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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
[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
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Commission File Number 0-25246
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WINSLOEW FURNITURE, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 63-1127982
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
160 VILLAGE STREET, BIRMINGHAM, ALABAMA 35242
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(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.
Shares Outstanding
Class at June 1, 1999
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$ .01 par value 7,181,908
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EXPLANATORY NOTE
This Amendment No. 2 on Form 10-Q/A amends and restates Items 1 and 2
of Part I and Item 6 of Part II in their entirety of the Quarterly Report on
Form 10-Q filed by WinsLoew Furniture, Inc. on April 30, 1999, as amended by
Amendment No. 1 on Form 10-Q/A filed on May 5, 1999.
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 9-12
of Operations....................................................................
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................... 12
Signatures............................................................................................. 13
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WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share and per share amounts)
MARCH 26, DECEMBER 31,
1999 1998
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Assets:
Cash and cash equivalents $ 963 $ 475
Cash in escrow 1,000 1,000
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
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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
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$ 91,826 $ 84,553
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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
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Total current liabilities 17,021 16,126
Long-term debt, net of current portion 6,669 1,400
Deferred income taxes 912 801
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Total liabilities 24,602 18,327
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Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000 shares
authorized, none issued -- --
Common stock, par value $.01 per share, 20,000,000 shares
authorized, 7,181,908 and 7,294,408 shares issued and outstanding
at March 26, 1999 and December 31, 1998 72 73
Additional paid-in capital 16,612 19,797
Retained earnings 50,540 46,356
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Total stockholder's equity 67,224 66,226
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$ 91,826 $ 84,553
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See accompanying notes.
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WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands except per share amounts)
FOR THE QUARTERS ENDED
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MARCH 26, MARCH 27,
1999 1998
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Net sales $ 32,910 $ 27,576
Cost of sales 20,031 17,946
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Gross profit 12,879 9,630
Selling, general and administrative expenses 5,725 4,515
Amortization 316 244
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Operating income 4,667 2,667
Interest expense 123 333
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Income before income taxes 6,715 4,538
Provision for income taxes 2,531 1,665
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Net income $ 4,184 $ 2,873
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Basic earnings per share $ 0.58 $ 0.38
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Weighted average number of shares 7,220 7,535
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Diluted earnings per share $ 0.56 $ 0.37
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Weighted average number of shares and common stock equivalents 7,434 7,683
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See accompanying notes.
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WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE QUARTERS ENDED
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MARCH 26, MARCH 27,
1999 1998
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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 acquisitions
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)
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Total adjustments (5,655) (2,335)
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Net cash provided by (used in) operating activities (1,471) 538
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Cash flows from investing activities:
Capital expenditures, net of disposals (112) (334)
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Net cash used in investing activities (112) (334)
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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) --
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Net cash provided by financing activities 2,071 963
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Net increase in cash and cash equivalents 488 1,167
Cash and cash equivalents at beginning of year 475 707
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Cash and cash equivalents at end of period $ 963 $ 1,874
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Supplemental disclosures:
Interest paid $ 28 $ 259
Income taxes paid $ 155 $ 28
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See accompanying notes.
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WINSLOEW FURNITURE, INC.
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
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Raw materials $ 9,739 $ 9,288
Work in process 1,619 1,521
Finished goods 1,568 1,397
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$ 12,926 $ 12,206
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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.
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5. DISCONTINUED OPERATIONS
At March 26, 1999, there have not been any material changes in the net
liabilities of discontinued operations as compared to December 31,
1998.
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.
Three Months Ended
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March 26, March 27,
1999 1998
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REVENUES:
Casual products $ 13,634 $ 9,630
Contract seating products 15,885 15,498
Ready to assemble products 3,391 2,448
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Total revenues $ 32,910 $ 27,576
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SEGMENT GROSS PROFIT:
Casual products $ 6,467 $ 4,354
Contract seating products 5,619 4,769
Ready to assemble products 793 507
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Total segment gross profit 12,879 9,630
Reconciling items:
Selling, general and administrative expenses 5,725 4,515
Amortization 316 244
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Operating Income 6,838 4,871
Interest expense-net 123 333
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Income from continuing operations before income taxes $ 6,715 $ 4,538
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SEGMENT ASSETS:
Casual products $ 60,104 $ 51,880
Contract seating products 22,808 23,486
Ready to assemble products 7,241 6,496
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Total 90,153 81,862
Reconciling items:
Corporate 1,673 2,691
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Total consolidated assets $ 91,826 $ 84,553
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7. 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
Directors, as well as the Special Committee of the Board appointed to
evaluate the initial Trivest proposal and possible strategic
alternatives.
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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.
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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 the respective periods for each of the Company's
product lines (in thousands, except for percentages):
Three Months Ended
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March 26, 1999 March 27, 1998
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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%
======= ======= ======= ======
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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
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March 26, March 27,
1999 1998
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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. The Company's PDQ shipping program
provides exceptional customer value by allowing quick response during the casual
market's short retail selling season. 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.
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.
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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. 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
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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 which 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 Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This error could potentially result in
a system failure or miscalculation causing disruptions to operations.
In mid-1995, the Company began an assessment of the Year 2000 issue on
its internal information technology systems and other non-information technology
systems such as facility automation control systems, third-party network systems
and other embedded technology and microcontrollers, as well as for the
replacement or correction of all such systems required in the new millennium.
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, including third-party network equipment,
software products and services.
As of March 26, 1999, the Company has completed testing and remediation
of approximately 95% of its continuing operations business critical systems at
an aggregated cost of approximately $500,000, representing approximately 20% of
the Company's IT budget for the last four years, which has been obtained from
internally generated funds. Substantially all of these costs were for planning,
analysis, repair or replacement of existing software, upgrades of existing
software or evaluation of information received from material suppliers and
customers. Non-information technology systems do not represent a significant
component of the Company's operations. The Company deducts these costs from
income. Other non-Year 2000 efforts have not been materially delayed.
The Company has contacted and received responses from all of its
material 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 its financial position, results of
operations or liquidity. The Company did not use any independent verification or
validation process to assure the reliability of their risk and cost estimates.
Consequently, the Company 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's program is not successful, management believes that it has established
adequate contingency plans whereby the Company would rely on its own manual
systems, independent of external providers' Year 2000 compliance, maintain
increased inventory levels and adjust staffing levels for its business critical
systems. Management believes that such an event would not materially affect the
Company's financial position or results of operations. However, disruptions in
the general economy resulting from Year 2000 issues could adversely affect the
Company's financial condition or results of operations.
PART II. OTHER INFORMATION
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.
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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.
June 4, 1999 By: /s/ Bobby Tesney
----------------------------------------
Bobby Tesney
President and Chief Executive Officer
June 4, 1999 By: /s/ Vincent A. Tortorici, Jr.
----------------------------------------
Vincent A. Tortorici, Jr.
Chief Financial Officer
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