FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 I-91
----
Furniture Brands International, Inc.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0337683
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (314) 863-1100
-----------------
--------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
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
requirement for the past 90 days.
Yes X No
---------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
51,627,374 Shares as of July 31, 1999
-------------------------------------
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended June 30,
1999.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended June 30, 1999
Three Months Ended June 30, 1998
Six Months Ended June 30, 1999
Six Months Ended June 30, 1998
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1999
Six Months Ended June 30, 1998
Notes to Consolidated Financial Statements
Separate financial statements and other disclosures with respect
to the Company's subsidiaries are omitted as such separate
financial statements and other disclosures are not deemed
material to investors.
The financial statements are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which
the management of the Company considers necessary for a fair
presentation of the results of the period. The results for the
three months and six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full
year.
<TABLE>
<CAPTION>
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C>
June 30, December 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 6,538 $ 13,220
Receivables, less allowances of $21,093
($18,333 at December 31, 1998)............... 355,023 324,164
Inventories.........................(Note 1)... 298,123 307,382
Prepaid expenses and other current assets...... 33,355 31,107
------------ -----------
Total current assets......................... 693,039 675,873
------------ -----------
Property, plant and equipment.................... 524,696 499,913
Less accumulated depreciation.................. 228,719 206,136
------------ -----------
Net property, plant and equipment............ 295,977 293,777
------------ -----------
Intangible assets................................ 310,222 316,998
Other assets..................................... 15,281 16,556
------------ -----------
$ 1,314,519 $ 1,303,204
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense....................... $ 5,251 $ 5,608
Accounts payable and other accrued expenses.... 168,730 161,117
------------ -----------
Total current liabilities.................... 173,981 166,725
------------ -----------
Long-term debt................................... 550,600 589,200
Other long-term liabilities...................... 131,481 133,770
Shareholders' equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued, none.......... - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 52,277,066
shares at June 30, 1999 and
December 31, 1998............................ 52,277 52,277
Paid-in capital................................ 121,816 127,513
Retained earnings.............................. 299,961 244,662
Treasury stock at cost - 702,526 shares at
June 30, 1999 (525,000 shares at
December 31, 1998)........................... (15,597) (10,943)
------------ -----------
Total shareholders' equity................... 458,457 413,509
------------ -----------
$ 1,314,519 $ 1,303,204
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<S> <C> <C> <C>
Three Months Three Months
Ended Ended
June 30, June 30,
1999 1998
------------ ------------
Net sales...................................... $ 520,061 $ 470,146
Costs and expenses:
Cost of operations........................... 371,599 334,956
Selling, general and administrative expenses. 81,073 77,313
Depreciation and amortization................ 14,654 14,041
------------ ------------
Earnings from operations....................... 52,735 43,836
Interest expense............................... 9,568 11,237
Other income, net.............................. 572 638
------------ -----------
Earnings before income tax expense............. 43,739 33,237
Income tax expense............................. 16,147 12,130
------------ -----------
Net earnings................................... $ 27,592 $ 21,107
============ ============
Net earnings per common share:
Basic........................................ $ 0.54 $ 0.40
====== ======
Diluted...................................... $ 0.52 $ 0.39
====== ======
Weighted average common and common
equivalent shares outstanding:
Basic........................................ 51,443,733 52,182,540
========== ==========
Diluted...................................... 52,927,848 53,979,715
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<S> <C> <S> <C> <C> <C>
Six Months Six Months
Ended Ended
June 30, June 30,
1999 1998
------------ ------------
Net sales...................................... $ 1,053,963 $ 975,444
Costs and expenses:
Cost of operations........................... 753,296 699,024
Selling, general and administrative expenses. 165,129 158,783
Depreciation and amortization................ 29,622 28,878
------------ ------------
Earnings from operations....................... 105,916 88,759
Interest expense............................... 19,422 22,500
Other income, net.............................. 1,193 1,285
------------ ------------
Earnings before income tax expense............. 87,687 67,544
Income tax expense............................. 32,388 24,823
------------ ------------
Net earnings................................... $ 55,299 $ 42,721
============ ============
Net earnings per common share:
Basic........................................ $ 1.07 $ 0.82
====== ======
Diluted...................................... $ 1.04 $ 0.79
====== ======
Weighted average common and common
equivalent shares outstanding:
Basic........................................ 51,502,226 52,150,711
========== ==========
Diluted...................................... 53,026,934 53,922,895
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
1999 1998
------------ ------------
Cash Flows from Operating Activities:
Net earnings............................ $ 55,299 $ 42,721
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment 23,592 22,848
Amortization of intangible and other assets.. 6,030 6,030
Noncash interest and other expense........... 1,171 1,003
Increase in receivables...................... (30,859) (22,490)
(Increase) decrease in inventories........... 9,259 (11,619)
Increase in prepaid expenses and other assets. (2,592) (6,887)
Increase in accounts payable, accrued interest
expense and other accrued expenses.......... 7,256 15,771
Decrease in net deferred tax liabilities...... (2,763) (907)
Increase in other long-term liabilities....... 1,984 475
----------- -----------
Net cash provided by operating activities........ 68,377 46,945
----------- -----------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets............. 23 35
Additions to property, plant and equipment....... (25,878) (19,690)
------------ -----------
Net cash used by investing activities............ (25,855) (19,655)
------------ -----------
Cash Flows from Financing Activities:
Addition to long-term debt....................... - 8,000
Payments of long-term debt....................... (38,600) (35,800)
Proceeds from the issuance of common stock....... - 2,019
Purchase of treasury stock....................... (15,454) -
Proceeds from the issuance of treasury stock..... 4,850 -
------------ -----------
Net cash used by financing activities............ (49,204) (25,781)
----------- -----------
Net increase (decrease) in cash and cash equivalents. (6,682) 1,509
Cash and cash equivalents at beginning of period..... 13,220 12,274
------------ -----------
Cash and cash equivalents at end of period.........$ 6,538 $ 13,783
============ ===========
Supplemental Disclosure:
Cash payments for income taxes, net............. $ 37,667 $ 22,505
============ ===========
Cash payments for interest...................... $ 18,825 $ 22,107
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
(1) Inventories are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
June 30, December 31,
1999 1998
------------ ------------
Finished products $ 130,042 $ 122,993
Work-in-process 50,700 57,915
Raw materials 117,381 126,474
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$ 298,123 $ 307,382
=========== ===========
(2) Weighted average shares used in the computation of basic and diluted net
earnings per common share are as follows:
Three Months Ended Six Months Ended
----------------------------- ----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- -------------- ------------- -------------
Weighted average shares used
for basic net earnings per
common share 51,443,733 52,182,540 51,502,226 52,150,711
Effect of dilutive securities:
Stock options 1,484,115 1,797,175 1,524,708 1,772,184
---------- ---------- ---------- ----------
Weighted average shares used
for diluted net earnings
per common share 52,927,848 53,979,715 53,026,934 53,922,895
========== ========== ========== ==========
</TABLE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Furniture Brands International, Inc. (the "Company") is the largest
manufacturer of residential furniture in the United States. The Company has
three primary operating subsidiaries: Broyhill Furniture Industries, Inc.;
Lane Furniture Industries, Inc.; and Thomasville Furniture Industries, Inc.
Comparison of Three Months and Six Months Ended June 30, 1999 and 1998
Selected financial information for the three months and six months ended
June 30, 1999 and 1998 is presented below:
($ in millions except per share data)
<TABLE>
<CAPTION>
<S> <C> <S> <C> <S>
Three Months Ended
----------------------------------------
June 30, 1999 June 30, 1998
------------------- -------------------
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $520.1 100.0% $470.1 100.0%
Earnings from operations 52.7 10.1% 43.8 9.3%
Interest expense 9.5 1.8% 11.2 2.4%
Income tax expense 16.2 3.1% 12.1 2.6%
Net earnings 27.6 5.3% 21.1 4.5%
Net earnings per common share-diluted 0.52 - 0.39 -
Gross profit (1) $138.2 26.6% $125.4 26.7%
Six Months Ended
----------------------------------------
June 30, 1999 June 30, 1998
------------------- -------------------
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $1,054.0 100.0% $975.4 100.0%
Earnings from operations 105.9 10.0% 88.7 9.1%
Interest expense 19.4 1.8% 22.5 2.3%
Income tax expense 32.4 3.1% 24.8 2.5%
Net earnings 55.3 5.2% 42.7 4.4%
Net earnings per common share-diluted 1.04 - 0.79 -
Gross profit (1) $279.9 26.6% $256.2 26.3%
(1) The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit has been
calculated by subtracting cost of operations and the portion of
depreciation associated with cost of goods sold from net sales.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1999 1998 1999 1998
------- ------ -------- ------
Net sales $520.1 $470.1 $1,054.0 $975.4
Cost of operations 371.6 334.9 753.3 699.0
Depreciation (associated with 10.3 9.8 20.8 20.2
cost of goods sold) ------ ------ -------- ------
Gross profit $138.2 $125.4 $ 279.9 $256.2
====== ====== ======== ======
Net sales for the three months ended June 30, 1999 were $520.1 million,
compared to $470.1 million in the three months ended June 30, 1998, an
increase of $50.0 million or 10.6%. For the six months ended June 30, 1999,
net sales increased $78.6 million or 8.0% to $1,054.0 million from $975.4
million for the six months ended June 30, 1998. The improved sales
performance occurred at each operating company and ranged, in varying degrees,
across all product lines.
</TABLE>
Earnings from operations for the three months ended June 30, 1999
increased by $8.9 million or 20.3% from the comparable prior year
period. Earnings from operations for the three months ended June
30, 1999 and June 30, 1998 were 10.1% and 9.3% of net sales,
respectively. For the six months ended June 30, 1999, earnings
from operations increased by $17.2 million, or 19.3% from the
comparable six months of 1998. As a percentage of net sales,
earnings from operations for the six months ended June 30, 1999
and June 30, 1998 were 10.0% and 9.1%, respectively. The
increase in operating earnings was due to higher sales volume and
good control of selling, general and administrative expenses.
Interest expense totaled $9.5 million and $19.4 million for the
three months and six months ended June 30, 1999, respectively,
compared to $11.2 million and $22.5 million for the prior year
comparable periods. The decrease in interest expense during the
periods resulted from lower long-term debt levels and reduced
interest rates, both resulting from the company's aggressive
deleveraging program.
The effective income tax rates were 36.9% and 36.5% for the three
months ended June 30, 1999 and June 30, 1998, respectively, and
36.9% and 36.8% for the six months ended June 30, 1999 and June
30, 1998, respectively. The effective tax rates for each period
were adversely impacted by certain nondeductible expenses
incurred and provisions for state and local income taxes.
Net earnings per common share for basic and diluted were $0.54
and $0.52 for the three months ended June 30, 1999, respectively,
compared with $0.40 and $0.39 for the same period last year,
respectively. For the six months ended June 30, 1999 and June
30, 1998, net earnings per common share for basic and diluted
were $1.07 and $1.04, respectively, and $0.82 and $0.79,
respectively. Average common and common equivalent shares
outstanding used in the calculation of net earnings per common
share on a basic and diluted basis were 51,444,000 and
52,928,000, respectively, for the three months ended June 30,
1999, and 52,183,000 and 53,980,000, respectively, for the three
months ended June 30, 1998. For the six months ended June 30,
1999 and June 30, 1998, average common and common equivalent
shares outstanding used in the calculation of net earnings per
common share on a basic and diluted basis were 51,502,000 and
53,027,000, respectively, and 52,151,000 and 53,923,000,
respectively.
FINANCIAL CONDITION
Working Capital
---------------
Cash and cash equivalents at June 30, 1999 amounted to $6.5
million, compared with $13.2 million at December 31, 1998.
During the six months ended June 30, 1999, net cash provided by
operating activities totaled $68.4 million, net cash used by
investing activities totaled $25.9 million and net cash used by
financing activities totaled $49.2 million.
Working capital was $519.1 at June 30, 1999, compared with $509.1
million at December 31, 1998. The current ratio was 4.0 to 1 at
June 30, 1999, compared to 4.1 to 1 at December 31, 1998.
Financing Arrangements
----------------------
As of June 30, 1999, long-term debt consisted of the following,
in millions:
Secured credit agreement:
Revolving credit facility $333.0
Term loan facility 200.0
Other 17.6
------
$550.6
======
To meet short-term capital and other financial requirements, the
Company maintains a $600.0 million revolving credit facility as
part of its Secured Credit Agreement with a group of financial
institutions. The revolving credit facility allows for both
issuance of letters of credit and cash borrowings. Letter of
credit outstandings are limited to no more than $60.0 0million.
Cash borrowings are limited only by the facility's maximum
availability less letters of credit outstanding. At June 30,
1999, there were $333.0 million of cash borrowings outstanding
under the revolving credit facility and $40.5 million in letters
of credit outstanding, leaving an excess of $226.5 million
available under the revolving credit facility.
The Company believes its Secured Credit Agreement, together with
cash generated from operations, will be adequate to meet
liquidity requirements for the foreseeable future.
Year 2000
---------
The Company has completed a comprehensive review of all software,
hardware and equipment that could potentially be affected by the
year 2000 issue and adopted a year 2000 plan to meet the needs of
its customers and business partners. The results of the review
indicate that the Company will be year 2000 compliant well before
the year 2000. At this time remediations have been implemented
and testing of the remediations is in process. The total cost
for year 2000 compliance activity will not be material to the
Company's results of operations and financial position. The
Company is continuing the process of verifying compliance of
critical suppliers with year 2000 standards. There can be no
assurance that another company's failure to ensure year 2000
compliance will not have a material adverse effect on the
Company, however this is a circumstance not currently expected to
occur. The Company will develop and implement contingency plans,
if necessary, in the event it appears that it or its key
suppliers will not be year 2000 compliant and such noncompliance
is expected to have a material adverse impact on the operations
of the Company.
Forward Looking Statements
--------------------------
From time to time, the Company may make statements which
constitute or contain "forward-looking" information as that term
is defined in the Private Securities Litigation Reform Act of
1995 or by the Securities and Exchange Commission in its rules,
regulations and releases. The Company cautions investors that
any such forward-looking statements made by the Company are not
guarantees of future performance and that actual results may
differ materially from those in the forward-looking statements.
The impact of the year 2000 on the Company's order, production,
distribution and financial systems and the systems of its
suppliers and customers is a factor which could cause actual
results to differ materially from estimates contained in the
Company's forward looking statements.
PART II OTHER INFORMATION
-------------------------
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The Annual Meeting of Stockholders was held on April
29, 1999. The directors listed in the Notice of Annual
Meeting of Stockholders dated March 18, 1999 were elected for
terms of one year ending in 2000 with voting for each as
follows:
Director For Withheld
-------- --- --------
K. B. Bell 45,135,232 674,518
W. G. Holliman 45,123,620 686,130
B. A. Karsh 45,122,180 687,570
D. E. Lasater 45,126,245 683,505
L. M. Liberman 45,125,597 684,153
R. B. Loynd 45,119,663 690,087
M. Portera 45,133,815 675,935
A. E. Suter 45,121,068 688,682
The vote to consider and act upon the proposal to adopt
the Furniture Brands 1999 Long-Term Incentive Plan was
as follows:
Affirmative votes 38,591,357
Negative votes 7,063,484
Abstentions 39,458
Broker non-votes 115,451
The vote to consider and act upon the proposal to amend
the Furniture Brands Executive Incentive Plan was as
follows:
Affirmative votes 41,878,847
Negative votes 3,870,464
Abstentions 60,439
Broker non-votes 0
To vote to ratify the selection of KPMG LLP aS
independent auditors:
Affirmative votes 45,771,031
Negative votes 15,788
Abstentions 22,931
Broker non-votes 0
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) 27. Financial Data Schedule
(b) A Form 8-K was not required to be filed during the
quarter ended June 30, 1999.
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.
Furniture Brands International, Inc.
(Registrant)
By Steven W. Alstadt
-----------------------------------
Steven W. Alstadt
Controller and
Chief Accounting Officer
Date: August 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<PERIOD-TYPE> 6-MOS
<CASH> 6,538
<SECURITIES> 0
<RECEIVABLES> 376,116
<ALLOWANCES> 21,093
<INVENTORY> 298,123
<CURRENT-ASSETS> 693,039
<PP&E> 524,696
<DEPRECIATION> 228,719
<TOTAL-ASSETS> 1,314,519
<CURRENT-LIABILITIES> 173,981
<BONDS> 550,600
0
0
<COMMON> 52,277
<OTHER-SE> 121,816
<TOTAL-LIABILITY-AND-EQUITY> 1,314,519
<SALES> 1,053,963
<TOTAL-REVENUES> 1,053,963
<CGS> 753,296
<TOTAL-COSTS> 753,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,440
<INTEREST-EXPENSE> 19,422
<INCOME-PRETAX> 87,687
<INCOME-TAX> 32,388
<INCOME-CONTINUING> 55,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,299
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.04
</TABLE>
