SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Three Months Ended March 31, 1997.
Commission File Number 333-11905
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(Exact name of Registrant as specified in its Charter)
Delaware 56-1977928
(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 National Highway
Thomasville, North Carolina 27360
(Address of principal executive offices) (Zip Code)
(910) 476-4777
(Telephone Number)
-----------
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets-March 31, 1997 and December 31, 1996 1
Condensed Statements of Operations for the three months
ended March 31, 1997 and 1996 2
Condensed Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 3
Notes to Condensed Financial Statements 4 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 14
Part II. Other Information and Signature 15 - 16
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
Consolidated Consolidated
Company Company
------------ ------------
March 31, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash investments $ 16,860 $ 22,400
Trade receivables 76,770 81,810
Investment in Receivables Trust 56,220 51,120
Other receivables 52,770 46,280
Inventories 542,580 526,300
Prepaid expenses 25,660 22,690
Deferred income taxes 14,080 14,080
----------- ----------
Total current assets 784,940 764,680
Property and equipment, net 347,780 349,330
Notes receivable 8,320 7,620
Other assets 62,260 69,100
----------- ----------
Total assets $ 1,203,300 $1,190,730
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Long term debt, current $ 19,120 $ 18,970
Accounts payable 112,290 93,030
Accrued liabilities 136,260 153,130
----------- ----------
Total current liabilities 267,670 265,130
Long-term debt 421,460 425,650
Other long-term liabilities 46,580 46,590
----------- ----------
Total liabilities 735,710 737,370
----------- ----------
Common stock, $.01 par value, 3,000 shares
authorized, 100 shares issued and outstanding -- --
Additional paid-in capital 421,050 421,050
Retained earnings 47,920 31,270
Foreign currency translation (1,380) 1,040
----------- ----------
Total shareholder's equity 467,590 453,360
----------- ----------
Total liabilities and shareholder's equity $ 1,203,300 $1,190,730
=========== ==========
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
For the three months ended
--------------------------------
Consolidated Combined
Company Predecessor
March 31, 1997 March 31, 1996
-------------- --------------
Net sales $490,230 $491,010
Cost of sales 364,500 369,170
-------- --------
Gross profit 125,730 121,840
Selling, general and administrative expenses 86,420 95,330
-------- --------
Operating profit 39,310 26,510
-------- --------
Other expense, net:
Interest expense 11,220 --
Interest expense, Masco Corporation -- 22,240
Other, net 2,480 1,060
-------- --------
13,700 23,300
-------- --------
Income before income taxes 25,610 3,210
Income taxes 8,960 2,940
-------- --------
Net income $ 16,650 $ 270
======== ========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
-------------------------------
Consolidated Combined
Company Predecessor
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 16,650 $ 270
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 10,480 16,920
Bad debt provision, net 1,030 990
Changes in operating assets and liabilities:
Receivables (2,180) 310
Inventories (16,270) (940)
Prepaid expenses and other assets (1,490) (3,300)
Accounts payable 19,260 1,870
Other liabilities (16,870) (4,200)
-------- --------
Net cash provided by operating activities 10,610 11,920
-------- --------
INVESTING ACTIVITIES:
Net investments in Receivables Trust (5,100) --
Capital expenditures (3,910) (6,270)
Other, net (2,100) (2,450)
-------- --------
Net cash used for investing activities (11,110) (8,720)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from short term borrowings 240 --
Net repayments from accounts receivable transactions (1,000) --
Proceeds from long-term debt -- 29,780
Repayments of long-term debt (4,280) (41,080)
Net increase in Masco Corporation net investment
and advances -- 5,820
-------- --------
Net cash used for financing activities (5,040) (5,480)
-------- --------
CASH AND CASH INVESTMENTS:
Decrease for the period (5,540) (2,280)
Balance, beginning of period 22,400 17,310
-------- --------
Balance, end of period $ 16,860 $ 15,030
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------
1. BASIS OF PRESENTATION
The unaudited Condensed Financial Statements include the accounts of
LIFESTYLE FURNISHINGS INTERNATIONAL LTD. (the "Company") and its subsidiary
companies for periods subsequent to August 6, 1996. Intercompany accounts
and transactions are eliminated. These Condensed Financial Statements
reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. All such adjustments are
of a normal and recurring nature. The accompanying unaudited Condensed
Financial Statements should be read in conjunction with the Consolidated
Financial Statements and notes thereto in the Company's report on Form 10-K
for 1996. In the Notes to Financial Statements, all dollar amounts are
shown in thousands unless otherwise stated.
The financial information for the three months ended March 31, 1996
refers to Masco Home Furnishings Group (the "Predecessor") as it existed
prior to its acquisition by the Company on August 5, 1996 (the
"Acquisition"). The Predecessor was not a legal entity and included certain
subsidiaries of Masco Corporation ("Masco") whose operations consisted of
the manufacture and sale of home furnishings products including fine
furniture and decorative home furnishing fabrics. With respect to the
unaudited financial information for the interim periods of the Predecessor,
it is the opinion of management that all adjustments, which consist of
normal and recurring adjustments necessary for a fair presentation of
interim combined financial statements, have been included.
As a result of the Acquisition and new basis of accounting resulting
from the application of the purchase method of accounting, the Company's
financial statements for the periods subsequent to the Acquisition are not
comparable to the Predecessor's financial statements for the periods prior
to the Acquisition. Operating results of the interim period are not
necessarily indicative of results that may be expected for the fiscal year
ended December 31, 1997.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125 ("SFAS 125"), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." The
adoption of SFAS 125 did not have a material impact on the Company's
financial statements.
3. INVENTORY
As of March 31, 1997 and December 31, 1996, inventory balances were as
follows:
1997 1996
-------- --------
Finished goods $230,420 $223,610
Raw materials 228,050 216,250
Work in process 84,110 86,440
-------- --------
$542,580 $526,300
======== ========
4
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
4. LONG-TERM DEBT
As of March 31, 1997 and December 31, 1996, the outstanding balances
of long-term debt were as follows:
1997 1996
-------- --------
Revolving credit facility $ -- $ --
Tranche A term loan 96,400 100,420
Tranche B term loan 140,320 140,580
Senior subordinated notes 200,000 200,000
Other borrowings 3,860 3,620
-------- --------
440,580 444,620
Less current portion 19,120 18,970
-------- --------
$421,460 $425,650
======== ========
5. GUARANTOR FINANCIAL STATEMENTS
In connection with the issuance of its 10 7/8% Senior Subordinated
Notes due 2006 (the "Notes"), the Company's domestic operating subsidiaries
("Guarantor Subsidiaries") fully and unconditionally guaranteed the
Company's performance under the Notes on a joint and several basis. The
Guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of
the Company. The remaining subsidiaries are direct or indirect subsidiaries
of the Guarantor Subsidiaries. There are no restrictions under the
Company's financing arrangements on the ability of the Guarantor
Subsidiaries to distribute funds to the Company in the form of cash
dividends, loans or advances. The following financial data provides
information regarding the financial position, results of operations and
cash flows of the Guarantor Subsidiaries (condensed consolidating/combining
financial data). Separate financial statements and other disclosures
concerning the Guarantor Subsidiaries are not presented because management
has determined that such information would not be material to the holders
of the Notes.
For purposes of the condensed consolidating/combining financial data,
the Guarantor Subsidiaries include substantially all domestic subsidiaries
of the Company (other than a special purpose subsidiary formed in
connection with the Company's receivables financing facility (the
"Receivables Subsidiary") and certain subsidiaries with substantially no
assets or operations). The Guarantor Subsidiaries account for their
investments in the non-guarantor subsidiaries on the equity method. The
Company also accounts for its investments in the Guarantor Subsidiaries and
the Receivables Subsidiary on the equity method. The principal elimination
entries are to eliminate the investments in subsidiaries and intercompany
balances and transactions.
-5-
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
5. GUARANTOR FINANCIAL STATEMENTS, Continued:
Company
Condensed Consolidating Balance Sheet
March 31, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash investments $ -- $ (5,240) $ 22,100 $ -- $ 16,860
Receivables -- 31,740 97,800 -- 129,540
Investment in Receivables Trust -- -- 56,220 -- 56,220
Inventories -- 444,670 97,910 -- 542,580
Prepaid expenses -- 16,750 8,910 -- 25,660
Deferred income taxes -- 12,640 1,440 -- 14,080
Intercompany account -- 258,510 4,610 (263,120) --
-------- ----------- -------- --------- ----------
Total current assets -- 759,070 288,990 (263,120) 784,940
Property and equipment, net -- 264,040 83,740 -- 347,780
Notes receivable -- 8,320 -- -- 8,320
Other assets -- 60,550 1,710 -- 62,260
Investments in affiliates 469,840 15,770 -- (485,610) --
-------- ----------- -------- --------- ----------
Total assets $469,840 $ 1,107,750 $374,440 $(748,730) $1,203,300
======== =========== ======== ========= ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Long term debt, current $ -- $ 17,210 $ 1,910 $ -- $ 19,120
Accounts payable -- 82,110 30,180 -- 112,290
Accrued liabilities -- 102,940 33,320 -- 136,260
Intercompany account -- 4,610 258,510 (263,120) --
-------- ----------- -------- --------- ----------
Total current liabilities -- 206,870 323,920 (263,120) 267,670
Long-term debt -- 420,280 1,180 -- 421,460
Other long-term liabilities -- 45,200 1,380 -- 46,580
-------- ----------- -------- --------- ----------
Total liabilities -- 672,350 326,480 (263,120) 735,710
-------- ----------- -------- --------- ----------
Shareholder's equity 469,840 435,400 47,960 (485,610) 467,590
-------- ----------- -------- --------- ----------
Total liabilities and
shareholder's equity $469,840 $ 1,107,750 $374,440 $(748,730) $1,203,300
======== =========== ======== ========= ==========
</TABLE>
6
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
5. GUARANTOR FINANCIAL STATEMENTS, Continued:
Company
Condensed Consolidating Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash investments$ $ -- $ 4,510 $ 17,890 $ -- $ 22,400
Receivables -- 41,130 86,960 -- 128,090
Investment in Receivables Trust -- -- 51,120 -- 51,120
Inventories -- 431,910 94,390 -- 526,300
Prepaid expenses -- 15,100 7,590 -- 22,690
Deferred income taxes -- 11,440 2,640 -- 14,080
Intercompany account -- 245,140 12,500 (257,640) --
-------- ---------- -------- --------- ----------
Total current assets -- 749,230 273,090 (257,640) 764,680
Property and equipment, net -- 265,190 84,140 -- 349,330
Notes receivable -- 7,620 -- -- 7,620
Other assets -- 55,430 13,670 -- 69,100
Investments in affiliates 453,360 14,790 -- (468,150) --
-------- ---------- -------- --------- ----------
Total assets $453,360 $1,092,260 $370,900 $(725,790) $1,190,730
======== ========== ======== ========= ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Long term debt, current $ -- $ 17,350 $ 1,620 $ -- $ 18,970
Accounts payable -- 71,230 21,800 -- 93,030
Accrued liabilities -- 109,950 43,180 -- 153,130
Intercompany account -- 12,500 245,140 (257,640) --
-------- ---------- -------- --------- ----------
Total current liabilities -- 211,030 311,740 (257,640) 265,130
Long-term debt -- 424,430 1,220 -- 425,650
Other long-term liabilities -- 35,670 10,920 -- 46,590
-------- ---------- -------- --------- ----------
Total liabilities -- 671,130 323,880 (257,640) 737,370
-------- ---------- -------- --------- ----------
Shareholder's equity 453,360 421,130 47,020 (468,150) 453,360
-------- ---------- -------- --------- ----------
Total liabilities and
shareholder's equity $453,360 $1,092,260 $370,900 $(725,790) $1,190,730
======== ========== ======== ========= ==========
</TABLE>
7
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
5. GUARANTOR FINANCIAL STATEMENTS, Continued:
Company
Condensed Consolidating Statement of Operations
for the three months ended March 31, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $446,540 $103,800 $(60,110) $490,230
Cost of sales -- 340,820 83,790 (60,110) 364,500
-------- -------- -------- -------- --------
Gross profit -- 105,720 20,010 -- 125,730
Selling, general and
administrative expenses -- 75,130 11,290 -- 86,420
-------- -------- -------- -------- --------
Operating profit 30,590 8,720 -- 39,310
Other expense, net (16,650) 8,950 3,680 17,720 13,700
-------- -------- -------- -------- --------
Income before
income taxes 16,650 21,640 5,040 (17,720) 25,610
Income taxes -- 7,150 1,810 -- 8,960
-------- -------- -------- -------- --------
Net income $ 16,650 $ 14,490 $ 3,230 $(17,720) $ 16,650
======== ======== ======== ======== ========
</TABLE>
Predecessor
Condensed Combining Statement of Operations
for the three months ended March 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Net sales $ 433,860 $ 123,090 $ 65,940 $ 491,010
Cost of sales 332,980 102,130 (65,940) 369,170
--------- --------- --------- ---------
Gross profit 100,880 20,960 -- 121,840
Selling, general and
administrative expenses 77,580 17,750 -- 95,330
--------- --------- --------- ---------
Operating profit 23,300 3,210 -- 26,510
Other expense, net 20,350 4,010 (1,060) 23,300
--------- --------- --------- ---------
Income (loss) before
income taxes 2,950 (800) 1,060 3,210
Income taxes 2,680 260 -- 2,940
--------- --------- --------- ---------
Net income (loss) $ 270 $ (1,060) $ 1,060 $ 270
========= ========= ========= =========
</TABLE>
8
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
5. GUARANTOR FINANCIAL STATEMENTS, Continued:
Company
Condensed Consolidating Statement of Cash Flows
for the three months ended March 31, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED FOR) OPERATING
ACTIVITIES: $ -- $ 21,640 $(11,030) $ -- $ 10,610
------ -------- -------- ------ --------
INVESTING ACTIVITIES:
Net investments in Receivables Trust -- -- (5,100) -- (5,100)
Capital expenditures -- (2,980) (930) -- (3,910)
Other, net -- -- (2,100) -- (2,100)
------ -------- -------- ------ --------
Net cash used for
investing activities -- (2,980) (8,130) -- (11,110)
------ -------- -------- ------ --------
FINANCING ACTIVITIES:
Net proceeds from short term debt -- -- 240 -- 240
Net repayments from accounts
receivable transactions -- -- (1,000) -- (1,000)
Repayments of long-term debt -- (4,280) -- -- (4,280)
Intercompany accounts, net -- (24,130) 24,130 -- --
------ -------- -------- ------ --------
Net cash provided by (used for)
financing activities -- (28,410) 23,370 -- (5,040)
------ -------- -------- ------ --------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period -- (9,750) 4,210 -- (5,540)
Balance, beginning of period -- 4,510 17,890 -- 22,400
------ -------- -------- ------ --------
Balance, end of period $ -- $ (5,240) $ 22,100 $ -- $ 16,860
====== ======== ======== ====== ========
</TABLE>
9
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
5. GUARANTOR FINANCIAL STATEMENTS, Continued:
Predecessor
Condensed Combining Statement of Cash Flows
for the three months ended March 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
NET CASH (USED FOR)
PROVIDED BY OPERATING
ACTIVITIES: $ (8,950) $ 19,840 $ 1,030 $ 11,920
-------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (5,140) (1,130) -- (6,270)
Other, net 10,140 4,630 (17,220) (2,450)
-------- -------- -------- --------
Net cash provided by (used for)
investing activities 5,000 3,500 (17,220) (8,720)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long term debt 40 29,740 -- 29,780
Repayments of long term debt (40) (41,040) -- (41,080)
Increase (decrease) in Masco
Corporation net investment
and advances 3,990 (14,360) 16,190 5,820
-------- -------- -------- --------
Net cash provided by (used for)
financing activities 3,990 (25,660) 16,190 (5,480)
-------- -------- -------- --------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period 40 (2,320) -- (2,280)
Balance, beginning of period 4,540 12,770 -- 17,310
-------- -------- -------- --------
Balance, end of period $ 4,580 $ 10,450 $ -- $ 15,030
======== ======== ======== ========
</TABLE>
10
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS, continued
----------
6. PRO FORMA SUPPLEMENTARY DATA
The following pro forma supplementary data for the three months ended March
31, 1996 gives effect to the Acquisition transactions as if they had
occurred on January 1, 1996. The pro forma supplementary data is provided
for informational purposes only and should not be construed to be
indicative of the Company's results of operations had the transactions been
consummated on the dates assumed and does not project the Company's results
of operations for any future date.
Three Months Ended
---------------------
March 31, 1996
---------------------
(Dollars in millions)
Net sales $491.0
Gross profit 124.2
Operating profit 34.2
Net income 10.6
The primary adjustments applied to the historical predecessor financial
statements to arrive at the pro forma presentation include the following:
a) Adjustment to reflect elimination of goodwill amortization of
approximately $14.2 million on an annualized basis.
b) Adjustment of approximately $15.9 million on an annual basis to
reflect decreased depreciation for write-down of property and
equipment from the allocation of the estimated fair value of the net
assets.
c) Adjustment to reflect the reduction of interest expense due to the
elimination of interest expense on Masco net advances offset by the
impact of interest expense on the financing arrangements incurred at
the acquisition.
d) Adjustment to eliminate the operating results of businesses acquired
by FII from Masco but not contributed to the Company.
11
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
For purposes of the discussions that follow, the results of operations for the
three months ended March 31, 1996 represent the results of the Predecessor.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
Net sales were $490.2 million for the three months ended March 31, 1997, a
decrease of $0.8 million, or 0.2%, from $491.0 million for the comparable period
of 1996. Net sales of fine furniture decreased 0.4% to $423.0 for the three
months ended March 31, 1997 from $424.6 for the comparable period of 1996. Fine
furniture sales were negatively impacted by the Company's strategy of exiting
less profitable product lines and relatively soft major retailer sales. Net
sales of decorative home furnishing fabrics increased 1.2% to $67.2 million for
the three months ended March 31, 1997 from $66.4 million for the comparable
period of 1996.
Gross profit was $125.7 million for the three months ended March 31, 1997,
an increase of $3.9 million, or 3.2%, from $121.8 million for the Predecessor's
comparable period of 1996. This increase was primarily attributable to the
Company's continuous improvement initiatives, combined with the impact of
reduced depreciation expense which resulted from the allocation of the purchase
price of the Acquisition.
Selling, general and administrative expenses were reduced to $86.4 million
for the three months ended March 31, 1997, a decrease of $8.9 million, or 9.3%,
from $95.3 million for the comparable period of 1996. As a percentage of net
sales, selling, general and administrative expenses improved to 17.6% for the
three months ended March 31, 1997 from 19.4% for the comparable period of 1996.
Selling expense was 10.8% of net sales as compared to 11.3% for 1996, and
general and administrative expenses decreased to 6.8% of net sales from 8.1% in
1996. The decrease in general and administrative expenses reflects the benefits
of the Company's cost reduction initiatives implemented in late 1996, combined
with the net decrease in general and administrative expenses which the Company
has incurred on a stand-alone basis compared to the management fees previously
charged by Masco.
Operating profit increased to $39.3 million for the three months ended
March 31, 1997, an increase of $ 12.8 million, or 48.3%, from $26.5 million for
the comparable period of 1996. As a percentage of net sales, operating profit
increased to 8.0% for the three months ended March 31, 1997 from 5.4% for the
comparable period of 1996. This improvement was achieved primarily for the
reasons discussed above.
12
<PAGE>
Interest expense was $11.2 million for the three months ended March 31,
1997, a decrease of $11.0 million, or 49.5%, from the comparable period of 1996.
This decrease was a result of lower average debt outstanding during the three
months ended March 31, 1997, partially offset by higher average borrowing rates
during the three months ended March 31, 1997 than in the comparable period of
1996.
PRO FORMA RESULTS OF OPERATIONS
Three Months Ended
------------------
March 31, 1996
------------------
(Dollars in millions)
Net sales $491.0
Gross profit 124.2
Operating profit 34.2
Net income 10.6
(a) The Note to Financial Statements captioned "Pro Forma Supplementary Data"
as set forth in Note 6 of the accompanying financial statements of this
report should be read in conjunction with this information.
For purposes of the discussion that follows, the results of the current
period are compared with the pro forma results of the three months ended March
31, 1996 (giving effect to the Acquisition transactions as if they had occurred
on January 1, 1996). On a pro forma basis, the Company's operating income
increased from $34.2 million to $39.3 million, an increase of 14.9%, and net
income increased from $10.6 million to $16.6 million, an increase of 56.6%.
Comparisons benefited from initiatives to trim less profitable product lines
and reduce manufacturing expense, as well as lowering selling, general and
administrative costs, combined with lower interest expense.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on the
indebtedness incurred in connection with the Acquisition, working capital needs
and the funding of capital expenditures.
The Company's principal source of cash to fund its liquidity needs is its
net cash from operating activities and availability of borrowings under its
revolving credit facility. Net cash from operating activities for the three
months ended March 31, 1997 was $10.6 million, a decrease of $1.3 million from
$11.9 million in the comparable period of 1996.
The Company made principal payments on its long-term debt of $4.3 million
for the three months ended March 31, 1997. Transactions under the Receivables
Facility resulted in net repayments of $1.0 million and an increased investment
in the Receivables Trust of $5.1 million. Capital expenditures totaled $3.9
million for the three months ended March 31, 1997.
14
<PAGE>
PART II. OTHER INFORMATION
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Items 1, 2, 3, and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On March 6, 1997, FURNISHINGS INTERNATIONAL INC., the sole stockholder of the
Company, by written consent, elected Mr. Robert C. Larson to the Company's Board
of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibits
- ------ -----------------------
27+ Financial Data Schedule
- ---------------
+ Filed herewith
(b) No reports on Form 8-K were filed by the registrant during the three
months ended March 31, 1997.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 9, 1997 BY: RONALD J. HOFFMAN
------------------------------
Ronald J. Hoffman
Vice President and Treasurer
16
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
EXHIBIT INDEX
Exhibit
Number
- ------
27+ Financial Data Schedule
- ---------------
+ Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 16,860 22,400
<SECURITIES> 56,220 51,120
<RECEIVABLES> 134,340 132,890
<ALLOWANCES> 4,800 4,800
<INVENTORY> 542,580 526,300
<CURRENT-ASSETS> 784,940 764,680
<PP&E> 360,222 356,960
<DEPRECIATION> 12,442 7,630
<TOTAL-ASSETS> 1,203,300 1,190,730
<CURRENT-LIABILITIES> 267,670 265,130
<BONDS> 200,000 200,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 467,590 453,360
<TOTAL-LIABILITY-AND-EQUITY> 1,203,300 1,190,730
<SALES> 490,230 491,010
<TOTAL-REVENUES> 490,230 491,010
<CGS> 364,500 369,170
<TOTAL-COSTS> 364,500 369,170
<OTHER-EXPENSES> 2,480 1,060
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,220 22,240
<INCOME-PRETAX> 25,610 3,210
<INCOME-TAX> 8,960 2,940
<INCOME-CONTINUING> 16,650 270
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,650 270
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>