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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 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 (Zip Code)
Offices)
(336) 476-4777
(Telephone Number)
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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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date: 100 shares of Common Stock, par
value $.01 per share, as of March 31, 1998.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1998 and December
31, 1997.............................................................. 1
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997......................................... 2
Condensed Consolidated Statements of Comprehensive Income for the
three months ended March 31, 1998 and 1997............................ 3
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997......................................... 4
Notes to Condensed Consolidated Financial Statements.................. 5-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 11-12
Part II Other Information
Exhibits and Reports on Form 8-K...................................... 13
Signature Page........................................................ 14
Exhibit Index......................................................... 15
</TABLE>
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments ...................... $ 11,300 $ 4,140
Trade receivables .............................. 68,320 64,480
Investment in receivables trust ................ 63,370 64,010
Other receivables .............................. 36,030 40,710
Inventories .................................... 494,120 510,110
Prepaid expenses ............................... 36,300 35,440
Deferred income taxes .......................... 38,530 38,530
----------- -----------
Total current assets ......................... 747,970 757,420
Property and equipment, net ......................... 341,070 337,390
Other assets ........................................ 51,720 56,410
----------- -----------
Total assets ................................. $ 1,140,760 $ 1,151,220
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Long-term debt, current ........................ $ 1,380 $ 2,970
Accounts payable ............................... 135,580 124,000
Accrued liabilities ............................ 131,860 149,940
----------- -----------
Total current liabilities .................... 268,820 276,910
Long-term debt ...................................... 336,620 351,600
Deferred income taxes ............................... 31,250 31,250
Other long-term liabilities ......................... 54,060 54,070
----------- -----------
Total liabilities .......................... 690,750 713,830
----------- -----------
Shareholder's equity:
Common stock, $.01 par value, 3,000 shares
authorized, 100 shares issued and outstanding -- --
Additional paid-in capital ...................... 421,050 421,050
Retained earnings ............................... 38,680 25,510
Foreign currency translation .................... (9,720) (9,170)
----------- -----------
Total shareholder's equity ................. 450,010 437,390
----------- -----------
Total liabilities and shareholder's equity $ 1,140,760 $ 1,151,220
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
For the three months ended
---------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Net sales ................................... $498,200 $490,230
Cost of sales ............................... 377,290 364,500
-------- --------
Gross profit ............................. 120,910 125,730
Selling, general and administrative
expenses ................................. 89,880 86,420
-------- --------
Operating profit ......................... 31,030 39,310
-------- --------
Other expense, net:
Interest expense ......................... 8,470 11,220
Other, net ............................... 3,200 2,480
-------- --------
11,670 13,700
-------- --------
Income before income taxes ............... 19,360 25,610
Income taxes ................................ 6,190 8,960
-------- --------
Net income .................................. $ 13,170 $ 16,650
======== ========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
For the three months ended
---------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Net income ................................... $ 13,170 $ 16,650
Other comprehensive income, net of tax:
Foreign currency translation .............. (550) (2,420)
-------- --------
Comprehensive income ......................... $ 12,620 $ 14,230
======== ========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the three months ended
------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
OPERATING ACTIVITIES:
Net income .......................................... $ 13,170 $ 16,650
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................ 6,050 6,680
Fabric sample book amortization .............. 3,700 3,800
Bad debt provision ........................... 740 1,030
Changes in operating assets and liabilities:
Receivables ...................................... 1,010 (2,180)
Inventories ...................................... 15,990 (16,270)
Prepaid expenses and other assets ................ 1,280 2,040
Accounts payable ................................. 11,580 19,260
Other liabilities ................................ 5,250 (16,870)
-------- --------
Net cash provided by operating activities .. 58,770 14,140
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ................................ (7,680) (3,910)
Fabric sample book expenditures ..................... (3,790) (3,530)
Net investments in receivables trust ................ 640 (5,100)
Issuance of notes receivable ........................ (580) --
Collection of notes receivable ...................... 1,750 440
Other, net .......................................... (2,040) (2,540)
-------- --------
Net cash used for investing activities ......... (11,700) (14,640)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt ........................ 32,000 --
Repayments of long-term debt ........................ (49,000) (4,280)
Net proceeds of short-term debt ..................... 430 240
Net repayments from accounts receivable transactions -- (1,000)
Dividends paid ...................................... (23,340) --
-------- --------
Net cash used for financing activities ......... (39,910) (5,040)
-------- --------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period .................. 7,160 (5,540)
Balance, beginning of period ........................ 4,140 22,400
-------- --------
Balance, end of period .............................. $ 11,300 $ 16,860
======== ========
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements include the
accounts of LIFESTYLE FURNISHINGS INTERNATIONAL LTD. (the "Company") and its
subsidiary companies as of March 31, 1998 and December 31, 1997, and for the
three months ended March 31, 1998 and 1997. Intercompany accounts and
transactions are eliminated. These Condensed Consolidated 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 Consolidated
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
the fiscal year ended December 31, 1997. In the Notes to Condensed Consolidated
Financial Statements, all dollar amounts are shown in thousands unless otherwise
stated.
Certain prior period amounts have been reclassified to conform with
current period presentation.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," became effective in 1998. This Statement
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. Under the provision of SFAS No. 130, the
Company elected to report comprehensive income in a separate statement of
comprehensive income that begins with net income. Comparative disclosures which
include prior period information have been restated to conform with the
provisions of this Statement.
3. INVENTORY
As of March 31, 1998 and December 31, 1997, inventory balances were as
follows:
1998 1997
-------- --------
Finished goods ............................... $209,700 $216,360
Raw materials ................................ 206,950 216,010
Work in process .............................. 77,470 77,740
-------- --------
$494,120 $510,110
======== ========
4. LONG-TERM DEBT
As of March 31, 1998 and December 31, 1997, the outstanding balances of
long-term debt were as follows:
1998 1997
-------- --------
Revolving credit facility .................... $135,000 $152,000
Senior subordinated notes ................... 200,000 200,000
Other borrowings ............................. 3,000 2,570
-------- --------
338,000 354,570
Less current portion ......................... 1,380 2,970
-------- --------
$336,620 $351,600
======== ========
5
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. RESTRUCTURING INITIATIVES
As a result of the Company's evaluation of its global manufacturing and
distribution base, the Company took a $58.5 million charge in the fourth quarter
of 1997 to rationalize and restructure its worldwide operations principally
focusing on its Universal Furniture business unit. Implementation of this plan
began in the first quarter of 1998.
The following represents the Company's restructuring activities for the
period indicated (in millions):
Asset Contractual Employee
write-downs obligations severance Other Total
----------- ----------- --------- ----- -----
Balance at December 31,
1997.................. $ 38.1 $ 9.8 $ 8.8 $ 1.8 $58.5
Non-cash items........... (38.1) - - - (38.1)
========= ========== ========= ====== ======
Balance at March 31, 1998 $ - $ 9.8 $ 8.8 $ 1.8 $20.4
========= ========== ========= ====== ======
6. GUARANTOR FINANCIAL STATEMENTS
In connection with the issuance of its 10.875% 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
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 financial data, the
Guarantor Subsidiaries include substantially all domestic subsidiaries of the
Company (other than special purpose subsidiaries formed in connection with the
Company's receivables financing facility (the "Receivables Subsidiaries") 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 Subsidiaries on the equity method.
The principal elimination entries are to eliminate the investments in
subsidiaries and intercompany balances and transactions.
6
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GUARANTOR FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
March 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash investments ....... $ -- $ (610) $ 11,910 $ -- $ 11,300
Trade receivables ............... -- 25,460 42,860 -- 68,320
Investment in receivables trust . -- -- 63,370 -- 63,370
Other receivables ............... -- 18,830 17,200 -- 36,030
Inventories ..................... -- 429,960 64,160 -- 494,120
Prepaid expenses ................ -- 28,450 7,850 -- 36,300
Deferred income taxes ........... -- 28,700 9,830 -- 38,530
Intercompany account ............ -- 210,440 -- (210,440) --
----------- ----------- ----------- ----------- -----------
Total current assets ........ -- 741,230 217,180 (210,440) 747,970
Property and equipment, net .......... -- 267,070 74,000 -- 341,070
Other assets ......................... -- 49,890 1,830 -- 51,720
Investments in affiliates ............ 450,010 (27,170) -- (422,840) --
----------- ----------- ----------- ----------- -----------
Total assets ................ $ 450,010 $ 1,031,020 $ 293,010 $ (633,280) $ 1,140,760
=========== =========== =========== =========== ===========
Liabilities and Shareholder's Equity
Current liabilities:
Long-term debt, current ......... $ -- $ 200 $ 1,180 $ -- $ 1,380
Accounts payable ................ -- 112,020 23,560 -- 135,580
Accrued liabilities ............. -- 92,100 39,760 -- 131,860
Intercompany account ............ -- -- 210,440 (210,440) --
----------- ----------- ----------- ----------- -----------
Total current liabilities ... -- 204,320 274,940 (210,440) 268,820
Long-term debt ....................... -- 336,620 -- -- 336,620
Deferred income taxes ................ -- 31,250 -- -- 31,250
Other long-term liabilities .......... -- 51,930 2,130 -- 54,060
----------- ----------- ----------- ----------- -----------
Total liabilities ........... -- 624,120 277,070 (210,440) 690,750
Shareholder's equity ................. 450,010 406,900 15,940 (422,840) 450,010
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholder's equity ...... $ 450,010 $ 1,031,020 $ 293,010 $ (633,280) $ 1,140,760
=========== =========== =========== =========== ===========
</TABLE>
7
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GUARANTOR FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash investments ....... $ -- $ (7,050) $ 11,190 $ -- $ 4,140
Trade receivables ............... -- 23,860 40,620 -- 64,480
Investment in receivables trust . -- -- 64,010 -- 64,010
Other receivables ............... -- 30,540 10,170 -- 40,710
Inventories ..................... -- 444,140 65,970 -- 510,110
Prepaid expenses ................ -- 23,170 12,270 -- 35,440
Deferred income taxes ........... -- 28,700 9,830 -- 38,530
Intercompany account ............ -- 257,070 -- (257,070) --
----------- ----------- ----------- ----------- -----------
Total current assets ........ -- 800,430 214,060 (257,070) 757,420
Property and equipment, net .......... -- 265,440 71,950 -- 337,390
Other assets ......................... -- 54,510 1,900 -- 56,410
Investments in affiliates ............ 437,390 (79,830) -- (357,560) --
----------- ----------- ----------- ----------- -----------
Total assets ................ $ 437,390 $ 1,040,550 $ 287,910 $ (614,630) $ 1,151,220
=========== =========== =========== =========== ===========
Liabilities and Shareholder's Equity
Current liabilities:
Long-term debt, current ......... $ -- $ 2,200 $ 770 $ -- $ 2,970
Accounts payable ................ -- 103,180 20,820 -- 124,000
Accrued liabilities ............. -- 102,920 47,020 -- 149,940
Intercompany account ............ -- -- 257,070 (257,070) --
----------- ----------- ----------- ----------- -----------
Total current liabilities ... -- 208,300 325,680 (257,070) 276,910
Long-term debt ....................... -- 351,600 -- -- 351,600
Deferred income taxes ................ -- 31,250 -- -- 31,250
Other long-term liabilities .......... -- 51,890 2,180 -- 54,070
----------- ----------- ----------- ----------- -----------
Total liabilities ........... -- 643,040 327,860 (257,070) 713,830
Shareholder's equity ................. 437,390 397,510 (39,950) (357,560) 437,390
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholder's equity ...... $ 437,390 $ 1,040,550 $ 287,910 $ (614,630) $ 1,151,220
=========== =========== =========== =========== ===========
</TABLE>
8
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GUARANTOR FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Operations and Comprehensive Income
for the three months ended March 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ............................. $ -- $ 461,530 $ 132,260 $ (95,590) $ 498,200
Cost of sales ......................... -- 360,320 112,560 (95,590) 377,290
--------- --------- --------- --------- ---------
Gross profit ....................... -- 101,210 19,700 -- 120,910
Selling, general and
administrative expenses ............ -- 77,760 12,120 -- 89,880
--------- --------- --------- --------- ---------
Operating profit ................... -- 23,450 7,580 -- 31,030
Other (income) expense, net ........... (13,170) 9,820 (3,600) 18,620 11,670
--------- --------- --------- --------- ---------
Income before income taxes ......... 13,170 13,630 11,180 (18,620) 19,360
Income taxes .......................... -- 3,720 2,470 -- 6,190
--------- --------- --------- --------- ---------
Net income ........................ 13,170 9,910 8,710 (18,620) 13,170
========= ========= ========= ========= =========
Other comprehensive income, net of tax:
Foreign currency translation ...... -- -- (550) -- (550)
--------- --------- --------- --------- ---------
Comprehensive income .............. $ 13,170 $ 9,910 $ 8,160 $ (18,620) $ 12,620
========= ========= ========= ========= =========
</TABLE>
Condensed Consolidating Statement of Operations and Comprehensive Income
for the three months ended March 31, 1997
(Dollars in thousands)
<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 (income) 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
========= ========= ========= ========= =========
Other comprehensive income, net of tax:
Foreign currency translation ...... -- -- (2,420) -- (2,420)
--------- --------- --------- --------- ---------
Comprehensive income .............. $ 16,650 $ 14,490 $ 810 $ (17,720) $ 14,230
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GUARANTOR FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
for the three months ended March 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES: $ -- $ 9,330 $ 49,440 $-- $ 58,770
---- -------- -------- --- --------
INVESTING ACTIVITIES:
Capital expenditures ...... -- (5,090) (2,590) -- (7,680)
Fabric sample book
expenditures ........... -- (3,790) -- -- (3,790)
Net investments in
receivables trust ...... -- -- 640 -- 640
Issuance of notes
receivable ............. -- (580) -- -- (580)
Collection of notes
receivable ............. -- 1,750 -- -- 1,750
Other, net ................ -- (1,490) (550) -- (2,040)
---- -------- -------- --- --------
Net cash used for
investing activities -- (9,200) (2,500) -- (11,700)
---- -------- -------- --- --------
FINANCING ACTIVITIES:
Proceeds from long-term
debt ................... -- 32,000 -- -- 32,000
Repayments of long-term
debt ................... -- (49,000) -- -- (49,000)
Net proceeds of short-term
debt ................... -- 20 410 -- 430
Dividends paid ............ -- (23,340) -- -- (23,340)
Intercompany accounts, net -- 46,630 (46,630) -- --
---- -------- -------- --- --------
Net cash provided by
(used for)
financing activities -- 6,310 (46,220) -- (39,910)
---- -------- -------- --- --------
CASH AND CASH INVESTMENTS:
Increase for the period ... -- 6,440 720 -- 7,160
Balance, beginning of
period ................. -- (7,050) 11,190 -- 4,140
---- -------- -------- --- --------
Balance, end of period .... $ -- $ (610) $ 11,910 $-- $ 11,300
==== ======== ======== === ========
</TABLE>
Condensed Consolidating Statement of Cash Flows
for the three months ended March 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED
FOR) OPERATING ACTIVITIES: $ -- $ 24,730 $(10,590) $-- $ 14,140
---- -------- -------- --- --------
INVESTING ACTIVITIES:
Capital expenditures ... -- (2,980) (930) -- (3,910)
Fabric sample book
expenditures ......... -- (3,530) -- -- (3,530)
Net investments in
receivables trust .... -- -- (5,100) -- (5,100)
Collection of notes
receivable ........... -- 440 -- -- 440
Other, net ............. -- -- (2,540) -- (2,540)
---- -------- -------- --- --------
Net cash used for
investing activities . -- (6,070) (8,570) -- (14,640)
---- -------- -------- --- --------
FINANCING ACTIVITIES:
Repayments of long-term
debt ................. -- (4,280) -- -- (4,280)
Net proceeds of
short-term debt ...... -- -- 240 -- 240
Net repayments from
sale of accounts
receivable ........... -- -- (1,000) -- (1,000)
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>
10
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS
ENDED MARCH 31, 1997
Net sales were $498.2 million for the three months ended March 31, 1998,
an increase of $8.0 million, or 1.6%, from $490.2 million for the comparable
period of 1997. Net sales of fine furniture increased 3.1% to $436.1 million for
the three months ended March 31, 1998 from $423.0 million for the comparable
period of 1997. Net sales of decorative home furnishing fabrics decreased 7.6%
to $62.1 million for the three months ended March 31, 1998 from $67.2 million
for the comparable period of 1997. Decorative home furnishing fabric sales were
negatively impacted by shipping delays incurred during the implementation of a
new computer system at the Robert Allen Group. These delays were resolved and
normal shipping schedules have resumed.
Gross profit was $120.9 million for the three months ended March 31, 1998,
a decrease of $4.8 million, or 3.8%, from $125.7 million for the comparable
period of 1997. Gross profit margins decreased to 24.3% for the three months
ended March 31, 1998 from 25.6% for the comparable period of 1997. This decline
in gross profit margin was primarily attributable to temporary production
inefficiencies and increased overhead expenses associated with new product
start-up costs and the implementation of demand flow manufacturing processes, as
well as the aforementioned computer system implementation. The Company is
implementing demand flow processes to improve customer responsiveness, product
quality and value, as well as to reduce inventory requirements.
Selling, general and administrative expenses were $89.9 million for the
three months ended March 31, 1998, an increase of $3.5 million, or 4.1%, from
$86.4 million for the comparable period of 1997. As a percentage of net sales,
selling, general and administrative expenses increased to 18.0% for the three
months ended March 31, 1998 from 17.6% for the comparable period of 1997.
Selling expense was 11.0% of net sales as compared to 10.8% for 1997, and
general and administrative expenses were 7.0% of net sales compared to 6.8% in
1997. The increase in selling expenses reflects increased spending on sales
catalogs and other promotional material, as well as increased commissions
resulting from higher sales volume. General and administrative expenses
increased due to higher consulting fees and other administrative costs.
Operating profit decreased to $31.0 million for the three months ended
March 31, 1998, a decrease of $8.3 million, or 21.1%, from $39.3 million for the
comparable period of 1997. As a percentage of net sales, operating profit
decreased to 6.2% for the three months ended March 31, 1998 from 8.0% for the
comparable period of 1997.
Interest expense was $8.5 million for the three months ended March 31,
1998, a decrease of $2.7 million, or 24.1%, from the comparable period of 1997.
This decrease was a result of lower average debt outstanding during the three
months ended March 31, 1998 and reduced interest rates obtained when the Company
refinanced its credit facility in August 1997.
11
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service, 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, 1998 was
$58.8 million, an increase of $44.7 million from $14.1 million in the comparable
period of 1997. This increase in cash from operations resulted primarily from
reductions in working capital levels, principally inventory.
Capital expenditures totaled $7.7 million for the three months ended March
31, 1998, an increase of $3.8 million from the comparable period of 1997. A
$23.3 million cash dividend to Holdings, which was declared and accrued during
December 1997, was paid during January 1998.
The Company made net principal payments on its long-term debt of $16.6
million. Total long-term debt at LFI has decreased to $338.0 million as compared
to $354.6 million at December 31, 1997 and $440.6 million at March 31, 1997, a
reduction in outstanding long-term debt of $102.6 million in the past twelve
months. During April 1998, LFI paid an additional $8.0 million, further reducing
total long-term debt to $330.0 million.
12
<PAGE>
PART II. OTHER INFORMATION
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Items 1, 2, 3, 4, and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibits
----------- ----------------------------------------
21+ List of Subsidiaries
27+ Financial Data Schedule
(b) No reports on Form 8-K were filed by the registrant during the three
months ended March 31, 1998.
- -----------
+ Filed herewith
13
<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.
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Date: May 14, 1998 BY: /s/ RONALD J. HOFFMAN
----------------------------
Ronald J. Hoffman
Vice President, Chief Financial Officer and Treasurer
(Chief Financial Officer and Authorized Signatory)
14
<PAGE>
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
---------- -------------------------------------
21+ List of Subsidiaries
27+ Financial Data Schedule
- -----------
+ Filed herewith
15
Exhibit 21
Jurisdiction of
Incorporation
Name Or Organization
- --------------------------------------------------------------------------------
LIFESTYLE FURNISHINGS INTERNATIONAL LTD. Delaware
LifeStyle Furnishings Foreign Sales Corp. Barbados
LIFESTYLE HOLDINGS LTD. Delaware
Ametex U.K. Limited United Kingdom
Ametex Sarl France
Green & Kirk Limited United Kingdom
Herbert Green (Silsden) Ltd. United Kingdom
The Berkline Corporation Delaware
Berkline Inc. Quebec
Dixie Furniture Company Incorporated Delaware
Drexel Heritage Furnishings Inc. New York
D-H Retail Space Inc. Delaware
Drexel Heritage Advertising, Inc. Delaware
Hanhill (Great Britain) Limited England
Henredon Furniture Industries, Inc. North Carolina
Henredon Transportation Co. North Carolina
Henry Link Corporation Delaware
Intro Europe, Inc. North Carolina
LaBarge, Inc. Michigan
Lexington Furniture Industries, Inc. North Carolina
LifeStyle Outlet Corp. Delaware
Link-Taylor Corporation Delaware
LFI Receivables Corporation Delaware
LFI Servicing Corporation Delaware
Maitland-Smith, Inc. North Carolina
Maitland-Smith Asia Holdings Limited Vanuatu
Cebu Agency Limited Hong Kong
Design Agency Limited Hong Kong
Maitland-Smith Ltd. Hong Kong
Maitland-Smith Cebu Ltd. Philippines
Maitland-Smith Pacific Ltd. Vanuatu
Maitland-Smith Philippines, Inc. Philippines
Mandaue Holdings Incorporated Philippines
Perabut Bermutu (L) Bhd. Labaun
Marbro Lamp Company California
Ramm, Son & Crocker Limited England
The Robert Allen Group, Inc. Delaware
Robert Allen Fabrics (Canada) Ltd. Canada
Robert Allen Fabrics of N.Y., Inc. Delaware
Sunbury Textile Mills, Inc. Delaware
Universal Furniture Limited Delaware
Blue Mountain Trucking Corp. Mississippi
Custom Truck Tires, Inc. Mississippi
Del Mar Furniture Industries (Singapore) Pte. Ltd. Singapore
H.K.T. (Malaysia) Sdn. Bhd. Malaysia
Hong Kong Teakwood Works Limited Hong Kong
Hong Kong Teakwood Works (Singapore) Limited Singapore
Hong Kong Teakwood Works (Taiwan) Limited Taiwan
Log and Timber Products (Singapore) Pte. Ltd. Singapore
Rigel Enterprises Limited Hong Kong
<PAGE>
Jurisdiction of
Incorporation
Name Or Organization
- --------------------------------------------------------------------------------
Shin Shin Wood Products Co. Ltd. - 51% Taiwan
Sterling Home Furnishings Pte. Ltd. Singapore
Sterling Home Furnishings (Taiwan) Ltd. Taiwan
Sterling Home Furnishings (Hong Kong) Ltd. Hong Kong
Syarikat Malaysia Wood Industries Sdn. Bhd. Malaysia
Teakwood Property Development Ltd. Hong Kong
Teakwood (U.K.) Ltd. United Kingdom
Pilliod (U.K.) Limited United Kingdom
Universal Furniture Industries (U.K.) Ltd. United Kingdom
Universal Furniture Industries (D) GmbH Germany
Universal Furniture Industries (Scandinavia) AB Sweden
Universal Furniture Industries (Japan) Ltd. Japan
Universal Furniture Industries (Taiwan) Co. Ltd. Taiwan
Universal Furniture Industries (Thailand) Ltd. Thailand
Universal Woodfloor (Europe) AB Sweden
Universal Woodfloor (Europe) GmbH Germany
UFL Management Services Pte. Ltd. Singapore
World Wide Furniture Sales, Inc. British Virgin Islands
Xin Jia Po Huan Mei Furniture Ltd. Hong Kong
Tianjin Xin Huan International Trading Co. Ltd. China
Universal Furniture (Tianjin) Co. Ltd. China
Universal Furniture (Guangzhou) Co. Ltd. - 85% China
Universal Furniture (Xian) Co. Ltd. China
Universal Furniture (Fuzhou) Co. Ltd. China
Universal Trading (Fuzhou) Co. Ltd. China
Universal Trading (Guangzhou) Co. Ltd. China
Directly owned subsidiaries appear at the left hand margin, first tier and
second tier subsidiaries are indicated by single and double indentation,
respectively, and are listed under the names of their respective parent
companies. Unless otherwise indicated, all subsidiaries are wholly-owned.
Certain of these companies may also use tradenames or other assumed names in the
conduct of their business.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
SUCH IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11300
<SECURITIES> 63370
<RECEIVABLES> 104350 <F1>
<ALLOWANCES> 0
<INVENTORY> 494120
<CURRENT-ASSETS> 747970
<PP&E> 341070 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1140760
<CURRENT-LIABILITIES> 268820
<BONDS> 200000
0
0
<COMMON> 0
<OTHER-SE> 450010
<TOTAL-LIABILITY-AND-EQUITY> 1140760
<SALES> 498200
<TOTAL-REVENUES> 498200
<CGS> 377290
<TOTAL-COSTS> 377290
<OTHER-EXPENSES> 3200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8470
<INCOME-PRETAX> 19360
<INCOME-TAX> 6190
<INCOME-CONTINUING> 13170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13170
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables and property and equipment are presented net of allowances for
doubtful accounts and accumulated depreciation and amortization, respectively.
</FN>
</TABLE>
