<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 May 31, 1998 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 May 31, 1998
- --------------------------------------- ---------------------------
Common stock, par value $1.00 per share 12,437,246 shares
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ROWE FURNITURE CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
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<S> <C>
Consolidated Balance Sheets - May 31, 1998 and
November 30, 1997 4
Consolidated Statements of Income - Three Months and Six Months
Ended May 31, 1998 and June 1, 1997 5
Consolidated Statements of Cash Flows - Six Months Ended May 31,
1998 and June 1, 1997 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information 11
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
3
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
May 31, November 30,
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1998 1997
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(Unaudited) (Audited)
($ Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 477 $ 850
Accounts receivable, net 24,795 20,789
Inventories (Note 3) 15,827 14,454
Deferred income tax asset 194 194
Prepaid expenses 504 500
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TOTAL CURRENT ASSETS 41,797 36,787
PROPERTY AND EQUIPMENT, net 16,292 14,853
OTHER NONCURRENT ASSETS 14,965 12,070
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$73,054 $63,710
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LIABILITIES
CURRENT LIABILITIES
Short term bank borrowings $ 8,234 $ 1,731
Accounts payable and accrued liabilities 17,055 16,795
Income taxes payable 285 857
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TOTAL CURRENT LIABILITIES 25,574 19,383
LONG-TERM AND DEFERRED LIABILITIES 5,561 4,885
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TOTAL LIABILITIES 31,135 24,268
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STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
May 31 November 30
1998 1997
-------------------------
Authorized shares 20,000,000 20,000,000
Issued shares 14,814,458 14,667,783 14,814 14,668
Outstanding shares 12,437,246 12,543,522
CAPITAL IN EXCESS OF PAR VALUE 9,151 8,633
RETAINED EARNINGS 33,284 29,011
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57,249 52,312
Less treasury stock 2,377,212 shares in 1998 and
2,124,261 shares in 1997, at cost (15,330) (12,870)
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TOTAL STOCKHOLDERS' EQUITY 41,919 39,442
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$73,054 $63,710
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</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED MAY 31, 1998 AND JUNE 1, 1997
UNAUDITED
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, June 1, May 31, June 1,
1998 1997 1998 1997
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
($ in thousands - except per share amounts)
Net shipments $45,617 $32,912 $90,948 $68,328
Cost of shipments 33,914 24,232 67,158 49,855
------- ------- ------- -------
Gross profit 11,703 8,680 23,790 18,473
Selling and administrative
expenses 7,754 6,579 15,801 13,056
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Operating income 3,949 2,101 7,989 5,417
Interest expense (155) (70) (273) (150)
Other income (Note 6) 106 509 436 786
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Earnings before taxes 3,900 2,540 8,152 6,053
Taxes on income 1,471 847 3,125 2,250
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Net earnings $ 2,429 $ 1,693 $ 5,027 $ 3,803
======= ======= ======= =======
Earnings per common share (Note 4) $ 0.19 $ 0.13 $ 0.40 $ 0.29
======= ======= ======= =======
Weighted average common shares 12,510 13,052 12,532 13,114
======= ======= ======= =======
Earnings per common share
assuming dilution (Note 4) $ 0.19 $ 0.13 $ 0.39 $ 0.28
======= ======= ======= =======
Weighted average common shares
and equivalents 12,944 13,432 12,935 13,543
======= ======= ======= =======
Dividends declared and paid
per share
Quarter Ended 1998 1997
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First quarter $0.030 0.025
Second quarter 0.030 0.025
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Total for the six months
ended May 31, 1998
and June 1, 1997 $0.060 $0.050
====== ======
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED MAY 31, 1998 AND JUNE 1, 1997
UNAUDITED
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<TABLE>
<CAPTION>
1998 1997
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($ Thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 90,448 $ 70,234
Cash paid to suppliers and employees (88,417) (62,749)
Income taxes paid, net of refunds (3,697) (3,279)
Interest paid (273) (150)
Interest received 254 202
Other receipts - net 182 460
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Net cash and cash equivalents (used in) provided by
operating activities (1,503) 4,718
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Cash flows from investing activities:
Proceeds from sale of property and equipment - 338
Capital expenditures (2,423) (1,342)
Payments to acquire business (400) -
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Net cash used in investing activities (2,823) (1,004)
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Cash flows from financing activities:
Net borrowings (repayments) under line of credit 6,503 (2,038)
Payments to reduce long-term debt - (93)
Proceeds from issuance of common stock 664 239
Dividends paid (754) (662)
Purchase of treasury stock (2,460) (2,559)
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Net cash provided by (used in) financing activities 3,953 (5,113)
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Net decrease in cash and cash equivalents (373) (1,399)
Cash and cash equivalents at beginning of period 850 1,897
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Cash and cash equivalents at end of period $ 477 $ 498
======= =======
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED MAY 31, 1998 AND JUNE 1, 1997
UNAUDITED
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<TABLE>
<CAPTION>
Reconciliation of Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
1998 1997
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($ Thousands)
<S> <C> <C>
Net earnings $ 5,027 $ 3,803
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Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,058 1,472
Provision for deferred compensation 421 611
Payments made for deferred compensation (345) (343)
Provision for (recoveries) losses on accounts receivable (1,218) 1
Amortization of goodwill 100 -
Loss (gain) on disposition of assets - (124)
Change in operating assets and liabilities net of effect of
aquisition of business:
Decrease (increase) in accounts receivable (500) 1,865
Decrease (increase) in inventories 104 414
Decrease (increase) in prepaid expenses 32 95
Decrease (increase) in cash value of
life insurance (60) (60)
Decrease (increase) in other assets (1,453) (10)
Increase (decrease) in accounts payable (5,096) (2,777)
Increase (decrease) in accrued expenses (1) 759
Increase (decrease) in income taxes payable (572) (988)
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Total adjustments (6,530) 915
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Net cash (used in) provided by operating activities $(1,503) $ 4,718
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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 May 31, 1998 and the results of
operations and cash flows for the six-months ended May 31, 1998 and
June 1, 1997.
Note 2 - The results of operations for the six months ended May 31, 1998 and
June 1, 1997 are not necessarily indicative of the results to be
expected for the full year.
Note 3 - Inventory components are as follows:
<TABLE>
<CAPTION>
($Thousands)
May 31, November 30,
1998 1997
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<S> <C> <C>
Finished Goods $ 4,462 $ 3,500
Work-in-Process 3,287 2,822
Raw Materials 8,078 8,132
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$15,827 $14,454
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</TABLE>
Note 4 - The company has adopted statement of Financial Accounting Standards No.
128, "Earnings per share", resulting in the restatement of earnings per
share for all prior periods. Basic earnings per share are based upon
the weighted average shares outstanding. Outstanding stock options,
which are dilutive, are treated as common stock equivalents for
purposes of computing diluted earnings per share and represent the
difference between basic and diluted weighted average shares
outstanding.
Note 5 - On January 1, 1998, the Company acquired, through a newly created
subsidiary, The Wexford Collection, Inc., the assets and assumed
certain liabilities of J & M Designs Ltd.-Carson, California, a
manufacturer of solid wood reproductions. The purchase price was paid
in cash and contingent payments based on future earnings. Current lines
of credit have been used to fund the operating and capital requirements
of this new enitity.
Note 6 - In the second quarter of 1998, the Company recorded a non-cash
impairment loss of $288,000 ($177,000 net of tax) related to a write-
down of one investment property which has been leased to various
tenants. One of the leases has not been renewed and the Company has not
been able to lease this space to other tenants. As a result, the
projected future cash flows from this facility are less than the
carrying value of the asset; therefore an impairment loss has been
recognized.
8
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ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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UNAUDITED
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Results of Operations:
- ---------------------
Six Months ended May 31, 1998 Compared to Six Months ended June 1, 1997.
Net shipments during the first six months of 1998 increased by $22,620,000, or
33.1%, to $90,948,000 from $68,328,000 in 1997. Management believes that
shipments increased primarily from the addition of new dealers, increased
purchases by existing customers and overall favorable business conditions. Also
included, were shipments from five months of operations at the Wexford
Collection, Inc., a new wholly-owned manufacturer of wood furniture. (See Note
5).
Gross profit during the first six months of 1998 increased by $5,317,000, or
28.8%, to $23,790,000 from $18,473,000 in 1997. Gross profit as a percentage of
net shipments during the first six months in 1998 decreased to 26.2% from 27.0%
in 1997. Management believes that the percentage decrease was due primarily to
costs associated with a wage increase and additional overtime and training
requirements.
Selling and administrative expenses during the first six months of 1998
increased by $2,745,000 or 21.0%, to $15,801,000 from $13,056,000 in 1997.
Selling and administrative expenses as a percentage of net shipments during the
first six months of 1998 decreased to 17.4% from 19.1% in 1997. The increase in
selling and administrative expenses were primarily from higher direct selling
expenses and salaries. The percentage decrease in selling and administrative
expenses was primarily from a gain on the sale of a previously written off
Levitz Furniture receivable partially offset by an increase in reserve for bad
debts and other unusual charges totaling approximately $1,106,000, pre-tax.
Operating income was $7,989,000 versus $5,417,000 in the prior year. The
increase related to higher shipments and gross profit partially offset by
increased selling and administrative expenses, net of the Levitz recovery and
other items.
Net interest expense during the first six months of 1998 increased by $123,000
to $273,000 from $150,000 in 1997. The increase in net interest expense
resulted from additional short-term borrowings primarily associated with
working-capital requirements for the Wexford Collection, Inc.
Other income during the first six months of 1998 decreased by $350,000 to
$436,000 from $786,000 in 1997 primarily from a write-down of investment
property of approximately $288,000, pre-tax, to reflect estimated value. ( See
Note 6).
Net earnings during the first six months of 1998 increased by $1,224,000 to
$5,027,000 from $3,803,000 in 1997, reflecting higher net shipments partially
offset by the higher cost of shipments, as a percentage to net shipments.
Included in net earnings is approximately $0.02 per share after tax from a gain
on sale of a Levitz Furniture receivable, partially offset by an increase in
reserve for bad debts, write-down of investment property and other unusual
charges.
9
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ROWE FURNITURE CORPORATION AND WHOLLY-OWNED SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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(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
minimized its working capital requirements by improving operating efficiencies
in various aspects of its business, including inventory and receivable
management and product distribution.
Net cash used in operating activities was $1,503,000 during the first six months
of 1998 versus $4,718,000 net cash provided in 1997. Fluctuations in net cash
provided by operating activities are primarily the result of changes in
operating income and changes in working capital accounts, including reduction of
current liabilities for the Wexford Collection, Inc.
Capital expenditures were $2,423,000 during the first six months of 1998 and
$1,342,000 in 1997. These expenditures were incurred primarily in connection
with maintaining the Company's production capacity and certain additions of
equipment and systems.
Net cash provided by financing activities during the first six months of 1998
was $3,953,000 versus $5,113,000 net cash used in 1997. In 1998, these
activities related primarily to the increase in short-term borrowings, partially
offset by cash dividends and purchase of treasury stock. In 1997, these
activities related primarily to the repayment of short-term debt, purchase of
treasury stock and cash dividends.
The Company has unsecured short-term bank lines of credit totaling $35 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 May 31, 1998 was
approximately $8.2 million of which approximately $6.1 million was primarily
used for working capital requirements of the Wexford Collection, Inc.
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 1998.
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 second quarter of
1998.
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: July 15, 1998 /s/ Arthur H. Dunkin
--------------------- ---------------------
Arthur H. Dunkin
Secretary-Treasurer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-29-1998
<PERIOD-END> MAY-31-1998
<CASH> 477
<SECURITIES> 0
<RECEIVABLES> 24,795
<ALLOWANCES> 0
<INVENTORY> 15,827
<CURRENT-ASSETS> 41,797
<PP&E> 47,444
<DEPRECIATION> 31,152
<TOTAL-ASSETS> 73,054
<CURRENT-LIABILITIES> 25,574
<BONDS> 0
14,814
0
<COMMON> 0
<OTHER-SE> 27,105
<TOTAL-LIABILITY-AND-EQUITY> 73,054
<SALES> 90,948
<TOTAL-REVENUES> 90,948
<CGS> 67,158
<TOTAL-COSTS> 67,158
<OTHER-EXPENSES> 15,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> 8,152
<INCOME-TAX> 3,125
<INCOME-CONTINUING> 5,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,027
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
