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 March 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-25246
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)
(Registrant's telephone number, including Area Code) (205) 408-7600
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 April 29, 1999
- - --------------- ------------------------------------
$ .01 par value 7,181,908
WINSLOEW FURNITURE, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets ...................... 3
Consolidated Statements of Income ................ 4
Consolidated Statements of Cash Flows ............ 5
Notes to Consolidated Financial Statements ....... 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................... 13
Item 4. Submission of Matters to a Vote of Security
Holders ............................................. 13
Item 6. Exhibits and Reports on Form 8-K ................... 13
Signatures ...................................................... 14
2
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands except share
and per share amounts) March 26, December 31,
1999 1998
--------- ------------
Assets
Cash and cash equivalents $ 1,963 $ 1,475
Accounts receivable, less
allowances for doubtful accounts 31,278 23,647
Inventories 12,926 12,206
Prepaid expenses and other
current assets 3,891 4,638
------- --------
Total current assets 50,058 41,966
Property, plant and equipment, net 13,684 13,948
Goodwill, net 26,955 27,176
Other assets 1,129 1,463
------- -------
$91,826 $84,553
======= =======
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 35 $ 47
Accounts payable 4,598 4,377
Other accrued liabilities 10,673 9,952
Net liabilities of discontinued
operations 1,715 1,750
------- -------
Total current liabilities 17,021 16,126
Long-term debt, net of current portion 6,669 1,400
Deferred income taxes 912 801
------- -------
Total liabilities 24,602 18,327
------- -------
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, 20,000,000 shares
authorized, 7,181,908 and 7,294,408
shares issued and outstanding at
March 26, 1999 and December 31, 1998 72 73
Additional paid-in capital 16,612 19,797
Retained earnings 50,540 46,356
------- -------
Total stockholders' equity 67,224 66,226
------- -------
$91,826 $84,553
======= =======
See accompanying notes.
3
WinsLoew Furniture, Inc and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Quarters Ended
(In thousands except -------------------------
per share amounts) March 26, March 27,
1999 1998
---------- ----------
Net sales $32,910 $27,576
Cost of sales 20,031 17,946
------- -------
Gross profit 12,879 9,630
Selling, general and
administrative expenses 5,725 4,515
Amortization 316 244
------- -------
Operating income 4,667 2,667
Interest expense 123 333
------- -------
Income before income taxes 6,715 4,538
Provision for income taxes 2,531 1,665
------- -------
Net income $4,184 $ 2,873
======= =======
Basic earnings per share $0.58 $0.38
===== =====
Weighted average number of shares 7,220 7,535
===== =====
Diluted earnings per share $0.56 $0.37
===== =====
Weighted average number of shares
and common stock equivalents 7,434 7,683
===== =====
See accompanying notes.
4
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) For the Quarters Ended
------------------------
March 26, March 27,
1999 1998
--------- --------
Cash flows from operating activities:
Net income $4,184 $2,873
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 692 607
Provision for losses on accounts receivable 377 79
Change in net assets held for sale -- 805
Changes in operating assets and liabilities,
net of effects from acquistions and dispositions:
Accounts receivable (8,008) (6,540)
Inventories (720) (272)
Prepaid expenses and other current assets 747 2,635
Other assets 239 (715)
Accounts payable 221 1,203
Other accrued liabilities 686 485
Deferred income taxes 111 (622)
------- -------
Total adjustments (5,655) (2,335)
------- -------
Net cash provided by (used in)
operating activities (1,471) 538
------- -------
Cash flows from investing activities:
Capital expenditures, net of disposals (112) (334)
------- -------
Net cash used in investing activities (112) (334)
------- -------
Cash flows from financing activities:
Net borrowings under revolving
credit agreements 5,257 795
Proceeds from issuance of common stock, net -- 168
Repurchase and cancellation of stock (3,186) --
------- -------
Net cash provided by financing activities 2,071 963
------- -------
Net increase in cash and cash equivalents 488 1,167
Cash and cash equivalents at beginning of year 1,475 707
------- -------
Cash and cash equivalents at end of period $1,963 $1,874
======= =======
Supplemental disclosures:
Interest paid $ 28 $259
Income taxes paid $155 $28
======= =======
See accompanying notes
5
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, 1998, 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 first
quarter, which is from January 1 through March 26, 1999. The results of
operations for this period are not necessarily indicative of the results to be
expected for the full year.
2. Inventories
Inventories consisted of the following:
(In thousands)
March 26, December 31,
1999 1998
---------- ------------
Raw materials $9,739 $9,288
Work in process 1,619 1,521
Finished Goods 1,568 1,397
------- -------
$12,926 $12,206
======= =======
3. Long-term Debt
WinsLoew's amended senior credit facility provides the Company with a variable
amount available under the revolving line of credit. The amount available
under its revolving credit line is $20 million between July 1 each year
through December 31. The Company may, at its option, elect to increase the
revolving credit line at January 1 through the following June 30 to a
maximum of $40 million. At January 1, 1999, the Company elected to set the
maximum amount available under the revolving credit line at $35 million.
4. Capital Stock
In January 1998, WinsLoew's Board of Directors approved a plan to acquire up to
1,000,000 shares of the Company's common stock. The purchases are being funded
by the Company's senior credit facility (see Note 3 above). At December 31,
1998, there were 704,000 shares available under the plan. Since December 31,
1998 and as of March 26, 1999, the Company has acquired 112,500 shares for
$3.2 million.
6
5. 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.
(In thousands) Three Months Ended
------------------------
March 26, March 27,
1999 1998
--------- --------
REVENUES:
Casual products $13,634 $9,630
Contract seating products 15,885 15,498
Ready to assemble products 3,391 2,448
------- -------
Total revenues $32,910 $27,576
======= =======
SEGMENT GROSS PROFIT:
Casual products $ 6,467 $4,354
Contract seating products 5,619 4,769
Ready to assemble products 793 507
------- -------
Total segment gross profit 12,879 9,630
Reconciling items:
Selling, general and administrative
expenses 5,725 4,515
Amortization 316 244
------- -------
Operating income 6,838 4,871
Interest expense-net 123 333
------- -------
Income from continuing operations
before income taxes $6,715 $4,538
======= =======
(In thousands) Mar. 26, Dec. 31,
1999 1998
-------- --------
SEGMENT ASSETS:
Casual products $60,104 $51,880
Contract seating products 22,808 23,486
Ready to assemble products 7,241 6,496
------- -------
Total 90,153 81,862
Reconciling items:
Corporate 1,673 2,691
------- -------
Total consolidated assets $91,826 $84,553
======= =======
6. Subsequent Event
On March 30, 1999, WinsLoew and Trivest Furniture Corporation (the "Purchaser),
a Florida corporation formed by Earl W. Powell of Trivest, Inc., who is also
the Chairman of the Company's Board of Directors, amended their Agreement
and Plan of Merger to, among other things, (1) increase the per share cash
purchase price from $30.00 per share to $33.00 per share, (2) increase the
"break-up" fee, and (3) eliminate the Purchaser's financing condition.
The amendment to the Agreement and Plan of Merger was approved by WinsLoew's
Board of
7
6. Subsequent Event (continued)
Directors, as well as the Special Committee of the Board appointed to evaluate
the initial Trivest proposal and possible strategic alternatives.
Pursuant to the amended agreement, the proposed merger is subject, among
other things, to (1) shareholder approval and (2) compliance with all
applicable regulatory and governmental requirements. Accordingly, there can
be no assurance that the merger will be consummated.
8
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
WinsLoew is comprised of companies engaged in the design, manufacture and
distribution of casual furniture and contract seating furniture. WinsLoew's
casual furniture products are distributed through independent manufacturer's
representatives and are constructed of extruded and tubular aluminum and cast
aluminum. These products are distributed through fine patio stores,
department stores and full line furniture stores nationwide. WinsLoew's
contract seating products are distributed to a broad customer base, which
includes architectural design firms and restaurant and lodging chains.
During 1997 the Company adopted a plan to dispose of its RTA operations.
WinsLoew's RTA products included ergonomically-designed computer workstations,
which the Company denoted as "space savers", promotionally-priced coffee
and end tables, wall units and rolling carts and an extensive line of
futons, futon frames and related accessories. Distribution of RTA furniture
products was primarily through mass merchandisers, catalogue wholesalers and
specialty retailers.
The Company planned to sell two of the businesses and liquidating the assets
related to the futon business. During 1998 the Company sold one
of the businesses, completed the liquidation of the futon business and decided
to retain its Southern Wood business (see Note 2 to Notes to the Consolidated
Financial Statements).
The amounts reflected hereafter include Southern Wood as a continuing
operation.
Results of Operations
The following table sets forth net sales, gross profit and
gross margin as a percent of net sales for each of the
Company's product lines (in thousands, except for
percentages):
Three Months Ended
--------------------------------------------------
March 26, 1999 March 27, 1998
----------------------- ------------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
------- -------- ------ -------- ------ ------
Casual furniture $13,634 $6,467 47.4% $ 9,630 $4,354 45.2%
Contract seating 15,885 5,619 35.4% 15,498 4,769 30.8%
RTA 3,391 793 23.4% 2,448 507 20.7%
------- ------- ------- ------
Total $32,910 12,879 39.1% $27,576 $9,630 34.9%
======= ======= ======= ======
9
The following table sets forth certain information relating
to the Company's operations expressed as a percentage of the
Company's net sales:
Three Months Ended
------------------------------
March 26, March 27,
1999 1998
--------- ---------
Gross margin 39.1% 34.9%
Selling, general and
administrative expense 17.4% 16.4%
Amortization 1.0% 0.9%
Operating income 20.7% 17.7%
Interest expense, net 0.4% 1.2%
Income before income
taxes 20.3% 16.5%
Net income 12.7% 10.4%
Comparison of First Quarters Ended March 26, 1999 and March
27, 1998
Net Sales: WinsLoew's consolidated net sales for the first quarter of 1999,
$32.9 million, increased $5.3 million or 19.3% from $27.6 million in the first
quarter of 1998.
The Company's Casual and RTA product lines experienced strong sales
increases, while the Contract Seating product line was relatively flat during
the first quarter of 1999, increasing 2.5%. Sales of casual products
increased 41.6% in the first quarter of 1999, compared to the first
quarter of 1998. If Tropic Craft, which was purchased in the third quarter
of 1998, is excluded, sales of casual products increased 29.2%.
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.
RTA product sales increased 38.5% in the first quarter of 1999, compared to
the first quarter of 1998, primarily due to increased demand across the board
on all RTA furniture.
Gross Margin: Consolidated gross margin was 39.1% in the first quarter
of 1999, compared to 34.9% in the first quarter of 1998. All three of
the Company's product lines contributed to the increase in gross margin. The
casual product line gross margin improved to 47.4% in the first quarter of 1999
compared to 45.2% in the first quarter of 1998, due to increased demand and
improved operating efficiencies. The gross margin for contract seating
products improved to 35.4% in the first quarter of 1999 compared to 30.8%
in the first quarter of 1998 due to a favorable product mix and improved
profit margins on its core products. The RTA product line gross margin
improved to 23.4% in the first quarter of 1999 compared to 20.7% in the
first quarter of 1998, due to increased demand and improved operating
efficiencies.
Selling, General and Administrative Expenses: Selling, general and
administrative (SG&A) expenses increased $1.2 million in the first quarter of
1999, compared to the first quarter of 1998 SG&A expense of $4.5 million. The
increase was primarily the result of sales related expenditures.
Operating Income: As a result of the above, operating income increased by $1.9
million, to $6.8 million (20.7% of net sales) in the first quarter of 1999
compared to $4.9 million (17.7% of net sales) in the first quarter of 1998.
Interest Expense: The Company's interest expense decreased $210,000 in the
first quarter of 1999, compared to the first quarter of 1998, due to lower
outstanding debt balances.
10
Provision for Income Taxes: The Company's effective tax rate for the first
quarter of 1999 was 37.7% compared to 36.7% for the first quarter of 1998. 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 second and fourth quarters
of each year, primarily as a result of: (1) high retail demand for casual
furniture in the second 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 WinsLoew's short-term cash needs are primarily for working capital to
support its debt service, accounts payable, and inventory requirements. The
Company has historically financed its short-term liquidity needs with
internally generated funds and revolving credit facility borrowings.
The Company actively monitors its cash balances and applies available funds
to reduce borrowings under its long-term revolving line of credit.
At March 26, 1999, the Company has $33.0 million of working capital and
$24.6 million of unused and available funds under its credit facilities.
In May 1998, WinsLoew amended its senior credit facility to provide for capital
stock purchases not to exceed, in aggregate, $10 million (see Note 4 to the
Consolidated Financial Statements). As of March 26, 1999 there was
$2.9 million available for such repurchases.
Cash Flows From Operating Activities: Cash provided by (used in) operating
activities was $(1.5) million and $0.5 million for the first three months of
1999 and 1998, respectively. The decrease in cash provided by operations in the
first three months of 1999 compared to 1998 was primarily due to the overall
improvement in profits and its seasonal effect on accounts receivable.
Cash Flows From Investing Activities: Cash used in investing activities was
$0.1 million and $0.3 million for the first three months of 1999 and 1998,
respectively. Cash used by investing activities for the first three months of
1999 and 1998 was primarily due to the purchase of machinery and equipment.
Cash Flows From Financing Activities: Net cash provided by financing
activities was $2.1 million in the first three months of 1999 compared to $1.0
million in the first three months of 1998. Cash was provided by the Company's
revolving credit facilities (see Note 3 to the Consolidated Financial
Statements) to repurchase shares of the Company's stock (see Note 4 to the
Consolidated Financial Statements), and provide for seasonal working capital
needs.
At March 26, 1999, the Company has no material commitments for capital
expenditures.
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.
11
Foreign Exchange Forward Contracts (continued)
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 did not
enter into and did not have outstanding any foreign currency forward
contracts during the first quarter of 1999. The Company elected to hedge a
portion of its exposure to purchases made in 1998 by entering into foreign
currency forward contracts with a value of $1.7 million, all of were
outstanding and unsettled at March 27, 1998, maturing at approximately
$330,000 per month. The Company did not incur significant gains or losses
from these foreign currency transactions.
Year 2000
The Company began an assessment of the Year 2000 issue on its systems in mid
1995. Based on the assessment, the Company determined that it was necessary to
replace portions of its software and hardware so that those systems will
properly utilize dates beyond December 31, 1999. To date, approximately 91% of
the Company's continuing operations business critical systems have been
remediated and tested at a cost of approximately $0.5 million, which was
provided by internally generated funds. This process is projected to be
completed by mid to late 1999 at minimal additional cost.
The Company has contacted its significant suppliers and customers concerning
Year 2000 compliance. Based on these discussions the Company is not aware of
any supplier or customer with a Year 2000 issue that would materially impact
the Company's financial position, results of operations or liquidity. However,
WinsLoew has no means of ensuring that suppliers or customers will be Year 2000
ready. The effect of non-compliance by third parties is not determinable.
Management believes that it has substantially completed an effective program to
resolve the Year 2000 issue in a timely manner. In the event that the Company
is unable to complete the program or if the program is not successful,
management believes that it has established adequate contingency plans
involving manual systems, maintaining increased inventory levels and
adjusting staffing levels for it's business critical systems and that such
an event would not materially impact the Company's financial position.
However, disruptions in the general economy resulting for Year 2000 issues
could adversely affect the Company.
12
Part II. Other Information
Item 1. Legal Proceedings
The Company is, from time to time, involved in routine litigation. No such
routine litigation in which the Company is presently involved is material
to its financial position, results of operations, or liquidity.
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
During the quarter for which this Quarterly Report on Form
10-Q is filed, the Registrant filed a current report on
Form 8-K, dated March 11, 1999.
During the quarter for which this Quarterly Report on Form
10-Q is filed, the Registrant filed a current report on
Form 8-K, dated April 1, 1999.
13
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.
/s/ Bobby Tesney
-----------------
April 29, 1999 BOBBY TESNEY
President and Chief Executive Officer
/s/ Vincent A. Tortorici, Jr.
-----------------------------
April 29, 1999 VINCENT A. TORTORICI, Jr.
Chief Financial Officer
12