September 30, 1996, the Company provided for
income taxes totaling $23.5 million on earnings before income tax
expense and extraordinary item, producing an effective tax rate of
38.9% compared to an effective tax rate for the prior year comparable
period of 40.9%. The effective tax rates for such periods were
adversely impacted by certain nondeductible expenses incurred and
provisions for state and local income taxes.
Net earnings per common share before extraordinary item on a fully
diluted basis were $0.59 for the nine months ended September 30, 1996
compared with $0.38 for the prior year comparable period. Weighted
average shares outstanding used in the calculation of net earnings per
common share on a primary and fully diluted basis were 61,227,000 and
62,765,000 in 1996, respectively, and 50,598,000 and 51,404,000 in
1995, respectively.
Gross profit for the nine months ended September 30, 1996 was $320.8
million, representing an increase of 49.7% over gross profit for the
prior year comparable period of $214.3 million. The increase resulted
primarily from the acquisition of Thomasville. The decrease in gross
profit margin to 25.4% for the nine months ended September 30, 1996
from 27.0% for the comparable period for the prior year was due to the
acquisition of Thomasville, which had lower gross profit margins than
the Company's other operating subsidiaries. Had Thomasville been
included on a pro forma basis in 1995, gross profit margin would have
been 24.5% for the nine months ended September 30, 1995.
EBITDA for the nine months ended September 30, 1996 was $135.4
million, representing an increase of 62.5% over EBITDA of $83.3
million for the comparable period of the prior year. This increase
resulted primarily from the acquisition of Thomasville. EBITDA as a
percentage of net sales increased to 10.7% for the nine months ended
September 30, 1996 from 10.5% for the comparable period for the prior
year. Had Thomasville been included on a pro forma basis for the 1995
period, EBITDA as a percentage of net sales would have been 9.8% for
the nine months ended September 30, 1995. This increase in EBITDA
margin reflects efficient manufacturing activity as well as the
Company's continuing efforts to enhance profitability.
FINANCIAL CONDITION AND LIQUIDITY
Liquidity. Cash and cash equivalents at September 30, 1996 totaled
$21.5 million, compared to $26.4 million at December 31, 1995. For
the nine months ended September 30, 1996, net cash from operating
activities totaled $95.2 million. Net cash used in investing
activities totaled $21.8 million. Net cash used in financing
activities totaled $78.3 million, including the net repayment of
$144.3 million of long-term debt, the receipt of $81.3 million of net
proceeds from the sale of common stock pursuant to the March 1, 1996
equity offering (1996 Company Equity Sale), the receipt of $9.2
million from the exercise of warrants to purchase shares of common
stock, $19.9 million for the repurchase of warrants and $4.6 million
in debt issuance costs associated with the 1996 Refinancing.
Working capital was $459.3 million at September 30, 1996, compared to
$455.0 million at December 31, 1995. The current ratio was 4.0 to 1
at September 30, 1996, compared to 4.4 to 1 at December 31, 1995. The
modest increase in working capital was due to the Company's focus on
efficient management of individual working capital components.
As of September 30, 1996, long-term debt, including current
maturities, totaled $579.4 million compared to $723.7 million at
December 31, 1995. This reduction of indebtedness of $144.3 million
was funded by $81.3 million from the 1996 Company Equity Sale with the
remainder funded by cash flow from operations and warrant exercise
proceeds.
Financing Arrangements. On September 6, 1996, the Company refinanced
its Secured Credit Agreement and modified its Receivables
Securitization Facility (1996 Refinancing). The Secured Credit
Agreement replaces a secured credit agreement that had been entered
into in connection with the acquisition of Thomasville. The 1996
Refinancing will result in a substantial reduction in interest
expense, which at current debt levels will favorably impact annual
results by approximately $3.7 million, or $0.05 to $0.06 per share.
Had the 1996 Refinancing, the 1996 Company Equity Sale and the Series
1 Warrant repurchases been completed at the beginning of 1996,
earnings for the nine months ended September 30, 1996 would have
increased by $0.04 per share.
The Secured Credit Agreement is a $475.0 million reducing revolving
credit facility. The interest rate on borrowings is based on selected
credit ratios set forth in the Secured Credit Agreement and as of
September 30, 1996 was 6.375%. The Secured Credit Agreement allows
for both the issuance of letters of credit and cash borrowings.
Letters of credit are limited to no more than $60.0 million. Cash
borrowings are limited to the facility's maximum availability less
letters of credit outstanding. As of September 30, 1996 the Company
had $365.0 million of cash borrowings drawn under the Secured Credit
Agreement and had excess availability of approximately $84.0 million.
The Secured Credit Agreement contains customary covenants including
financial covenants with respect to the Company's leverage and
interest coverage. The leverage (a ratio of net debt to cash flows)
and interest coverage (a ratio of cash flows to interest expense)
covenants are the most restrictive covenants contained in the
Secured Credit Agreement. The Company is currently and expects to
continue to be in compliance with all restrictive covenants in the
Secured Credit Agreement.
The Receivables Securitization Facility is a $225.0 million facility
pursuant to which the Company sells interests in the trade receivables
of its operating companies to a third party financial institution.
The Company accounts for the Receivables Securitization Facility as
long-term debt. The Company's cost of borrowing is based on a
commercial paper index rate plus a program fee and as of September 30,
1996 was 6.045%. At September 30, 1996 the Company had approximately
$17.0 million of excess availability under the Receivables
Securitization Facility.
In February 1996, in order to reduce the impact of changes in interest
rates on its floating rate long-term debt, the Company entered into
three-year interest rate swap agreements having a total notional
amount of $300 million.
The Company believes that the Secured Credit Agreement and the
Receivables Securitization Facility, together with cash generated from
operations, will be adequate to meet liquidity requirements for the
foreseeable future.
Capital Expenditures. The Company maintains a significant capital
expenditure program focusing on increasing manufacturing efficiency
and expanding capacity as required. The Company's total capital
expenditures were $23.9 million, $35.6 million, $21.1 million and
$30.2 million for the nine months ended September 30, 1996 and the
years ended December 31, 1995, 1994 and 1993, respectively. The
annual figures do not include the capital expenditures of Thomasville
($15.2 million, $14.1 million and $10.0 million for the years ended
December 31, 1995, 1994 and 1993, respectively). The Company
estimates that total capital expenditures will be approximately $40.0
million in both 1996 and 1997. Significant new projects during the
past three years included a new upholstery manufacturing facility at
Action Industries to meet the increased demand for the Company's
recliners, motion furniture and sleep sofas and a state-of-the-art
flat line finishing system at Lane. The capital expenditures for 1995
include $18.2 million to construct a new state-of-the-art
particleboard manufacturing facility at Broyhill, which was funded by
proceeds from an insurance settlement, to replace the Company's
facility that was destroyed by fire in November 1994. The Company
believes that as a result of the availability of excess capacity in
the Lane and Thomasville manufacturing facilities, the Company will be
able to pursue its growth strategy over the next several years without
the necessity of making significant additional capital expenditures to
expand capacity.
PART II OTHER INFORMATION
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Item 5. Other Information
On September 26, 1996, the Company announced that Wilbert G.
(Mickey) Holliman, Jr. was elected a director and to the
office of President and Chief Executive Officer effective
October 1, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) 3(a) Restated Certificate of Incorporation, as amended.
3(b) By-Laws of the Company revised and amended to April
23, 1996.
4(a) Credit Agreement, dated as of November 17, 1994, as
amended and restated as of December 29, 1995, and
further amended and restated as of September 6, 1996,
among the Company, Broyhill Furniture Industries,
Inc., The Lane Company, Incorporated, Thomasville
Furniture Industries, Inc., Various Banks, Credit
Lyonnais New York Branch, as Documentation Agent,
Nationsbank, N.A., as Syndication Agent, and Bankers
Trust Company, as Administration Agent.
4(b) Amendment No. 1, dated as of June 27, 1996, to the
Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995, among The Lane Company,
Incorporated, Action Industries, Inc., Broyhill
Furniture Industries, Inc. and Thomasville Furniture
Industries, Inc. as Sellers and Interco Receivables
Corp. as Purchaser.
4(c) Amendment No. 2, dated as of September 6, 1996, to
the Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995, and further amended as of June 27,
1996, among The Lane Company, Incorporated, Action
Industries, Inc., Broyhill Furniture Industries, Inc.
and Thomasville Furniture Industries, Inc. as Sellers
and Interco Receivables Corp. as Purchaser.
4(d) Amendment No. 1, dated as of June 27, 1996, to the
Receivables Purchase Agreement, dated as of November
15, 1994, as amended and restated as of December 29,
1995, among Interco Receivables Corp. as Seller,
Atlantic Asset Securitization Corp., as Issuer, and
Credit Lyonnais New York Branch, as Agent for the
Investors.
4(e) Amendment No. 2, dated as of September 6, 1996, to
the Receivables Purchase Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995, and further amended as of June 27,
1996, among Interco Receivables Corp. as Seller,
Atlantic Asset Securitization Corp. as Issuer, and
Credit Lyonnais New York Branch, as Agent for the
Investors.
10(a) Employment Agreement, dated as of August 1, 1996,
between Action Industries, Inc. and Wilbert G.
Holliman, Jr.
10(b) Written description of employment agreement between
the Company and Wilbert G. Holliman, Jr.
10(c) Employment Agreement, dated as of August 1, 1996,
between the Company and Lynn Chipperfield.
10(d) Employment Agreement, dated as of August 1, 1996,
between the Company and David P. Howard.
10(e) Employment Agreement, dated as of August 1, 1996,
between Broyhill Furniture Industries, Inc. and Brent
B. Kincaid.
10(f) Employment Agreement, dated as of August 1, 1996,
between Thomasville Furniture Industries, Inc. and
Frederick B. Starr.
10(g) Employment Agreement, dated as of August 1, 1996,
between The Lane Company, Incorporated and K. Scott
Tyler, Jr.
11. Statement re Computation of Net Earnings Per Common
Share.
27. Financial Data Schedule.
(b) A form 8-K was filed on October 18, 1996 containing the
Company's Press Release of the same date reporting the
Company's third quarter results.
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 6, 1996