UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 29, 2000
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OR
[ ] 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 0-25246
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WINSLOEW FURNITURE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 63-1127982
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 VILLAGE STREET, BIRMINGHAM, ALABAMA 35242
- - -----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(205) 408-7600
--------------
(Registrant's telephone number, including Area Code)
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 requirements for the past 90 days.
Yes X . No
------ -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Shares Outstanding at October 25, 2000
- - --------------- -----------------------------------
$ .01 par value 853,350
WINSLOEW FURNITURE, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4-5
Consolidated Statements of Cash Flows 6-8
Notes to Consolidated Financial Statements 9-15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands) September 29, December 31,
2000 1999
--------- -----------
Assets
Cash and cash equivalents $ 961 $ 710
Cash in escrow -- 1,000
Accounts receivable, less
allowances for doubtful accounts 28,085 25,706
Inventories 19,149 14,545
Refundable income taxes -- 6,908
Prepaid expenses and other
current assets 5,709 4,846
------- --------
Total current assets 53,904 53,715
Property, plant and equipment, net 27,454 16,462
Goodwill, net 270,634 231,377
Other assets 7,340 6,508
------- -------
Total Assets $359,332 $308,062
======= =======
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 3,700 $ 3,700
Accounts payable 7,409 4,265
Accrued interest 3,164 5,560
Other accrued liabilities 16,203 13,469
------- -------
Total current liabilities 30,476 26,994
Long-term debt, net of current portion 232,099 198,258
Deferred income taxes 1,099 1,099
------- -------
Total liabilities 263,674 226,351
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01
per share, 5,000,000 shares
authorized, none issued -- --
Common stock; par value $.01
per share, 1,000,000 shares
authorized at September 25,2000 and
December 31, 1999, 853,350 and
780,000 shares issued and
outstanding at September 29, 2000
and December 31, 1999
respectively 9 8
Additional paid-in capital 88,819 79,392
Retained earnings 6,830 2,311
------- -------
Total stockholders' equity 95,658 81,711
------- -------
$359,332 $308,062
======== ========
See accompanying notes.
WinsLoew Furniture, Inc and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands)
Successor Predecessor
Company Company
Three Months Ended
------------------------- ----------------------
Period from Period from
September August 27, July 1,
29, 2000 1999 to 1999 to
September 24, August 26,
1999 1999
--------- --------- ---------
Net sales $46,950 $15,102 $25,045
Cost of sales 28,660 9,425 15,294
-------- -------- --------
Gross profit 18,290 5,677 9,751
Selling, general
and administrative
expenses 7,962 2,084 3,964
Amortization 1,765 739 238
-------- -------- --------
Operating income 8,563 2,854 5,549
Interest expense
6,517 2,174 29
-------- -------- --------
Income from
continuing operations
before income taxes 2,046 680 5,520
Provision for
income taxes 1,132 1,274 2,099
------- -------- --------
Net income $ 914 $ (594) $3,421
======== ======== ========
See accompanying notes.
WinsLoew Furniture, Inc and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands)
Successor Predecessor
Company Company
Nine Months Ended
------------------------- ----------------------
Period from Period from
September August 27, January 1,
29, 2000 1999 to 1999 to
September 24, August 26,
1999 1999
--------- --------- ---------
Net sales $143,728 $15,102 $105,634
Cost of sales 85,192 9,425 63,308
-------- -------- --------
Gross profit 58,536 5,677 42,326
Selling, general
and administrative
expenses 23,842 2,084 17,234
Amortization 5,026 739 872
-------- -------- --------
Operating income 30,028 2,854 24,220
Interest expense
19,898 2,174 106
-------- -------- --------
Income from
continuing operations
before income taxes 10,130 680 24,114
Provision for
income taxes 5,611 1,274 9,159
------- -------- --------
Net income $4,519 $ (594) $14,955
======== ======== ========
See accompanying notes.
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Successor Predecessor
Company Company
-------------------- --------------------
For The Period From Period From
Nine Months August 27, January 1,
Ended 1999 to 1999 to
September 29, September 24, August 26,
2000 1999 1999
--------- ---------- ----------
Cash flows from operating activities:
Net income $ 4,519 $ (594) $14,955
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,638 1,072 1,884
Provision for losses on accounts
receivable 332 --- 242
Provision for excess and
obsolete inventory 1,186 --- 594
Going Private transaction expenses --- 201 ---
Changes in operating assets and
liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable 4,343 1,311 4,788
Inventories (54) 1,919 25
Prepaid expenses and other
current assets 521 399 208
Refundable income taxes 6,908 --- (6,908)
Other assets and goodwill, net (28) (419) ---
Accounts payable 569 (1,140) 1,022
Accrued interest (2,396) --- (24)
Other accrued liabilities (3,625) (2,448) 6,105
Deferred income taxes --- --- 110
------- ------- -------
Total adjustments 15,394 895 8,046
Net cash provided by ------- ------- -------
operating activities 19,913 301 23,001
------- ------- -------
Cash flows from investing activities:
Capital expenditures, net of disposals (4,757) --- (269)
Going private transaction (26) (276,142) ---
Investment in subsidiaries (57,522) (513) (18,207)
------- ------- -------
Net cash used in investing activities (62,305) (276,655) (18,476)
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long
term debt --- 196,216 ---
Proceeds from issuance of common
stock warrants and common
stock, net 10,750 79,400 ---
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Successor Predecessor
Company Company
---------------------------------------
For The Period From Period From
Nine Months August 27, January 1,
Ended 1999 to 1999 to
September 29, September 24, August 26,
2000 1999 1999
--------- ---------- ----------
Deferred financing costs (255) (5,919) (703)
Net borrowings (payments) under
revolving credit agreements 9,570 798 (1,431)
Proceeds from exercise of stock
Options --- --- 6,941
Net borrowings under acquisition line 20,000 --- ---
Net borrowings under IDB agreement 3,900 --- ---
Repurchase and cancellation of stock (1,323) --- (3,186)
Net cash provided by financing -------- ------- ---------
activities 42,643 270,495 1,621
-------- ------- --------
Net increase (decrease) in cash
and cash equivalents 251 (5,859) 6,146
Cash and cash equivalents at
beginning of year or period 710 6,621 475
Cash and cash equivalents at end -------- ------- --------
of year or period 961 762 6,621
---------------------------
September 29, September 24,
2000 1999
--------- ----------
Supplemental disclosures:
Interest paid $21,190 $377
Income taxes paid $ 5,389 $11,380
======== ========
Investing activities included the acquisition of Pompeii in 1999
and Wabash Valley Manufacturing, Stuart Clark and Charter Furniture in
2000.
---------------------------
September 29, September 24,
2000 1999
- ------------ ------------
Fair value of assets acquired $67,043 $20,098
Cash and cash equivalents acquired (1,507) (3)
Liabilities assumed (8,534) (1,875)
Earnout payment made relating to
The Tropic Craft acquisition
in 1998, including fees $ 520 $ 500
Total Investments $57,522 $18,720
======== ========
See accompanying notes.
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of WinsLoew
Furniture, Inc. and subsidiaries (the "Company" or "WinsLoew") that are for
interim periods do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements and notes thereto contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission.
All material intercompany balances and transactions have been
eliminated. The preparation of the consolidated financial statements
requires the use of estimates in the amounts reported.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the results for
the interim periods. The results of operations are presented for the
Company's third quarter, which is from July 1, 2000 through September 29,
2000. The results of operations for this period are not necessarily
indicative of the results to be expected for the full year.
On August 27, 1999, Trivest Furniture Corporation, an affiliate of Trivest,
merged with and into WinsLoew, and WinsLoew was the surviving corporation.
Trivest Furniture Corporation was a newly formed Florida corporation
organized by an investor group led by Trivest, including two private investment
partnerships affiliated with Trivest and members of senior management,
for the purpose of acquiring WinsLoew. The cash merger consideration, option
cancellation payments and related fees and expenses, which totaled
approximately $282.6 million, were provided by the following sources: $78
million in equity contributions; borrowings of $95.0 million of term loans
under our $155.0 million senior credit facility; proceeds from the sale of
units consisting of the original notes and warrants of approximately $102.5
million; and available cash on hand of approximately $7.1 million. The
acquisition resulted in goodwill of approximately $198.1 million.
The stock purchase described above was completed in one transaction. The
Company accounted for the transaction in accordance with the purchase method
of accounting and adjusted the basis of the assets and liabilities based upon
the purchase price described above. Accordingly, the financial statements for
the period subsequent to August 26, 1999 are presented on the Company's new
basis of accounting, while the results of operations for the period ended
August 26, 1999 reflect the historical results of the predecessor company.
2. Inventories
Inventories consisted of the following:
(In thousands)
September 29, December 31,
2000 1999
---------- ------------
Raw materials $12,842 $11,502
Work in process 2,109 1,751
Finished Goods 4,198 1,292
------- -------
$19,149 $14,545
======= =======
3. Long-term Debt
Proceeds primarily from borrowings under the Company's senior credit
facility were used to acquire all of the outstanding stock of Charter
Furniture. Approximately $15.2 million was borrowed under the Company's
revolving credit line.
4. Capital Stock
At December 31, 1999, there were 780,000 shares outstanding. Since
December 31, 1999 and as of September 29, 2000, the Company has acquired
13,225 shares for $1.3 million. In association with the Wabash acquisition,
an additional 60,103 shares were issued for $7.1 million. In addition, 2,011
shares were issued for $0.25 million in conjunction with the Stuart Clark
acquisition. In conjunction with the Charter Furniture acquisition 24,059
shares were issued for $3.35 million. Finally, an additional 402 shares
were issued to employees for $0.05 million. As of September 29, 2000 there
were 853,350 shares outstanding.
5. Acquisitions
On August 11, 2000 the Company purchased all of the stock of Charter Furniture.
The purchase price of approximately $18.5 million was paid in cash and financed
with $3.3 million of equity investment and $15.2 million under the revolving
credit facility. The acquisition resulted in goodwill of $18.5 million and was
accounted for under the purchase method of accounting. The operating results of
Charter from August 12, 2000 through September 29, 2000 have been included in
the consolidated operating results for the third quarter.
On June 16, 2000 the Company purchased certain assets of Stuart Clark, Inc. and
its affiliates. The purchase price of approximately $3.1 million was paid in
cash and financed with $0.3 million of equity investment and borrowings of $2.8
million under the Company's revolving credit facility. The acquisition resulted
in goodwill of approximately $2.8 million and was accounted for under the
purchase method of accounting.
On March 31, 2000 the Company purchased all of the stock of Wabash. The purchase
price of approximately $35.5 million was paid in cash and financed with $7.1
million of equity investment, borrowings of $20.0 million under the acquisition
loan and $8.4 million under the revolving credit facility.
The acquisition resulted in goodwill of $21.9 million and was accounted for
under the purchase method of accounting. During the third quarter an additional
$0.6 million payment was made as part of the final working capital purchase
adjustment. The payment was financed under the Company's revolving credit
facility.
On July 23, 1999, the Company acquired all of the stock of Pompeii, a
manufacturer of upper-end aluminum casual furniture sold into the contract and
residential markets. The purchase price of approximately $18.2 million,
including fees and expenses, was paid in cash and funded with internally
generated funds. The acquisition resulted in goodwill of approximately $14.0
million and was accounted for under the purchase method of accounting.
The following unaudited pro forma information has been prepared assuming that
the Stuart Clark, Wabash Valley, Pompeii and Charter Furniture acquisitions, as
well as the going-private transaction occurred on January 1, 1999. Permitted
pro forma adjustments include only the effects of events directly attributable
to the transactions that are factually supportable and expected to have a
continuing impact. The pro forma results are not necessarily indicative of what
actually would have occurred if the transactions had been in effect for the
entire period presented.
Nine months ended
(In thousands) September 29, September 24,
2000 1999
Net sales $162,832 $165,690
Income before taxes 10,257 9,211
Net income $ 4,598 $ 3,485
========= ========
6. Segment Information
The Company has three segments organized and managed based on the products sold.
The Company evaluates performance and allocates resources based on gross
profit. There are no intersegment sales/transfers. Export revenues are not
material.
Successor Predecessor
Company Company
Three Months Ended
------------------------- ----------------------
Period from Period from
September August 27, July 1,
29, 2000 1999 to 1999 to
September 24, August 26,
(In thousands) 1999 1999
------- -------- --------
Revenues:
Casual Products $26,575 $ 6,667 $11,804
Contract seating
products 18,218 7,395 10,518
Ready to assemble
products 2,157 1,040 2,723
------- ------- --------
Total Revenues $46,950 $15,102 $25,045
------- ------- --------
Successor Predecessor
Company Company
Three Months Ended
------------------------- ----------------------
Period from Period from
September August 27, July 1,
29, 2000 1999 to 1999 to
September 24, August 26,
(In thousands) 1999 1999
------- -------- --------
Segment Gross Profit:
Casual Products $11,429 $ 2,889 $ 5,553
Contract seating
products 6,476 2,601 3,501
Ready to assemble
products 385 187 697
------- ------- --------
Total segment $18,290 $ 5,677 $ 9,751
------- ------- --------
Gross Profit
reconciling items:
Selling, general
and administrative
expenses 7,962 2,084 3,964
Amortization 1,765 739 238
-------- -------- --------
Operating income 8,563 2,854 5,549
Interest expense,net 6,517 2,174 29
-------- -------- --------
Income from
continuing operations
before income taxes 2,046 680 5,520
======== ======== ========
See accompanying notes.
Successor Predecessor
Company Company
Nine Months Ended
------------------------- ----------------------
Period from Period from
September August 27, January 1,
29, 2000 1999 to 1999 to
September 24, August 26,
(In thousands) 1999 1999
------- -------- --------
Revenues:
Casual Products $ 86,305 $ 6,667 $ 51,443
Contract seating
products 48,438 7,395 44,090
Ready to assemble
Products 8,985 1,040 10,101
------- ------- --------
Total Revenues $143,728 $15,102 $105,634
------- ------- --------
Successor Predecessor
Company Company
Nine Months Ended
------------------------- ----------------------
Period from Period from
September August 27, January 1,
29, 2000 1999 to 1999 to
September 24, August 26,
(In thousands) 1999 1999
------- -------- --------
Segment Gross Profit:
Casual Products $39,086 $ 2,889 $24,581
Contract seating
products 17,693 2,601 15,310
Ready to assemble
Products 1,757 187 2,435
------- ------- --------
Total segment $58,536 $ 5,677 $42,326
------- ------- --------
Gross Profit
reconciling items:
Selling, general
and administrative
expenses 23,482 2,084 17,234
Amortization 5,026 739 872
------- -------- --------
Operating income 30,028 2,854 24,220
Interest expense,net 19,898 2,174 106
------- -------- --------
Income from
continuing operations
before income
taxes $10,130 680 $24,114
======== ======== ========
See accompanying notes.
(In thousands) September 29, December 31,
2000 1999
-------- --------
SEGMENT ASSETS:
Casual products $107,811 $71,079
Contract seating products 50,047 24,156
Ready to assemble products 7,171 7,379
------- -------
Total 165,029 102,614
Reconciling items:
Corporate 194,303 205,448
------- -------
Total consolidated assets $359,332 $308,062
======= =======
Management's Discussion and Analysis of Financial Condition
And Results of Operations
General
We design, manufacture and distribute three principal product lines: casual
furniture designed for residential, commercial and institutional use; seating
products designed for commercial and institutional use; and ready-to-assemble
furniture designed for household use.
We market our casual furniture products, consisting principally of medium to
upper-end casual indoor and outdoor furniture, under the Winston, Texacraft,
Tropic Craft, Pompeii and Wabash brand names. We currently manufacture and sell
over 25 separate style collections of casual furniture products that include
traditional, European, and contemporary design patterns. Within each style
collection there are multiple products including chairs, tables, chaise lounges
and accessory pieces such as ottomans, cocktail tables, end tables, tea carts
and umbrellas constructed of extruded, tubular and cast aluminum, steel,
wrought iron, wood and fiberglass.
Our seating products are marketed under the Loewenstein, Lodging By Loewenstein,
Stuart Clark and Charter brand names with models, ranging from contemporary to
traditional styles, of wood, metal and upholstered chairs, reception area love
seats, sofas and stools.
We sell our ready-to-assemble products under the Southern Wood Products brand
name to mass merchandisers and catalog wholesalers. Our ready-to-assemble
products include promotionally priced traditional ready-to-assemble "flatline"
and "spindle" furniture and a new line of fully assembled case goods furniture
products designed for household use.
During 1997 the Company adopted a plan to dispose of its RTA operations. In
addition to the products described above, WinsLoew's RTA products included
ergonomically designed computer workstations, which the Company denoted as
"space savers" and an extensive line of futons, futon frames and related
accessories.
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses and completed the liquidation of the futon business. At the end of
1997 and during 1998, the Company attempted to sell its remaining RTA facility
but was unable to obtain a satisfactory offer. The Company devoted significant
management time to the operation resulting in improved profitability by the end
of 1998. Due to the recovery, the Company decided to retain Southern Wood.
The amounts reflected hereafter include Southern Wood as a continuing operation.
The Company purchased Pompeii in July 1999. The acquisition was accounted for
under the purchase method of accounting and accordingly, the operating results
of Pompeii have been included in the consolidated operating results since their
respective dates of acquisition (See Note 5 to the unaudited financial
statements).
As described in the Notes to Consolidated Financial Statements, on August 27,
1999, WinsLoew and Trivest Furniture Corporation, a newly formed Florida
corporation was merged with and into WinsLoew, with WinsLoew being the
surviving corporation.
WinsLoew accounted for the transaction in accordance with the purchase method of
accounting and adjusted the basis of the assets and liabilities based upon the
purchase price. Accordingly, the financial statements for the period
subsequent to August 26, 1999 are presented on the Company's new basis of
accounting, while the results of operations for the period ended August 26,
1999 and years ended December 31, 1998 and 1997 reflect historical results of
the predecessor company.
The merger resulted in a significant increase in net goodwill and debt recorded
in WinsLoew's financial statements. The increases resulted in materially higher
charges for amortization and interest in period from August 27, 1999 to
December 31, 1999.
The Company purchased Wabash Valley Manufacturing and Stuart Clark in March 2000
and June 2000, respectively. In addition, Charter Furniture was purchased in
August of 2000. These acquisitions were accounted for under the purchase method
of accounting and accordingly, the operating results of Wabash Valley
Manufacturing, Stuart Clark and Charter Furniture have been included in the
consolidated operating results since their respective dates of acquisition (See
Note 5 to the unaudited financial statements).
Results of Operations
The following table sets forth net sales, gross profit, and gross margin as a
percent of net sales for the respective periods for each of the Company's
product lines (in thousands, except for percentages). This table combines the
predecessor company period ended August 26, 1999 with the successor company
period ended September 24, 1999 for purposes of the discussion of period ended
September 24, 1999 results:
Three Months Ended
------------------------------------------------
September 29, 2000 September 24, 1999
------------------------ -----------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
------- ------- ------ ------- ------ ------
Casual furniture $26,575 $11,429 43.0% $18,471 $8,442 45.7%
Contract seating 18,218 6,476 35.5% 17,913 6,102 34.1%
RTA 2,157 385 17.8% 3,763 884 23.5%
------- ------- ------- ------
Total $46,950 $18,290 39.0% $40,147 $15,428 38.4%
======= ======= ======= =======
Nine Months Ended
------------------------------------------------
September 29, 2000 September 24, 1999
------------------------ -----------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
------- ------- ------ ------- ------ ------
Casual furniture $86,305 $39,086 45.3% $58,110 $27,470 47.3%
Contract seating 48,438 17,693 36.5% 51,485 17,911 34.8%
RTA 8,985 1,757 19.6% 11,141 2,622 23.5%
------- ------- ------- ------
Total $143,728 $58,536 40.7% $120,736 $48,003 39.8%
======= ======= ======= =======
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales. This table
combines the predecessor company period ended August 26, 1999 with the
successor company period ended September 24, 1999 for purposes of the discussion
of period ended September 24, 1999 results:
Three Months Ended Nine Months Ended
------------------ -------------------
Sep. 29, Sep. 24, Sep. 29, Sep. 24,
2000 1999 2000 1999
-------- -------- -------- --------
Gross margin 39.0% 38.4% 40.7% 39.8%
Selling, general and
administrative expense 17.0% 15.1% 16.3% 16.0%
Amortization 3.8% 2.4% 3.5% 1.4%
Operating income 18.2% 20.9% 20.9% 22.4%
Interest expense, net 13.9% 5.5% 13.8% 1.9%
Income before income taxes 4.4% 15.4% 7.0% 20.5%
Net income 1.9% 7.0% 3.9% 11.9%
EBITDA 23.3% 24.4% 25.5% 24.7%
Comparison of Three Months Ended September 29, 2000 and September 24, 1999
"Net Sales"
WinsLoew's consolidated net sales for the third quarter of 2000, $46.9 million,
increased $6.8 million or 16.9 % from $40.1 million in the third quarter 1999.
Casual product line sales decreased by 5.0% from the third quarter of 1999
excluding the effect of the Pompeii and Wabash acquisitions. When including the
acquisition of Pompeii and Wabash, casual sales increased 43.9% during the third
quarter of 2000 when compared to the third quarter of 1999. Management believes
that higher interest rates have slowed new construction, thereby negatively
impacting that segment of the casual business affiliated with contract
customers.
Sales in the contract seating product line, excluding the effect of the Stuart
Clark and Charter acquisition, for the third quarter decreased by 16.2% when
compared to the same period in 1999. When including the Stuart Clark and Charter
acquisition's contract sales increased 1.7% during the third quarter of 2000
when compared to the third quarter of 1999. This performance in seating reflects
the continued softness in the lodging market. The lodging market is closely tied
to new construction and refurbishing projects, both of which are negatively
impacted by higher interest rates.
The RTA product line experienced a sales decrease of 42.7% during the third
quarter over the comparable period in 1999 as major customers reduced
inventories in response to increased carrying costs.
"Gross Margin".
Consolidated gross margin was 39.0% in the third quarter of 2000, compared to
38.4% in the third quarter of 1999. Gross margins in the casual product line
decreased from 45.7 % in the third quarter of 1999 to 43.0% during the third
quarter of 2000, due to the product mix primarily associated with the Wabash
acquisition and to a lesser extent, the Pompeii acquisition.
The gross margin for contract seating improved to 35.5% in the third quarter of
2000, compared to 34.1% in the third quarter of 1999, due to improved raw
material pricing, favorable sales mix and cost containment measures. Gross
margins in the RTA product line decreased from 23.5% in the third quarter of
1999 to 17.8% during the third quarter of 2000 reflecting the decrease in sales
volume.
"Selling, General and Administrative Expenses".
Selling, general and administrative expenses increased $1.9 million in the
third quarter of 2000, compared to the third quarter of 1999. This increase is
attributable to the Pompeii, Wabash, Stuart Clark and Charter acquisitions.
These incremental expenses related to acquisitions were partially offset by
decreases in volume related expenses.
"Amortization".
Amortization expense increased $0.8 million in the third quarter of 2000,
compared to the third quarter of 1999, due to amortization associated with the
Pompeii, Wabash, Stuart Clark and Charter acquisitions as well as the going-
private transaction.
"Operating Income".
As a result of the above, operating income increased by $0.2 million, to $8.6
million (18.2% of net sales) in the third quarter of 2000, compared to $8.4
million (20.9% of net sales) in the third quarter of 1999.
"Interest Expense".
Interest expense increased by $4.3 million in the third quarter of 2000,
compared to the third quarter of 1999. The increase is the result of additional
debt associated with acquisitions and the going private transaction.
"Provision for Income Taxes".
The Company's effective tax rate from continuing operations for the third
quarter of 2000 was 55.3% compared to 54.4% for the third quarter of 1999. The
effective tax rate is greater than the federal statutory rate due primarily to
the effect of state income taxes and non-deductible goodwill amortization.
Comparison of Nine Months Ended September 29, 2000 and September 24, 1999
Net Sales: WinsLoew's consolidated net sales for the first nine months of 2000,
$143.7 million, increased $23.0 million, or 19.0%, from $120.7 million in the
first nine months of 1999.
Casual product line sales increased by 5.8% in the first nine months of 2000,
compared to the first nine months of 1999 excluding the effect of the Pompeii
and Wabash acquisitions. When including the acquisitions of Pompeii and Wabash
casual sales increased 48.5% during the first nine months of 2000 when compared
to the same period of 1999. Management believes that this increase in demand is
primarily due to the Company's emphasis on quality, leading the industry
through innovative designs and providing customer flexibility with its delivery
program during the short casual retail season.
Sales in the contract seating product line, for the first nine months of 2000,
excluding the effect of the Stuart Clark and Charter acquisitions, decreased by
12.5% when compared to the first nine months of 1999. When including the Stuart
Clark and Charter acquisitions, contract sales decreased 5.9% during the first
nine months of 2000 when compared to the same period of 1999. This performance
in seating reflects the general softness in the lodging market. The lodging
market is closely tied to new construction and refurbishing projects, both of
which are negatively impacted by higher interest rates.
The RTA product line experienced a sales decrease of 19.4% during the first nine
months of 2000, when compared to the comparable prior year period due to major
customers reducing inventories.
Gross Margin: Consolidated gross margin was 40.7% in the first nine months
of 2000, compared to 39.8% in the first nine months of 1999. The casual product
line gross margin decreased to 45.3% during the first nine months of 2000
compared to 47.3% in the same period of 1999, due to the product mix resulting
from the Pompeii and Wabash acquisitions. The gross margin for contract seating
products improved to 36.5% in the first nine months of 2000 compared to 34.8% in
the first nine months of 1999 due to favorable product mix and cost reduction
initiatives. The RTA product line gross margin decreased to 19.6% in the first
three quarters of 2000 compared to 23.5% in the first three quarters of 1999, as
a result of sales volume decrease.
Selling, General and Administrative Expenses: SG&A expenses increased $4.2
million in the first nine months of 2000, compared to SG&A expense of $19.3
million in the first nine months of 1999. The increase was primarily the result
of incremental expenditures associated with acquisitions. These additional
expenses were partially offset through a combination of cost reduction measures
and decreases in volume related expenses.
Operating Income: As a result of the above, operating income increased by $2.9
million, to $30.0 million (20.9% of net sales) in the first nine months of 2000
compared to $27.1 million (22.4% of net sales) in the first nine months of
1999.
Interest Expense: The Company's interest expense increased $17.6 million in the
first nine months of 2000, compared to the first nine months of 1999, primarily
due to increased debt service associated with the going-private transaction and
acquisitions.
Provision for Income Taxes: The Company's effective tax rate for the first
nine months of 2000 was 55.4% compared to 42.1% for the first nine months of
1999. The effective tax rate is greater than the federal statutory rate
primarily due to the effect of state income taxes and non-deductible goodwill
amortization.
Seasonality and Quarterly Information
The furniture industry is cyclical and sensitive to changes in general economic
conditions, consumer confidence, discretionary income, and interest rate levels
and credit availability.
Sales of casual products are typically higher in the third and fourth quarters
of each year, primarily as a result of: (1) high retail demand for casual
furniture in the third quarter, preceding the summer months, and (2) the impact
of special sales programs on fourth quarter sales. The Company's casual product
sales will also be affected by weather conditions during the peak retail-selling
season with a resulting impact on consumer purchases of outdoor furniture
products.
The results of operations for any interim quarter are not necessarily indicative
of results for a full year.
Liquidity and Capital Resources
The Company's short-term cash needs are primarily for debt service and working
capital, including accounts receivable and inventory requirements. The Company
has historically financed its short-term liquidity needs with internally
generated funds and revolving line of credit borrowings. The company actively
monitors its cash balances and applies available funds to reduce borrowings
under its long-term revolving line of credit. At September 29, 2000, the Company
had $23.1 million of working capital and $15.7 million of unused and available
funds under its revolving credit facility.
"Cash Flows from Operating Activities". Cash provided by operating activities
was $19.9 million and $30.7 million for the first nine months of 2000 and 1999
respectively. The primary reason for the decrease is interest payments on debt
incurred with the going-private transaction.
"Cash Flows from Investing Activities". Cash used in investing activities was
$62.3 million and $298.8 million for the first nine months of 2000 and 1999
respectively. The difference is primarily due to the going-private transaction
in August 1999 with increased acquisitions and capital expenditures in 2000.
"Cash Flows From Financing Activities". Net cash provided by financing
activities during the first nine moths of 2000 was $42.6 million compared to net
cash provided by financing activities of $268.4 million in the first nine months
of 1999. In the first nine months of 2000 cash was primarily provided by a
revolving credit line, an acquisition line and issuance of the Company's common
stock in support of acquisitions. For the comparable period of 1999 cash was
primarily provided by proceeds borrowings under the Company's senior credit
facility and the issuance of units consisting of 12 3/4% senior subordinated
notes due 2007 and warrants to purchase shares of its common stock.
Foreign Exchange Forward Contracts
WinsLoew purchases some raw materials from several Italian suppliers. These
purchases expose the Company to the effects of fluctuations in the value of the
U.S. dollar versus the Italian lira. If the U.S. dollar declines in value
versus the Italian lira, the Company will pay more in U.S. dollars for these
purchases. To reduce its exposure to loss from such potential foreign exchange
fluctuations, the Company will occasionally enter into foreign exchange forward
contracts. These contracts allow the Company to buy Italian lira at a
predetermined exchange rate and thereby transfer the risk of subsequent exchange
rate fluctuations to a third party.
However, if the Company is unable to continue such forward contract activities
and the Company's inventories increase in connection with expanding sales
activities, a weakening of the U.S. dollar against the Italian lira could
result in reduced gross margins.
The Company elected to hedge a portion of its exposure to purchases made in 2000
and the first quarter of 2001 by entering into foreign currency forward
contracts with a value of $3.9 million, of which $1.5 million were outstanding
and unsettled at September 29, 2000.
The Company did not incur significant gains or losses during the first quarter
as a result of these foreign currency transactions. The Company's hedging
activities relate solely to its component purchases in Italy; the Company does
not speculate in foreign currency.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, we are subject to legal proceedings and other claims arising
in the ordinary course of our business. We maintain insurance coverage against
potential claims in an amount that we believe to be adequate. Based primarily
on discussions with counsel and management familiar with the underlying disputes
and except as described below, we believe that we are not presently a party to
any litigation, the outcome of which would have a material adverse effect on our
business, financial condition, results of operations or future prospects.
As reported in Part I item III of the Company's Annual Report on from 10-K for
the fiscal year ended December 31, 1999, and incorporated herein by reference,
the Company and former members of its board of directors have been named as
defendants in a lawsuit filed on March 25,1999 in the Circuit Court of Jefferson
County, Alabama, styled Craig Smith v. WinsLoew Furniture, Inc. et al. On June
14, 1999, the Company and its directors filed a motion to dismiss the lawsuit
or, in the alternative, to grant summary judgment in our favor. After a hearing
held on November 11, 1999, the court granted our motion to dismiss but gave the
plaintiff 30 days' leave to file an amended complaint.
The plaintiff filed an amended complaint on December 15, 1999 and another motion
to dismiss was filed on behalf of all defendants on February 28, 2000. A
hearing on the motion to dismiss was set for April 11, 2000. The court
subsequently denied the Company's motion to dismiss and a status conference has
been scheduled for November 28, 2000.
We believe that the claims set forth in the lawsuit are without merit and we
intend to vigorously defend this lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
(a) None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 27 - Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES
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.
WINSLOEW FURNITURE,INC
By:/s/ Bobby Tesney
November 7, 2000 Bobby Tesney
President and Chief Executive Officer
November 7, 2000 By:/s/ Vincent A.Tortorici, Jr.
Vincent A. Tortorici, Jr.
Chief Financial Officer