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, 1998 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 CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
52,180,655 Shares as of April 30, 1998
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended March 31,
1998.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended March 31, 1998
Three Months Ended March 31, 1997
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1998
Three Months Ended March 31, 1997
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 ended March 31, 1998
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,
1998 1997
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ASSETS
Current assets:
Cash and cash equivalents...................... $ 17,093 $ 12,274
Receivables, less allowances of $15,672
($13,793 at December 31, 1997)............... 330,506 293,975
Inventories.........................(Note 1)... 295,659 287,046
Prepaid expenses and other current assets...... 26,949 25,214
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Total current assets......................... 670,207 618,509
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Property, plant and equipment.................... 468,004 459,692
Less accumulated depreciation.................. 177,336 165,631
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Net property, plant and equipment............ 290,668 294,061
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Intangible assets................................ 327,162 330,549
Other assets..................................... 14,047 14,117
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$ 1,302,084 $ 1,257,236
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense....................... $ 6,981 $ 7,451
Accounts payable and other accrued expenses.... 161,339 128,770
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Total current liabilities.................... 168,320 136,221
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Long-term debt................................... 657,000 667,800
Other long-term liabilities...................... 129,868 129,893
Shareholders' equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued none........... - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 52,180,655
shares at March 31, 1998 and 52,003,520
shares at December 31, 1997.................. 52,181 52,003
Paid-in capital................................ 126,377 124,595
Retained earnings.............................. 168,338 146,724
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Total shareholders' equity................... 346,896 323,322
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$ 1,302,084 $ 1,257,236
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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
March 31, March 31,
1998 1997
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Net sales.................................... $ 505,298 $ 449,861
Costs and expenses:
Cost of operations......................... 364,068 326,187
Selling, general and administrative expenses. 81,470 73,511
Depreciation and amortization.............. 14,837 14,596
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Earnings from operations..................... 44,923 35,567
Interest expense............................. 11,263 9,089
Other income, net............................ 647 872
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Earnings before income tax expense........... 34,307 27,350
Income tax expense........................... 12,693 10,291
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Net earnings................................. $ 21,614 $ 17,059
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Net earnings per common share:
Basic...................................... $ 0.41 $ 0.28
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Diluted.................................... $ 0.40 $ 0.27
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Weighted average common shares outstanding:
Basic...................................... 52,118,527 61,447,735
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Diluted.................................... 53,862,107 63,715,915
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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,
1998 1997
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Cash Flows from Operating Activities:
Net earnings......................................... $ 21,614 $ 17,059
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment.... 11,822 11,581
Amortization of intangible and other assets...... 3,015 3,015
Noncash interest expense......................... 479 276
Increase in receivables.......................... (36,531) (17,447)
Increase in inventories.......................... (8,613) (6,945)
Increase in prepaid expenses and other assets.... (1,898) (2,501)
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 32,099 9,069
Decrease in net deferred tax liabilities......... (780) (1,253)
Increase in other long-term liabilities.......... 881 1,948
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Net cash provided by operating activities............ 22,088 14,802
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Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 8 20
Additions to property, plant and equipment........... (8,437) (8,245)
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Net cash used by investing activities................ (8,429) (8,225)
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Cash Flows from Financing Activities:
Addition to long-term debt........................... - 10,000
Payments of long-term debt........................... (10,800) (14,800)
Proceeds from the issuance of common stock........... 1,960 274
Payments for the repurchase of common stock warrants. - (2,753)
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Net cash used by financing activities................ (8,840) (7,279)
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Net increase (decrease) in cash and cash equivalents... 4,819 (702)
Cash and cash equivalents at beginning of period....... 12,274 19,365
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Cash and cash equivalents at end of period............. $ 17,093 $ 18,663
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Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 700 $ 5,454
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Cash payments for interest........................... $ 11,257 $ 9,274
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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,
1998 1997
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Finished products $ 127,262 $ 118,385
Work-in-process 51,037 53,536
Raw materials 117,360 115,125
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$ 295,659 $ 287,046
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(2) In January 1998, the Company entered into an interest rate swap
agreement with a financial institution to reduce the impact of
changes in interest rates on its floating rate long-term debt.
The agreement, which matures in January 2002, has a notional
principal amount of $300,000 and an interest rate of 5.50% per
annum. 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.
(3) 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,
1998 1997
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Weighted average shares used for
basic net earnings per common
share 52,118,527 61,447,735
Effect of dilutive securities:
Stock options 1,743,580 1,368,368
Warrants - 899,812
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Weighted average shares used for
diluted net earnings per common
share 53,862,107 63,715,915
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Excluded from the computation of diluted net earnings per common share
were options to purchase 20,000 shares at an average price of $28.38
per share during the three months ended March 31, 1998. The
securities were excluded from the calculation of diluted earnings per
share because the exercise price was greater than the average market
price of the common stock.
At March 31, 1997, the Company had outstanding approximately 1.7
million warrants to purchase common stock at $7.13 per share. The
warrants, which included a five-year call protection which expired on
August 3, 1997, were redeemed on August 15, 1997.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Furniture Brands International, Inc. (the "Company") is the largest
manufacturer of residential furniture in the United States. The
Company has three primary operating subsidiaries: Broyhill Furniture
Industries, Inc.; Lane Furniture Industries, Inc.; and Thomasville
Furniture Industries, Inc.
Comparison of Three Months Ended March 31, 1998 and 1997
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Selected financial information for the three months ended March 31,
1998 and 1997 is presented below:
($ in millions except per share data)
Three Months Ended
March 31, 1998 March 31, 1997
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% of % of
Dollars Net Sales Dollars Net Sales
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Net sales $505.3 100.0% $449.9 100.0%
Cost of oprations 364.1 72.1 326.2 72.5
Selling, general and
administrative expenses 81.5 16.1 73.5 16.3
Depreciation and amortization 14.8 2.9 14.6 3.3
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Earnings from operations 44.9 8.9 35.6 7.9
Interest expense 11.3 2.2 9.1 2.0
Other income, net 0.7 0.1 0.9 0.2
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Earnings before income tax
expense 34.3 6.8 27.4 6.1
Income tax expense 12.7 2.5 10.3 2.3
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Net earnings $ 21.6 4.3% $ 17.1 3.8%
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Gross profit (1) $130.8 25.9% $113.4 25.2%
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(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,
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1998 1997
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Net sales $505.3 $449.9
Cost of operations 364.1 326.2
Depreciation (associated with 10.4 10.3
cost of goods sold) ------ ------
Gross profit $130.8 $113.4
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Net sales for the three months ended March 31, 1998 were $505.3
million, compared to $449.9 million in the three months ended March
31, 1997, an increase of $55.4 million or 12.3%. The improved sales
performance occurred at each operating company and ranged, in varying
degrees, across all product lines.
Cost of operations for the three months ended March 31, 1998 was
$364.1 million compared to $326.2 million for the comparable prior
year period. Cost of operations as a percentage of net sales
decreased from 72.5% for the three months ended March 31, 1997 to
72.1% for the three months ended March 31, 1998, as a result of
improved manufacturing capacity utilization, offset partially by an
increase in lumber and container prices.
Selling, general and administrative expenses for the three months
ended March 31, 1998 were $81.5 million compared with $73.5 million in
the prior year. As a percentage of net sales, selling, general and
administrative expenses were 16.1% and 16.3% for the three months
ended March 31, 1998 and 1997, respectively. The decrease reflects
continued good control of selling, general and administrative
expenses.
Interest expense totaled $11.3 million for the three months ended
March 31, 1998 compared to $9.1 million in the prior year comparable
period. The increase in interest expense in the three months ended
March 31, 1998 resulted from higher long-term debt levels incurred
from the Company's repurchase of approximately 10.8 million shares of
its common stock at the end of June 1997.
The effective income tax rates were 37.0% and 37.6% for the three
months ended March 31, 1998 and March 31, 1997, respectively. The
effective tax rates for each period were adversely impacted by certain
nondeductible expenses incurred and provisions for state and local
taxes. The effective tax rate for the three months ended March 31,
1998 was favorably impacted by the reduced effect of the nondeductible
expenses as a percentage of pretax earnings.
Net earnings per common share for basic and diluted were $0.41 and
$0.40 for the three months ended March 31, 1998, respectively,
compared with $0.28 and $0.27 for the same period last year,
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 52,119,000 and 53,862,000, respectively, for
the three months ended March 31, 1998 and 61,448,000 and 63,716,000,
respectively, for the three months ended March 31, 1997.
FINANCIAL CONDITION
Working Capital
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Cash and cash equivalents at March 31, 1998 amounted to $17.1 million,
compared with $12.3 million at December 31, 1997. During the three
months ended March 31, 1998, net cash provided by operating activities
totaled $22.1 million, net cash used by investing activities totaled
$8.4 million and net cash used by financing activities totaled $8.9
million.
Working capital was $501.9 at March 31, 1998, compared with $482.3
million at December 31, 1997. The current ratio was 4.0 to 1 at March
31, 1998, compared to 4.5 to 1 at December 31, 1997.
Financing Arrangements
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As of March 31, 1998, long-term debt consisted of the following, in
millions:
Secured credit agreement:
Revolving credit facility $235.0
Term loan facility 200.0
Receivables securitization facility 210.0
Other 12.0
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$657.0
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To meet working capital and other financial requirements, the Company
maintains a $475.0 million revolving credit facility as part of its
Secured Credit Agreement with a group of financial institutions. The
revolving credit facility allows for both issuance of letters of
credit and cash borrowings. Letter of credit outstandings are limited
to no more than $60.0 million. Cash borrowings are limited only by
the facility's maximum availability less letters of credit
outstanding. At March 31, 1998, there were $235.0 million of cash
borrowings outstanding under the revolving credit facility and $35.8
million in letters of credit outstanding, leaving an excess of $204.2
million available under the revolving credit facility.
In addition to the Secured Credit Agreement, the Company also had
$15.0 million of excess availability as of March 31, 1998 under its
Receivables Securitization Facility.
The Company believes its 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.
PART II OTHER INFORMATION
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Item 5. Other Information
On February 10, 1998, Haverty Furniture Companies, Inc. and Furniture
Brands International, Inc. jointly announced a strategic alliance
whereby Havertys will allocate, upon full implementation of the
program, up to one-half of its retail floor space in all of its stores
to the prominent display of product manufactured by the Company.
On May 6, 1998, the Company announced that W.G. (Mickey) Holliman,
currently President and Chief Executive Officer of the Company,
assumed the additional duties of Chairman of the Board, succeeding
Richard B. Loynd who will remain a director and serve as Chairman of
the Executive Committee. On May 7, 1998, the Company announced that
Malcolm Portera, President of Mississippi State University, was
elected to the Board of Directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) 3 (a). By-Laws of the Company revised and amended to
May 6, 1998.
27. Financial Data Schedule.
(b) A Form 8-K was not required to be filed during the
quarter ended March 31, 1998.
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
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Steven W. Alstadt
Controller and
Chief Accounting Officer
Date: May 14, 1998