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 September 30, 1999 or
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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
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Furniture Brands International, Inc
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(Exact name of registrant as specified in its charter)
Delaware 43-0337683
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
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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
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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.
49,362,507 Shares as of October 31, 1999
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PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended September
30, 1999.
Consolidated Balance Sheets
Consolidated Statements of Operations:
Three Months Ended September 30, 1999
Three Months Ended September 30, 1998
Nine Months Ended September 30, 1999
Nine Months Ended September 30, 1998
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1999
Nine Months Ended September 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 nine months ended September 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>
September 30, December 31,
1999 1998
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 10,025 $ 13,220
Receivables, less allowances of $21,522
($18,333 at December 31, 1998)............... 366,601 324,164
Inventories.........................(Note 1)... 283,980 307,382
Prepaid expenses and other current assets...... 32,505 31,107
------------ -----------
Total current assets......................... 693,111 675,873
------------ -----------
Property, plant and equipment.................... 533,424 499,913
Less accumulated depreciation.................. 239,825 206,136
------------ -----------
Net property, plant and equipment............ 293,599 293,777
------------ -----------
Intangible assets................................ 306,834 316,998
Other assets..................................... 15,609 16,556
------------ -----------
$ 1,309,153 $ 1,303,204
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense....................... $ 5,131 $ 5,608
Accounts payable and other accrued expenses.... 178,079 161,117
------------ -----------
Total current liabilities.................... 183,210 166,725
------------ -----------
Long-term debt................................... 539,600 589,200
Other long-term liabilities...................... 128,900 133,770
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 September 30, 1999 and
December 31, 1998............................ 52,277 52,277
Paid-in capital................................ 121,351 127,513
Retained earnings.............................. 327,421 244,662
Treasury stock at cost - 2,281,092 shares at
September 30, 1999 (525,000 shares at
December 31, 1998)........................... (43,606) (10,943)
------------ -----------
Total shareholders' equity................... 457,443 413,509
------------ -----------
$ 1,309,153 $ 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
September 30, September 30,
1999 1998
------------ ------------
Net sales...................................... $ 512,980 $ 487,178
Costs and expenses:
Cost of operations........................... 368,440 349,351
Selling, general and administrative expenses. 78,478 77,918
Depreciation and amortization................ 14,174 13,885
------------- ------------
Earnings from operations....................... 51,888 46,024
Interest expense............................... 8,934 10,729
Other income, net.............................. 593 10,167
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Earnings before income tax expense............. 43,547 45,462
Income tax expense............................. 16,087 14,914
------------- ------------
Net earnings................................... $ 27,460 $ 30,548
============= ============
Net earnings per common share:
Basic........................................ $ 0.53 $ 0.58
====== ======
Diluted...................................... $ 0.52 $ 0.57
====== ======
Weighted average common and common
equivalent shares outstanding:
Basic........................................ 51,451,745 52,218,895
========== ==========
Diluted...................................... 52,767,789 53,940,010
========== ==========
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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------ ------------
Net sales...................................... $ 1,566,943 $ 1,462,622
Costs and expenses:
Cost of operations........................... 1,121,736 1,048,375
Selling, general and administrative expenses. 243,607 236,701
Depreciation and amortization................ 43,796 42,763
------------ -----------
Earnings from operations....................... 157,804 134,783
Interest expense............................... 28,356 33,229
Other income, net.............................. 1,786 11,452
----------- ------------
Earnings before income tax expense............. 131,234 113,006
Income tax expense............................. 48,475 39,737
------------ ------------
Net earnings................................... $ 82,759 $ 73,269
============ ============
Net earnings per common share:
Basic........................................ $ 1.61 $ 1.40
====== ======
Diluted...................................... $ 1.56 $ 1.36
====== ======
Weighted average common and common
equivalent shares outstanding:
Basic........................................ 51,485,214 52,173,688
========== ==========
Diluted...................................... 52,933,771 53,928,721
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
FURNITURE BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------ ------------
Cash Flows from Operating Activities:
Net earnings......................................... $ 82,759 $ 73,269
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment.... 34,751 33,718
Amortization of intangible and other assets...... 9,045 9,045
Noncash interest and other expense............... 1,670 1,555
Increase in receivables.......................... (42,437) (45,994)
(Increase) decrease in inventories............... 23,402 (19,657)
Increase in prepaid expenses and other assets.... (2,213) (3,036)
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 16,485 47,703
Decrease in net deferred tax liabilities......... (4,219) (1,074)
Increase (decrease) in other long-term
liabilities.................................... 1,026 (481)
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Net cash provided by operating activities............ 120,269 95,048
------------ ------------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 29 121
Additions to property, plant and equipment........... (34,665) (32,080)
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Net cash used by investing activities................ (34,636) (31,959)
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Cash Flows from Financing Activities:
Payments for debt issuance costs..................... - (1,662)
Additions to long-term debt.......................... - 218,000
Payments of long-term debt........................... (49,600) (285,800)
Proceeds from the issuance of common stock........... - 2,969
Proceeds from the issuance of treasury stock......... 6,103 -
Purchase of treasury stock........................... (45,331) -
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Net cash used by financing activities................ (88,828) (66,493)
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Net decrease in cash and cash equivalents.............. (3,195) (3,404)
Cash and cash equivalents at beginning of period....... 13,220 12,274
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Cash and cash equivalents at end of period............. $ 10,025 $ 8,870
============ ============
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 50,154 $ 33,465
============ ============
Cash payments for interest........................... $ 27,530 $ 33,142
============ ============
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:
September 30, December 31,
1999 1998
------------ -----------
Finished products $ 119,581 $ 122,993
Work-in-process 53,465 57,915
Raw materials 110,934 126,474
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$ 283,980 $ 307,382
============ ===========
(2) Weighted average shares used in the computation of basic
and diluted net earnings per common share are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
1999 1998 1999 1998
------------- -------------- ----------- -----------
Weighted average shares used
for basic net earnings per
common share 51,451,745 52,218,895 51,485,214 52,173,688
Effect of dilutive securities:
Stock options 1,316,044 1,721,115 1,448,557 1,755,033
---------- ---------- ---------- ----------
Weighted average shares used
for diluted net earnings
per common share 52,767,789 53,940,010 52,933,771 53,928,721
========== ========== ========== ==========
</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 Nine Months Ended September 30, 1999
and 1998
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Selected financial information for the three months and nine months
ended September 30, 1999 and 1998 is presented below:
($ in millions except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Months Ended
----------------------------------------
September 30, 1999 September 30, 1998
------------------- -------------------
% of % of
Dollars Net Sales Dollars Net Sales
-------- --------- -------- ---------
Net sales $512.9 100.0% $487.2 100.0%
Earnings from operations 51.9 10.1% 46.0 9.4%
Interest expense 9.0 1.7% 10.7 2.2%
Other income, net 0.6 0.1% 10.2 2.1%
Income tax expense 16.0 3.1% 14.9 3.1%
Net earnings 27.5 5.4% 30.6 6.3%
Net earnings per common share-diluted 0.52 - 0.57 -
Gross profit (1) $134.7 26.3% $128.3 26.3%
Nine Months Ended
----------------------------------------
September 30, 1999 September 30, 1998
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% of % of
Dollars Net Sales Dollars Net Sales
-------- --------- -------- ---------
Net sales $1,566.9 100.0% $1,462.6 100.0%
Earnings from operations 157.8 10.1% 134.8 9.2%
Interest expense 28.4 1.8% 33.2 2.3%
Other income, net 1.8 0.1% 11.5 0.8%
Income tax expense 48.4 3.1% 39.7 2.7%
Net earnings 82.8 5.3% 73.3 5.0%
Net earnings per common share-diluted 1.56 - 1.36 -
Gross profit (1) $414.6 26.5% $384.5 26.3%
</TABLE>
(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>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1999 1998 1999 1998
------ -------- -------- ---------
Net sales $512.9 $487.2 $1,566.9 $1,462.6
Cost of operations 368.4 349.4 1,121.7 1,048.4
Depreciation (associated with 9.8 9.5 30.6 29.7
cost of goods sold) ------ ------ -------- -------
Gross profit $134.7 $128.3 $ 414.6 $ 384.5
====== ====== ======== ========
</TABLE>
Net sales for the three months ended September 30, 1999 were
$512.9 million, compared to $487.2 million in the three months
ended September 30, 1998, an increase of $25.7 million or 5.3%.
For the nine months ended September 30, 1999, net sales increased
$104.3 or 7.1% to $1,566.9 million from $1,462.6 million for the
nine months ended September 30, 1998. The improved sales
performance was realized at each operating company and was driven
by ongoing favorable retail conditions, and continuing strong
sales of existing as well as new product collections.
Earnings from operations for the three months ended September 30,
1999 increased by $5.9 million or 12.7% from the comparable prior
year period. Earnings from operations for the three months ended
September 30, 1999 and September 30, 1998 were 10.1% and 9.4% of
net sales, respectively. For the nine months ended September 30,
1999, earnings from operations increased by $23.0 million, or
17.1% from the comparable nine months of 1998. As a percentage
of net sales, earnings from operations for the nine months ended
September 30, 1999 and September 30, 1998 were 10.1% and 9.2%,
respectively. The increase in operating earnings was due to both
higher shipments and the continued control of selling, general
and administrative expenses.
Interest expense totaled $9.0 million and $28.4 million for the
three months and nine months ended September 30, 1999,
respectively, compared to $10.7 million and $33.2 million for the
prior year comparable periods. The Company's ongoing debt
reduction program and reduced interest rates resulted in a
decrease in interest expense during the periods.
Other income, net totaled $0.6 million and $1.8 million for the
three months and nine months ended September 30, 1999,
respectively, compared to $10.2 million and $11.5 million for the
prior year comparable periods. In the third quarter ended
September 30, 1998, the Company received a $9.4 million cash
dividend relating to its minority investment in a company which
leases exhibition space to furniture and accessory manufacturers.
The effective income tax rates were 36.9% and 32.8% for the three
months ended September 30, 1999 and September 30, 1998,
respectively, and 36.9% and 35.2% for the nine months ended
September 30, 1999 and September 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. The effective tax rates for the three
months and nine months ended September 30, 1998 were favorably
impacted due to the reduced effect of the nontaxable portion of
the $9.4 million cash dividend.
Net earnings per common share for basic and diluted were $0.53
and $0.52 for the three months ended September 30, 1999,
respectively, compared with $0.58 and $0.57 for the same period
last year, respectively. For the nine months ended September 30,
1999 and September 30, 1998, net earnings per common share for
basic and diluted were $1.61 and $1.56, respectively, and $1.40
and $1.36, 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 51,452,000 and
52,768,000, respectively, for the three months ended September
30, 1999, and 52,219,000 and 53,940,000, respectively, for the
three months ended September 30, 1998. For the nine months ended
September 30, 1999 and September 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
51,485,000 and 52,934,000, respectively, and 52,174,000 and
53,929,000, respectively.
FINANCIAL CONDITION
Working Capital
---------------
Cash and cash equivalents at September 30, 1999 amounted to $10.0
million, compared with $13.2 million at December 31, 1998.
During the nine months ended September 30, 1999, net cash
provided by operating activities totaled $120.2 million, net cash
used by investing activities totaled $34.6 million and net cash
used by financing activities totaled $88.8 million.
Working capital was $509.9 at September 30, 1999, compared with
$509.1 million at December 31, 1998. The current ratio was 3.8
to 1 at September 30, 1999, compared to 4.1 to 1 at December 31,
1998.
Financing Arrangements
----------------------
As of September 30, 1999, long-term debt consisted of the
following, in millions:
Secured credit agreement:
Revolving credit facility $322.0
Term loan facility 200.0
Other 17.6
------
$539.6
======
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 million.
Cash borrowings are limited only by the facility's maximum
availability less letters of credit outstanding. At September
30, 1999, there were $322.0 million of cash borrowings
outstanding under the revolving credit facility and $40.8 million
in letters of credit outstanding, leaving an excess of $237.2
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. At this time remediations
have been implemented and tested for all critical applications.
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 has developed and will 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 5. Other Information
On September 27, 1999, the Company announced that it had
authorized the repurchase of an additional $50 million of
its outstanding common stock over the next twelve months.
This new authorization is in addition to the $30 million
in share repurchase authority originally
announced in October of 1998, and the $25 million in
additional authority announced in March of 1999. The
timing and amounts purchased will depend upon market
conditions. Repurchases will be effected from time to
time in open market or privately negotiated transactions.
The shares of common stock repurchased will be kept as
treasury shares and will be used for general corporate
purposes.
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 September 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 /s/ Steven W. Alstadt
-----------------------------------
Controller and
Chief Accounting Officer
Date: November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<CASH> 10,025
<SECURITIES> 0
<RECEIVABLES> 388,123
<ALLOWANCES> 21,522
<INVENTORY> 283,980
<CURRENT-ASSETS> 693,111
<PP&E> 533,424
<DEPRECIATION> 239,825
<TOTAL-ASSETS> 1,309,153
<CURRENT-LIABILITIES> 183,210
<BONDS> 539,600
0
0
<COMMON> 52,277
<OTHER-SE> 121,351
<TOTAL-LIABILITY-AND-EQUITY> 1,309,153
<SALES> 1,566,943
<TOTAL-REVENUES> 1,566,943
<CGS> 1,121,736
<TOTAL-COSTS> 1,121,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,091
<INTEREST-EXPENSE> 28,356
<INCOME-PRETAX> 131,234
<INCOME-TAX> 48,475
<INCOME-CONTINUING> 82,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,759
<EPS-BASIC> 1.61
<EPS-DILUTED> 1.56
</TABLE>
