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, 1999 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.
51,390,470 Shares as of April 30, 1999
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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, 1999.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended March 31, 1999
Three Months Ended March 31, 1998
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1999
Three Months Ended March 31, 1998
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, 1999 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,
1999 1998
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ASSETS
Current assets:
Cash and cash equivalents...................... $ 5,428 $ 13,220
Receivables, less allowances of $20,325
($18,333 at December 31, 1998)............... 356,747 324,164
Inventories.........................(Note 1)... 299,816 307,382
Prepaid expenses and other current assets...... 32,421 31,107
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Total current assets......................... 694,412 675,873
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Property, plant and equipment.................... 508,994 499,913
Less accumulated depreciation.................. 217,611 206,136
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Net property, plant and equipment............ 291,383 293,777
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Intangible assets................................ 313,610 316,998
Other assets..................................... 15,891 16,556
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$ 1,315,296 $ 1,303,204
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense....................... $ 5,504 $ 5,608
Accounts payable and other accrued expenses.... 171,193 161,117
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Total current liabilities.................... 176,697 166,725
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Long-term debt................................... 578,400 589,200
Other long-term liabilities...................... 132,763 133,770
Shareholders' equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued, none.......... - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 52,277,066
shares at March 31, 1999 and
December 31, 1998............................ 52,277 52,277
Paid-in capital................................ 124,710 127,513
Retained earnings.............................. 272,369 244,662
Treasury stock at cost - 987,355 shares at
March 31, 1999 (525,000 shares at
December 31, 1998)........................... (21,920) (10,943)
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Total shareholders' equity................... 427,436 413,509
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$ 1,315,296 $ 1,303,204
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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,
1999 1998
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Net sales...................................... $ 533,902 $ 505,298
Costs and expenses:
Cost of operations........................... 381,697 364,068
Selling, general and administrative expenses. 84,056 81,470
Depreciation and amortization................ 14,968 14,837
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Earnings from operations....................... 53,181 44,923
Interest expense............................... 9,854 11,263
Other income, net.............................. 621 647
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Earnings before income tax expense............. 43,948 34,307
Income tax expense............................. 16,241 12,693
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Net earnings................................... $ 27,707 $ 21,614
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Net earnings per common share:
Basic........................................ $ 0.54 $ 0.41
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Diluted...................................... $ 0.52 $ 0.40
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Weighted average common shares outstanding:
Basic........................................ 51,561,368 52,118,527
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Diluted...................................... 53,127,433 53,862,107
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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,
1999 1998
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Cash Flows from Operating Activities:
Net earnings......................................... $ 27,707 $ 21,614
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment.... 11,953 11,822
Amortization of intangible and other assets...... 3,015 3,015
Noncash interest and other expense............... 560 479
Increase in receivables.......................... (32,583) (36,531)
(Increase) decrease in inventories............... 7,566 (8,613)
Increase in prepaid expenses and other assets.... (1,562) (1,898)
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 9,972 32,099
Decrease in net deferred tax liabilities......... (1,279) (780)
Increase in other long-term liabilities.......... 1,151 881
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Net cash provided by operating activities............ 26,500 22,088
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Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 5 8
Additions to property, plant and equipment........... (9,616) (8,437)
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Net cash used by investing activities................ (9,611) (8,429)
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Cash Flows from Financing Activities:
Payments of long-term debt........................... (10,800) (10,800)
Proceeds from the issuance of common stock........... - 1,960
Purchase of treasury stock........................... (15,454) -
Proceeds from the issuance of treasury stock......... 1,573 -
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Net cash used by financing activities................ (24,681) (8,840)
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Net increase (decrease) in cash and cash equivalents... (7,792) 4,819
Cash and cash equivalents at beginning of period....... 13,220 12,274
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Cash and cash equivalents at end of period............. $ 5,428 $ 17,093
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Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 6,360 $ 700
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Cash payments for interest........................... $ 9,463 $ 11,257
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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,
1999 1998
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Finished products $ 127,240 $ 122,993
Work-in-process 53,349 57,915
Raw materials 119,227 126,474
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$ 299,816 $ 307,382
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(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,
1999 1998
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Weighted average shares used for
basic net earnings per common
share 51,561,368 52,118,527
Effect of dilutive securities:
Stock options 1,566,065 1,743,580
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Weighted average shares used for
diluted net earnings per common
share 53,127,433 53,862,107
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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, 1999 and 1998
Selected financial information for the three months ended March 31, 1999 and
1998 is presented below:
($ in millions except per share data)
Three Months Ended
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March 31, 1999 March 31, 1998
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% of % of
Dollars Net Sales Dollars Net Sales
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Net sales $533.9 100.0% $505.3 100.0%
Cost of operations 381.7 71.5 364.1 72.1
Selling, general and administrative
expenses 84.0 15.7 81.5 16.1
Depreciation and amortization 15.0 2.8 14.8 2.9
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Earnings from operations 53.2 10.0 44.9 8.9
Interest expense 9.9 1.9 11.3 2.2
Other income, net 0.6 0.1 0.7 0.1
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Earnings before income tax expense 43.9 8.2 34.3 6.8
Income tax expense 16.2 3.0 12.7 2.5
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Net earnings $ 27.7 5.2% $ 21.6 4.3%
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Gross profit (1) $141.7 26.5% $130.8 25.9%
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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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1999 1998
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Net sales $533.9 $505.3
Cost of operations 381.7 364.1
Depreciation (associated with 10.5 10.4
cost of goods sold) ------ ------
Gross profit $141.7 $130.8
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Net sales for the three months ended March 31, 1999 were $533.9 million,
compared to $505.3 million in the three months ended March 31, 1998, an
increase of $28.6 million or 5.7%. 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, 1999 was $381.7
million compared to $364.1 million for the comparable prior year period.
Cost of operations as a percentage of net sales decreased from 72.1% for
the three months ended March 31, 1998 to 71.5% for the three months ended
March 31, 1999. The decrease reflects improved manufacturing capacity
utilization, reduced stock keeping units and ongoing cost reduction
programs.
Selling, general and administrative expenses for the three months ended
March 31, 1999 were $84.0 million compared with $81.5 million in the prior
year. As a percentage of net sales, selling, general and administrative
expenses were 15.7% and 16.1% for the three months ended March 31, 1999
and 1998, respectively. The decrease reflects continued good control of
selling, general and administrative expenses.
Interest expense totaled $9.9 million for the three months ended March 31,
1999 compared to $11.3 million in the prior year comparable period. The
decrease in interest expense in the three months ended March 31, 1999
resulted from lower long-term debt levels and reduced interest rates, both
resulting from the company's aggressive deleveraging program.
The effective income tax rate was 37.0% for the three months ended March 31,
1999 and March 31, 1998. The effective tax rates for each period were
adversely impacted by certain nondeductible expenses incurred and provisions
for state and local taxes.
Net earnings per common share for basic and diluted were $0.54 and $0.52 for
the three months ended March 31, 1999, respectively, compared with $0.41 and
$0.40 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 51,561,000 and
53,127,000, respectively, for the three months ended March 31, 1999 and
52,119,000 and 53,862,000, respectively, for the three months ended
March 31, 1998.
FINANCIAL CONDITION
Working Capital
Cash and cash equivalents at March 31, 1999 amounted to $5.4 million,
compared with $13.2 million at December 31, 1998. During the three months
ended March 31, 1999, net cash provided by operating activities totaled
$26.5 million, net cash used by investing activities totaled $9.6 million
and net cash used by financing activities totaled $24.7 million.
Working capital was $517.7 at March 31, 1999, compared with $509.1 million
at December 31, 1998. The current ratio was 3.9 to 1 at March 31, 1999,
compared to 4.1 to 1 at December 31, 1998.
Financing Arrangements
As of March 31, 1999, long-term debt consisted of the following, in
millions:
Secured credit agreement:
Revolving credit facility $360.0
Term loan facility 200.0
Other 18.4
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$578.4
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To meet short-term capital and other financial requirements, the Company
maintains a $600.0 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, 1999, there
were $360.0 million of cash borrowings outstanding under the revolving
credit facility and $42.2 million in letters of credit outstanding, leaving
an excess of $197.8 million available under the revolving credit facility.
The Company believes its Secured Credit Agreement, together with cash
generated from operations, will be adequate to meet liquidity requirements
for the foreseeable future.
Year 2000
The Company has completed a comprehensive review of all software, hardware
and equipment that could potentially be affected by the year 2000 issue and
adopted a year 2000 plan to meet the needs of its customers and business
partners. The results of the review indicate that the Company will be year
2000 compliant well before the year 2000. At this time remediations have
been implemented and testing of the remediations is in process. The total
cost for year 2000 compliance activity will not be material to the Company's
results of operations and financial position. The Company is continuing
the process of verifying compliance of critical suppliers with year 2000
standards. There can be no assurance that another company's failure to
ensure year 2000 compliance will not have a material adverse effect on the
Company, however this is a circumstance not currently expected to occur.
The Company will develop and implement contingency plans, if necessary, in
the event it appears that it or its key suppliers will not be year 2000
compliant and such noncompliance is expected to have a material adverse
impact on the operations of the Company.
Forward Looking Statements
From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined in the
Private Securities Litigation Reform Act of 1995 or by the Securities
and Exchange Commission in its rules, regulations and releases. The
Company cautions investors that any such forward-looking statements made by
the Company are not guarantees of future performance and that actual results
may differ materially from those in the forward-looking statements. The
impact of the year 2000 on the Company's order, production, distribution
and financial systems and the systems of its suppliers and customers is a
factor which could cause actual results to differ materially from estimates
contained in the Company's forward looking statements.
PART II OTHER INFORMATION
Item 5. Other Information
On February 10, 1999, the Company and Benchmark Home Furnishings, Inc.
announced a cooperative effort to develop a 160,000 square foot Benchmark
store in Kansas City dedicated exclusively to products manufactured by the
Company.
On February 17, 1999, the Company and Kittle's Home Furnishings, Inc.
announced a strategic alliance whereby Kittle's has agreed to expand its
commitment to products manufactured by the Company.
On February 26, 1999, the Company and Outlook International, Ltd.
announced an agreement in which Outlook will act as exclusive representative
for the Company for manufacture of products in the Far East.
Item 6. Exhibits and Reports on Form 8-K
(a)10 (a). Furniture Brands International, Inc. 1992 Stock Option Plan,
as amended.
10 (b). Furniture Brands International, Inc. 1999 Long Term Incentive
Plan.
27. Financial Data Schedule.
(b) A Form 8-K was not required to be filed during the quarter
ended March 31, 1999.
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 /s/ Steven W. Alstadt
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Steven W. Alstadt
Controller and
Chief Accounting Officer
Date: May 12, 1999