<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 1997 Commission File Number 1-10226
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ROWE FURNITURE CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 54-0458563
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
239 Rowan Street - Salem, Virginia 24153
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 540-389-8671
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None
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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 shorted period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class Outstanding at August 31, 1997
- --------------------------------------- ------------------------------
Common stock, par value $1.00 per share 12,901,593 shares
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ROWE FURNITURE CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
----
<S> <C> <C>
Consolidated Balance Sheets - August 31, 1997 and
December 1, 1996 4
Consolidated Statements of Operations- Three Months and Nine Months
Ended August 31, 1997 and September 1, 1996 5
Consolidated Statements of Cash Flows - Three Months and Nine Months
Ended August 31, 1997 and September 1, 1996 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information 11
</TABLE>
2
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PART I - - FINANCIAL INFORMATION
3
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
August 31 December 1
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1997 1996
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(Unaudited) (Audited)
($ Thousands)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,069 $ 1,897
Accounts receivable, net (Note 2) 17,949 22,726
Refundable Income Taxes 1,131 --
Inventories:
Finished goods 4,038 3,037
Work-in-process 2,650 2,636
Raw materials 6,083 6,710
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Total inventories 12,771 12,383
Deferred income tax asset 284 284
Prepaid expenses 589 492
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Total current assets 33,793 37,782
PROPERTY AND EQUIPMENT, net 14,468 14,390
OTHER NONCURRENT ASSETS 12,062 12,108
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$ 60,323 $ 64,280
======== ========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term liabilities $ -- $ 420
Short term bank borrowings 2,253 3,610
Accounts payable and accrued liabilities 14,816 14,782
Income taxes payable 14 988
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Total current liabilities 17,083 19,800
LONG-TERM AND DEFERRED LIABILITIES 4,373 4,292
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Total liabilities 21,456 24,092
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STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
August 31 December 1
1997 1996
----------------------------
Authorized shares 20,000,000 20,000,000
Issued shares 14,663,858 14,564,103 14,664 14,564
Outstanding shares 12,901,593 13,254,858
CAPITAL IN EXCESS OF PAR VALUE 8,616 8,349
RETAINED EARNINGS 25,948 24,033
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49,228 46,946
Less treasury stock 1,762,265 shares in 1997 and
1,309,245 shares in 1996, at cost (10,361) (6,758)
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Total stockholders' equity 38,867 40,188
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$ 60,323 $ 64,280
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 1997 AND
SEPTEMBER 1, 1996
UNAUDITED
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Aug. 31 Sept. 1 Aug. 31 Sept. 1
1997 1996 1997 1996
--------- --------- --------- ---------
($ in thousands - except per share amounts)
<S> <C> <C> <C> <C>
Net shipments $ 34,335 $ 34,768 $ 102,663 $ 104,641
Cost of shipments 25,287 25,157 75,142 78,781
--------- --------- --------- ---------
Gross profit 9,048 9,611 27,521 25,860
Selling and administrative
expenses (Note 2) 10,820 6,823 23,876 20,005
--------- --------- --------- ---------
Operating income (loss) (1,772) 2,788 3,645 5,855
Interest expense (56) (47) (206) (246)
Other income 376 343 1,162 1,055
--------- --------- --------- ---------
Earnings (loss) before taxes (benefit) (1,452) 3,084 4,601 6,664
Taxes on income (benefits) (548) 1,177 1,702 2,594
--------- --------- --------- ---------
Net earnings (loss)(Note 2) $ (904) $ 1,907 $ 2,899 $ 4,070
========= ========= ========= =========
Earnings (loss) per share - primary
and fully diluted (Note 2) $ (0.07) $ 0.14 $ 0.22 $ 0.30
========= ========= ========= =========
Weighted average shares outstanding 13,269 13,358 13,451 13,409
Dividends declared and paid per share
<CAPTION>
Quarter Ended 1997 1996
------------- --------- ---------
<S> <C> <C>
First quarter $ 0.025 $ 0.02
Second quarter $ 0.025 $ 0.02
Third quarter $ 0.025 $ 0.02
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Total for the nine months
ended August 31, 1997
and September 1, 1996 $ 0.075 $ 0.06
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED AUGUST 31, 1997 AND SEPTEMBER 1, 1996
UNAUDITED
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<TABLE>
<CAPTION>
1997 1996
---- ----
($ Thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 103,491 $ 101,928
Cash paid to suppliers and employees (93,368) (95,613)
Income taxes paid, net of refunds (3,807) (2,116)
Interest paid (206) (246)
Interest received 339 273
Other receipts - net 709 782
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Net cash and cash equivalents provided by
operating activities 7,158 5,008
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Cash flows from investing activities:
Proceeds from sale of property and equipment 338 0
Capital expenditures (2,326) (3,021)
Purchase of marketable securities -- (3)
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Net cash used in investing activities (1,988) (3,024)
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Cash flows from financing activities:
Net borrowings under line of credit (1,357) 906
Payments to reduce long-term debt (420) (429)
Proceeds from issuance of common stock 367 141
Dividends paid (985) (809)
Purchase of treasury stock (3,603) (1,137)
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Net cash used in financing activities (5,998) (1,328)
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Net increase (decrease) in cash and cash equivalents (828) 656
Cash and cash equivalents at beginning of period 1,897 323
--------- ---------
Cash and cash equivalents at end of period $ 1,069 $ 979
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED AUGUST 31, 1997 AND SEPTEMBER 1, 1996
UNAUDITED
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Reconciliation of Net Earnings to Net Cash
Provided By Operating Activities:
<TABLE>
<CAPTION>
1997 1996
---- ----
($ Thousands)
<S> <C> <C>
Net earnings $ 2,899 $ 4,070
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Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,177 1,837
Provision for deferred compensation 758 491
Payments made for deferred compensation (427) (340)
Provision for losses on accounts receivable 3,924 249
Loss (gain) on disposition of assets (124) --
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 853 (2,713)
Decrease (increase) in inventories (388) 798
Decrease (increase) in prepaid expenses (97) 550
Decrease (increase) in cash value of
life insurance (90) (86)
Decrease (increase) in other assets (7) 18
Increase (decrease) in accounts payable (1,568) (2,001)
Increase (decrease) in accrued expenses 1,353 1,657
Increase (decrease) in income taxes payable (refundable) (2,105) 478
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Total adjustments 4,259 938
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Net cash provided by operating activities $ 7,158 $ 5,008
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</TABLE>
See notes to consolidated financial statements.
7
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ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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Note 1 - In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of August 31, 1997 and the
results of operations and cash flows for the nine-months ended August
31, 1997 and September 1, 1996.
Note 2 - In the third quarter, the Company recorded unusual charges of $2.7
million or $0.21 per share, ($0.20 per share for nine months) primarily
associated with the write-off of a receivable for Levitz Furniture.
Levitz Furniture, a major customer of the Company (representing 14% of
sales year-to-date), filed a voluntary petition for protection under
Chapter XI of the federal bankruptcy code on September 5, 1997.
Although there may be some chance of recovery of a portion of the
receivable, the Company wrote off the balance of its receivable from
Levitz in full due to the uncertainty of future recoveries, if any.
Levitz has received debtor-in-possession financing commitments.
Accordingly, the Company has resumed shipments to Levitz.
Note 3 - The results of operations for the nine months ended August 31,
1997 and September 1, 1996 are not necessarily indicative of the
results to be expected for the full year.
Note 4 - In February 1997, the Financial Accounting Standards Board
issued FAS No. 128, "Earnings per Share", which established new
standards for computations of earnings per share. Statement No. 128
will be effective for periods ending after December 15, 1997 and will
require presentation of: (1) "Basic Earnings per Share", computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period and (2)
"Diluted Earnings per Share", which gives effect to all dilutive
potential common shares that were outstanding during the period, by
increasing the denominator to include the number of additional common
shares that would have been outstanding if the dilutive potential
common shares had been issued. Had FAS 128 been effective for the nine
months ended August 31, 1997 and September 1, 1996, basic and diluted
earnings per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Basic earnings per share $0.22 $0.30
Diluted earnings per share $0.22 $0.30
</TABLE>
8
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
UNAUDITED
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Results of Operations:
- ---------------------
Nine months ended August 31, 1997 Compared to Nine Months ended September 1,
1996.
Net shipments during the first nine months of 1997 decreased by $1,978,000 or
1.9% to $102,663,000 from $104,641,000 in 1996. Management believes that
shipments decreased primarily from the decision in 1996 to eliminate or
de-emphasize certain unprofitable product categories and the halting of
shipments to Levitz Furniture, a major retail customer in August 1997. Levitz
Furniture has filed for protection under Chapter XI of the federal bankruptcy
code.
Gross profit during the first nine months of 1997 increased by $1,661,000 or
6.4% to $27,521,000 from $25,860,000 in 1996. Gross profit as a percentage of
net shipments during the first nine months in 1997 increased to 26.8% from 24.7%
in 1996. Positively impacting gross margins were improvements in product mix and
manufacturing efficiencies versus prior year.
Selling and administrative expenses during the first nine months of 1997
increased by $3,871,000 or 19.4% to $23,876,000 from $20,005,000 in 1996.
Selling and administrative expenses as a percentage of net shipments during the
first nine months of 1997 were 23.3% versus 19.1% in 1996. The increase as a
percent of shipments of 4.2% is primarily the result of the accounts receivable
write-off for Levitz Furniture. Excluding the unusual charges, operating
expenses as a percentage of shipments declined by approximately 2%.
Operating income was $3,645,000 versus $5,855,000 in the prior year. The
decrease reflects the accounts receivable write-off of Levitz Furniture
partially offset by higher gross margins in 1997.
Net interest expense during the first nine months of 1997 decreased by $40,000
or 16.3% to $206,000 from $246,000 in 1996. The decrease in net interest expense
resulted from the elimination of long-term debt and reduced short-term
borrowings.
Other income during the first nine months of 1997 increased by $107,000 to
$1,162,000 from $1,055,000 in 1996. The increase in other income was due
primarily to a gain from sale of rental property located in Leesburg, Florida
partially offset by reduced rental income from a vacancy in rental property
located in Christiansburg, Virginia.
Net earnings during the first nine months of 1997 decreased by $1,171,000 to
$2,899,000 from $4,070,000 in 1996, reflecting the unusual charges in the third
quarter, primarily the Levitz Furniture accounts receivable write-off,
partially offset by an increase in gross profit percentage, lower other
operating expenses and a reduction in the effective tax rate. Included in net
earnings for 1997 was unusual charges of $2.7 million after taxes.
9
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
(UNAUDITED) - CONTINUED
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Liquidity and Source of Capital:
- -------------------------------
The Company has historically financed its operations and capital requirements
with internally generated funds and bank or other financing. The Company has
controlled its capital requirements by improving operating efficiencies in
various aspects of its business, including inventory and receivable management,
labor productivity and product distribution.
Net cash provided by operating activities was $7,158,000 during the first nine
months of 1997 versus $5,008,000 in 1996. Fluctuations in net cash provided by
operating activities are primarily the result of changes in operating income and
changes in working capital accounts.
Capital expenditures were $2,326,000 during the first nine months of 1997 and
$3,021,000 in 1996. These expenditures were incurred primarily in connection
with expanding the Company's production capacity.
Net cash used in financing activities during the first nine months of 1997 was
$5,998,000 versus $1,328,000 in 1996. In 1997, these activities related
primarily to the decrease in short-term borrowings, cash dividends paid and the
purchase of treasury stock.
As of August 31, 1997, the Company had no outstanding long-term debt.
The Company has unsecured short-term bank lines of credit totaling $22 million.
The interest rates on those lines of credit do not exceed the prime rate. The
amount outstanding under the lines of credit as of August 31, 1997 was
approximately $2.3 million.
Management believes that net cash provided by operating activities and available
bank lines of credit will be sufficient to fund anticipated growth and to meet
the Company's anticipated capital requirements and operating needs through 1997.
10
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
None
Item 2. Changes in Securities.
- -------------------------------
None
Item 3. Defaults Upon Senior Securities.
- -----------------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None
Item 5 Other Information.
- --------------------------
None
Item 6 Exhibits and Reports on Form 8-K.
- ----------------------------------------
a. Exhibits: Exhibit 27 - Financial Data Schedule for the third quarter of 1997.
b. Reports on Form 8-K: None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROWE FURNITURE CORPORATION
--------------------------
Registrant
Date: October 15, 1997 /s/ Arthur H. Dunkin
---------------------- ----------------------------
Arthur H. Dunkin
Secretary-Treasurer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,069
<SECURITIES> 0
<RECEIVABLES> 17,949
<ALLOWANCES> 0
<INVENTORY> 12,771
<CURRENT-ASSETS> 33,793
<PP&E> 43,429
<DEPRECIATION> 28,961
<TOTAL-ASSETS> 60,323
<CURRENT-LIABILITIES> 17,083
<BONDS> 0
0
0
<COMMON> 14,664
<OTHER-SE> 24,203
<TOTAL-LIABILITY-AND-EQUITY> 60,323
<SALES> 102,663
<TOTAL-REVENUES> 102,663
<CGS> 75,142
<TOTAL-COSTS> 75,142
<OTHER-EXPENSES> 23,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> 4,601
<INCOME-TAX> 1,702
<INCOME-CONTINUING> 2,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,899
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
