<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934 For the Fiscal Year Ended
November 29, 1998
Commission File Number 1-10226
ROWE FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 54-0458563
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1650 Tysons Boulevard, Suite 710 McLean, Virginia 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 847-8670
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 requirements for the past 90 days. YES [X] NO [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 12, 1999 (the exclusion from such amount of the market
value of the shares owned by any person shall not be deemed to be an admission
by the registrant that such person is an affiliate of the registrant) was
$113,588,783.
As of February 12, 1999, there were issued and outstanding 12,291,608
shares of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
-------- ------------------
Portions of the Annual Report for the year ended Parts II and IV
November 29, 1998
Portions of the Annual Proxy Part III
Statement for the year ended November 29, 1998
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
The Company is a designer and manufacturer of upholstered and leather furniture,
primarily consisting of sofas, loveseats and chairs. The Company's products are
sold primarily in the middle to upper-middle price range, with sofas customarily
retailing between $700 and $1,500. Additionally, the Company manufactures a
casual line of wood furniture and owns and operates a retail chain of furniture
stores under the name Home Elements.
The Company sells its manufactured products primarily through an exclusive sales
force of commissioned employees to over 1,000 national, regional and local
retailers consisting of furniture chains, independent furniture retailers,
warehouse showrooms, dedicated galleries and Company-owned Home Elements retail
furniture stores. The Company's manufacturing facilities consist of seven
production plants; located in Virginia (2), Missouri (2), North Carolina (2) and
California. In addition to manufacturing its own line of furniture, the Company
manufactures furniture frames and kiln-dries hardwood and pine lumber for
outside customers.
Rowe Furniture Corporation was founded as a furniture manufacturer in June,
1946, and its original manufacturing facility is located in Salem, Virginia. In
1968, the Company expanded its operations to the Midwest with the addition of
its first facility in Missouri.
The Company is incorporated under the laws of Nevada. Its principal executive
offices are located at 1650 Tysons Boulevard, McLean, Virginia 22102, and its
telephone number is (703) 847-8670. Unless the context indicates otherwise,
references herein to the "Company" include Rowe Furniture Corporation, its
predecessors, and its subsidiaries.
Effective December 3, 1995, the Company merged its then-existing four
manufacturing subsidiaries (Rowe Furniture Corporation-Virginia, Rowe Furniture
Corporation-Missouri, Salem Frame Company, Inc. and Himmelberger-Harrison
Company, Inc.) into a wholly-owned subsidiary, Rowe Manufacturing, Inc. On
December 1, 1997, all of the assets of Rowe Manufacturing, Inc., exclusive of
intellectual property, were transferred to a new wholly-owned subsidiary, Rowe
Industries, Inc. ("Rowe"). Rowe Manufacturing, Inc. was then merged into the
Company. These reorganizations were effected to simplify the organizational
structure and improve internal reporting. In January 1998, The Wexford
Collection, Inc. ("Wexford"), a new wholly-owned subsidiary was created to
acquire the assets and liabilities of J & M Designs, Ltd. Rowe Diversified,
Inc., a wholly-owned subsidiary, was created on June 12, 1998 to hold all
patents and trademarks for the Company. On October 31, 1998, the stock of The
Mitchell Gold Co. ("Mitchell Gold") was acquired and now Mitchell Gold operates
as a wholly-owned subsidiary of the Company. Also in
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1998, the Company renamed its Company-owned retail stores to Home Elements, from
The Rowe ShowPlace, consistent with a new format for the business.
On August 25, 1998, the Company entered into an agreement with Storehouse, Inc.
("Storehouse"), a chain of 42 retail furniture stores, to invest $2.5 million in
the form of a subordinated loan and, subject to Storehouse's reaching certain
defined financial objectives, acquire all of its outstanding stock in 1999.
Should this acquisition be completed, the Company will significantly expand its
network of Company-owned retail furniture stores.
THE INDUSTRY
As reported by the American Furniture Manufacturers Association in December 1998
the following table sets forth estimated factory shipments for the domestic
furniture industry in general, and the upholstered furniture segment in
particular, during each of the four years ended December 31, 1998.
<TABLE>
<CAPTION>
1995 1996 1997 1998*
---- ---- ---- -----
(in billions)
<S> <C> <C> <C> <C>
Industry shipments $ 19.0 $ 20.0 $ 21.2 $ 24.0
Upholstered furniture shipments 7.4 7.9 8.5 10.0
</TABLE>
*Estimated
The principal categories of furniture products include wood, upholstered and
metal furniture products. Of these categories, wood is the largest, representing
approximately half of total industry sales, while upholstered furniture
represents approximately 40% and metal and other products account for the
balance. Within each category, furniture manufacturers generally focus on
particular price ranges and styles.
The furniture industry historically has been cyclical, fluctuating with the
general economy. Management believes that the industry is significantly
influenced by consumer behavior and confidence, personal disposable income,
demographics, housing activity, interest rates, and credit availability. The
upholstered segment of the furniture industry generally has followed the same
trends as the rest of the furniture industry. There can be no assurance that an
economic downturn would not have a material adverse effect on the Company.
PRODUCT LINES
The Company's products encompass a full line of upholstered furniture including
sofas, loveseats, and chairs. The Company's products are available in over 900
different fabrics. Styles offered include traditional, contemporary and country.
The Company also produces a line of leather furniture in addition to a line of
casual wood furniture. Additionally, through its Home Elements retail stores,
the Company offers
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complementary accessory items such as lamps, rugs and tables from other
manufacturers.
The Company's product strategy is to provide a wide choice of furniture styles
and fabrics while providing high quality at competitive prices. The Company
continually reviews and evaluates its designs, and annually adds and
discontinues designs, as it deems appropriate. The Company identifies trends in
styles, colors and patterns through independent research, contacts with the
Company's customers and the occasional use of independent designers. Management
also solicits opinions from its customers and manufacturing and marketing
employees prior to final design selection.
MARKETING AND SALES
The Company has developed a broad and diverse national customer base. The
Company sells its products primarily through commissioned sales personnel who
are employees of the Company, dedicated to marketing the Company's products
exclusively. Management believes that this gives the Company a competitive
advantage over many of its competitors which sell their products through
independent sales representatives who represent more than one manufacturer. The
Company's products are sold to over 1,000 national, regional and local furniture
retailers, including Levitz, Jordan's Furniture, Star Furniture, Sears Homelife,
Crate & Barrel, Pottery Barn and Restoration Hardware.
While the Company sells its products throughout the United States, management
believes that there are opportunities for greater penetration in the regions
where the Company's products are currently not widely distributed. The Company
has targeted key retailers in these markets as opportunities for further growth.
The general marketing practice in the furniture industry is to exhibit products
at international and regional furniture markets. The Company displays its
product lines and introduces new products in April and October of each year at
an eight day furniture market held in High Point, North Carolina. The Company
maintains three showrooms totaling 75,000 square feet at the High Point market.
In addition, the Company has developed plans to increase sales in foreign
markets. Approximately 5% of 1998 sales were to customers located outside of the
United States.
RETAIL DISTRIBUTION
Despite the recent consolidation in the retail furniture industry, management
believes there are ample opportunities to expand the Company's retail
distribution network. The Company strives to maintain strong relationships with,
and increase sales to, its existing retailers. It also attempts to increase
sales by adding new retailers, particularly in geographic regions where its
products currently are not widely distributed, such as the Southwest and the
West. When adding retailers, the Company targets what it believes to be
financially sound retailers committed to progressive marketing approaches and
the desire to carry a significant portion of the Company's product line.
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Dedicated Galleries. A major thrust of the Company's marketing program is to
- -------------------
increase the number of dedicated, independently-owned, in-store, furniture
galleries. A dedicated gallery is an area within an independent retail furniture
store where the Company's products are displayed on an exclusive basis together
with other manufacturers' complementary furniture accessories. The Company
implemented the gallery program featuring the Company's furniture in order to
increase its market penetration. There are approximately 100 dedicated galleries
in operation. The gallery program accounted for more than 15% of the Company's
fiscal 1998 shipments. As such, a material reduction in sales at such stores may
have an adverse affect on the Company's results.
A dedicated gallery offers the retail customer a choice of a wide variety of
contemporary and traditional upholstered furniture styles, as well as
approximately 600 different fabrics. Most locations have a point-of-sale
computer system that displays any fabric on any style, allowing the consumer to
combine fabrics and styles and have an immediate picture of the finished
product. By choosing various combinations of style and fabric, the consumer is
able to customize his or her selection.
Home Elements. At fiscal year-end 1998, the Company owned and operated 12 Home
- -------------
Elements retail stores with two additional locations added in early 1999. The
stores range in size from 5,000 to 9,000 sq. ft. and are primarily dedicated to
the sale of Company produced upholstery, leather and wood furniture.
Additionally, these stores sell a line of complementary products including
tables, lamps, rugs and accessories. Currently stores are located in Virginia
(6), Maryland (4), Tennessee (1) and Louisiana (3). The Company intends to
continue to expand this program with additional locations to be added in 1999.
In support of this expansion, the Company is adding additional personnel with
furniture retail experience. In 1998, Home Elements was one of the Company's ten
largest customers.
Key Customers. Rowe sells its products to over 1,000 accounts with normal credit
- -------------
terms being net 30 days. Levitz Furniture ("Levitz"), the largest customer,
accounted for approximately 10% of 1998 shipments, down from approximately 16%
in 1997 and approximately 17% in 1996.
Rowe's ten largest customers, including Levitz, accounted for approximately 30%
of 1998 shipments. Other than Levitz, no customer accounted for more than 5% of
1998 shipments. On September 5, 1997, Levitz filed for protection under Chapter
11 bankruptcy and subsequently announced the closing of a significant number of
store locations, which upon closing adversely impacted Rowe's business with
Levitz. While it is anticipated that the percentage of Company shipments in
future periods to Levitz will decline as additional store closings are
implemented, the Company expects to more than offset the decline through
shipments to new accounts, increased shipments by Home Elements as new store
locations are opened and through increased business with existing dealers. While
the loss of Levitz or other large customers could have a material adverse effect
on its business, management believes that dependence on any
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one customer will diminish as the Company diversifies its customer base and the
markets served.
While Rowe continues to sell to Levitz as an open account (in 1997, Rowe
recorded an unusual charge of $3.9 million for the writeoff of Levitz receivable
as a result of the Chapter 11 filing, and in 1998 the receivable was sold for
$1.8 million), the Company has purchased insurance in the amount of $1.2
million with an expiration date of July 3, 1999 to help protect this exposure.
While such risk coverage has been available in recent periods at a reasonable
cost, the Company may not be able to secure similar coverage at a reasonable
cost when the existing insurance expire.
While the Company has historically had a diverse customer base, with only one
customer, Levitz, accounting for 10% or more of its annual volume, Mitchell
Gold has a limited customer base of approximately 60 accounts, of which three
accounts, Restoration Hardware, Crate & Barrel and Pottery Barn together
comprise approximately 70% of its annual volume. While the relationship with
these three companies is considered excellent and growing, the loss of business
with any of these customers will naturally adversely impact the performance of
this subsidiary.
MANUFACTURING AND DISTRIBUTION
The Company manufactures its products in seven production facilities, of which
six are owned and one is leased. Two facilities manufacture upholstered
furniture; one facility manufactures upholstery and leather furniture; one
facility manufacturers wood furniture and one facility is used for frame storage
and assembly. The remaining two facilities manufacture upholstery frames and
wood components in addition to kiln-drying lumber for outside customers. Total
manufacturing space is approximately 1.4 million square feet.
Manufacturing Process. The Company utilizes a vertically integrated
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manufacturing process which includes kiln-drying of hardwood, wood milling,
frame construction, fabric and leather cutting, sewing, foam cutting and
filling, upholstery and final assembly of the upholstered product.
Rowe utilizes computer-aided design patterns and CNC Routers to manufacture
frames for upholstered furniture and utilizes specialized machines in the fabric
cutting process which facilitate design work, help maximize fabric yield, and
increase the efficiency of the assembly process. The completed pieces of
upholstered furniture are then cleaned, inspected and packed for shipping.
Additionally, Wexford utilizes advanced technology in its manufacturing of wood
furniture with the recent addition of a GreCon Dimter cutting system.
Manufacturing Efficiencies. Management has taken a number of steps to improve
- --------------------------
Rowe's manufacturing efficiencies, including implementation of computerized
systems in its manufacturing facilities to more effectively manage its
inventories, purchasing, labor and manufacturing processes; the development of
its employee involvement program; and the establishment of new internal systems
to control overhead and material usage. In addition, the Company has added
modern equipment, such as computerized routers utilized in its milling
operations and new computerized cover
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cutting machines that enhance efficiencies. Management believes through a
combination of increased efficiencies, improved product quality, accelerated
deliveries and stable pricing, the Company will maintain a competitive advantage
in marketing its products.
Product Quality and Value. The Company is committed to providing high quality,
- -------------------------
value oriented furniture at competitive prices. Management believes the Company
adheres to strict quality standards in all aspects of design and production,
including material selection, frame design and construction, workmanship, and
appearance. Product quality improvements in recent years include better
undercarriage construction, the use of higher quality cushioning materials and
improved fabric matching. A lifetime, limited warranty applicable to most of the
Company's products covering the frames, springs, mechanisms and selected
cushions reflects the Company's commitment to high quality. The Company has been
successful in providing this quality while generally holding prices constant in
recent years.
Employee Involvement and Compensation. A key aspect of Rowe's manufacturing
- -------------------------------------
process is its employee involvement and compensation program. This program
involves workers in the improvement of the manufacturing process by providing
incentives to increase productivity, to reduce costs and to improve quality.
Rowe encourages employees to participate in decision-making and compensates
employees based primarily on hourly rates plus bonuses for productivity
improvements and cost reductions on a facility-wide basis. Management believes
that this program provides incentive for employees to contribute to
facility-wide efficiency, quality improvements and cost reductions. Since
implementation of the program, Rowe has experienced a significant increase in
employee suggestions leading to efficiency improvements and cost reductions. On
a facility-wide basis, 1998 incentive bonuses ranged up to approximately 15% of
hourly compensation. Salaried employees also participate in this program;
however, their bonuses cannot exceed the highest amount paid to an hourly
employee. At Mitchell Gold, a piece-work system is the primary method of
compensation for production employees, and an hourly rate compensation system is
utilized at Wexford.
Dedication to Customer Service. The Company is dedicated to providing a high
- ------------------------------
level of service to all its customers. The Company maintains close contact and
communicates frequently with its customers in order to better identify,
understand and meet their needs. Management believes the utilization of
Company-employed sales persons enables it to better communicate with its
customers.
Important aspects of the Company's service to certain customers include its
automated order entry, bar coding and electronic data interchange systems. These
systems give customers the ability to place orders directly, and allows the
Company to monitor the status of orders and track inventory and sales activity.
The Company is in the process of enhancing the capabilities of these systems and
increasing the number of customers who utilize them. In addition, the Company
has introduced point-of-sale computer systems into its Home Elements stores and
other dealer locations that allow retailers to display for consumers full-color
pictures of various combinations of furniture styles and
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fabric patterns. The Company has established regional repair service centers so
that it can respond quickly to consumers' needs.
Another special emphasis of the Company's customer service is the prompt
delivery of its products, a significant portion of which are manufactured and
shipped generally within 30 days of receipt of an order. The Company's order
entry, credit approval, manufacturing and shipping systems are all designed to
provide prompt delivery to its customers.
Computer Systems. Rowe makes extensive use of a computerized management
- ----------------
information system (MIS) in the manufacturing process. The MIS, which includes
software developed by Rowe, helps manage order entry, purchasing, labor,
inventories, receivables and product shipments. Management believes that its MIS
is advanced by furniture industry standards; however, the Company intends to
continue to upgrade the system by developing and/or purchasing new software to
handle new applications and additional demands of anticipated future growth.
Manufacturing Capacity. The Company primarily operates its manufacturing
- ----------------------
facilities on a one-shift, five day per week basis, however, partial or full
second shifts are in operation at five of its facilities. Management believes
that the Company could expand production within existing facilities without
substantial capital expenditures by increasing personnel on first and second
shifts. However, to meet anticipated growth for year 2000 and beyond, and to
lower production costs, the Company is currently planning for (1) a replacement
production facility for its Salem, VA upholstery plant on which construction
should begin in 1999; (2) an anticipated expansion in 2000 of its upholstery
plant in Poplar Bluff, MO; and (3) the purchase and/or construction of an
additional upholstery production facility, most likely in 2000. In December
1998, the new 265,000 sq. ft. production facility for Mitchell Gold was
completed and occupied. This facility has significant expansion capability which
the Company believes will be utilized over the next several years. Additional
capacity in Rowe's two frame facilities to handle growth, including the
potential manufacture of frames for Mitchell Gold, will be accomplished through
the addition of personnel and the purchase of capital equipment including
additional CNC routers.
Backlog. The Company generally manufactures its products in response to actual
- -------
customer orders and typically ships the finished product within 30 days
following receipt of the related order, depending upon fabric availability.
Accordingly, the level of backlog at any particular time is limited, and is not
necessarily indicative of the level of future shipments. The Company's backlog
of unshipped orders was approximately $22 million as of November 29, 1998
compared to $14.4 million as of November 30, 1997. Year-end 1998 numbers include
the applicable backlog for Wexford and Mitchell Gold, both of which were not
included in 1997. The Company anticipates that 100% of the backlog as of
November 29, 1998 will be shipped in 1999.
Distribution. Rowe's products are primarily shipped to its customers through a
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dedicated carriage service with a nationally recognized truck leasing company.
Under this agreement, Rowe's products are delivered in accordance with Rowe's
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specifications on a modern fleet of over-the-road tractors and trailers that
prominently display the Company's name. Management believes that this agreement
offers Rowe favorable terms, allows it to meet its delivery deadlines and
improves the Company's name recognition. This agreement has been recently
extended and it is anticipated that a new agreement will be executed in 1999.
West Coast shipments are provided by what management believes to be a favorable
arrangement for carriage of Rowe's products with a third party motor carrier.
International shipments of upholstered furniture are primarily shipped in full
containers utilizing third-party freight forwarders. Approximately 90% of Rowe's
fiscal year 1998 shipments were delivered under these arrangements. Both Wexford
and Mitchell Gold primarily ship product via common-carriers utilizing either
full or partial loads.
RAW MATERIALS
The raw materials used by the Company include fabrics, leather, lumber, plywood,
polyurethane foam, metal components, mattresses and finishing materials, and in
the case of Mitchell Gold, assembled frames. Other than lumber and fabric, all
raw materials used by the Company are generally available on an "as needed"
basis. The Company maintains what it believes to be an adequate supply of raw
materials in inventory.
The Company currently obtains its raw materials from a limited number of
suppliers, and in the case of hardwood plywood, primarily from a single
supplier. However, management does not believe the Company is dependent upon a
single supplier for any of its materials, as substitute suppliers are available.
Management believes that its sources of raw materials are adequate and that it
forms strong relationships with its suppliers and negotiates favorable prices
for its raw materials.
To improve quality, maximize the opportunities to implement labor saving
technology, hedge against the potential of rising wood costs and free up kiln
capacity, Rowe has increased the substitution of hardwood plywood for hardwood
in certain aspects of the construction of its furniture frames. Because plywood
construction is less labor-intensive, and in many respects more structurally
sound than hardwood construction, this method has improved product quality while
helping to reduce overall cost.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS
The Company's operations are required to meet federal, state and local
regulatory standards in the areas of safety, health and environmental pollution
controls. Historically, compliance with these standards has not had a material
adverse effect on the Company's operations. Management believes that the
Company's plants are in compliance in all material respects, with applicable
federal, state and local laws and regulations concerned with safety, health and
environmental protection.
The Company currently anticipates increased federal and state environmental and
health and safety regulations affecting the furniture industry, particularly
regarding emissions from paint and finishing operations and wood dust levels in
the
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manufacturing process. Any such additional regulations could affect the
Company's wood milling and finishing operations. The industry and its suppliers
are attempting to develop water-based finishing materials to replace commonly
used organic-based finishes which are a major source of regulated emissions. The
Company cannot at this time estimate the impact of any new regulations on the
Company's operations or the costs of compliance.
COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers. The market in which the Company competes includes a large number
of manufacturers of upholstered and wood furniture. Certain of the Company's
competitors have greater financial resources than the Company. Management
believes that the high quality, design and competitive pricing of the Company's
products, the Company's reputation among retailers and the Company's commitment
to customer service have enabled the Company to compete successfully in this
market.
EMPLOYEES
As of November 29, 1998, the Company employed approximately 2,700 full-time
employees, of which 300 are in management, supervisory and sales positions. None
of the Company's employees are covered under a collective bargaining agreement.
The Company considers its employee relations to be good.
TRADEMARKS
The Company has registered its "Rowe", "A Whole New Way to Buy Furniture", "The
Rowe ShowPlace", "The ShowPlace Coordinated Home Furnishings by Rowe", "Rowe
First in Fashion", "Regency Manor", "The Rowe ShowMe Machine", "Limited
Editions" and "The ShowPlace" trademarks with the United States Patent and
Trademark Office. Applications for registration of the Company's "Cover Ups",
"Comfortable Stuff", "Comfortable Stuff by Rowe", "Mitchell Gold" "Robin Bruce"
and "Home Elements" trademarks are pending before the United States Patent and
Trademark Office. In connection with the Company's acquisition of J & M Designs,
Ltd., the Company also owns the "The Wexford Collection" and "The Wexford Group"
trademarks, which are registered with the United States Patent and Trademark
Office and the California Secretary of State. In addition, the Company has
certain of its trademarks registered in Australia, Canada and Mexico, and
applications for registration of certain of the Company's trademarks are pending
in Australia, Canada, Germany and the European Community. Management believes
that its trademark position is adequately protected in all markets in which the
Company does business. Management also believes that the Company's trade names
are recognized by dealers and distributors and are associated with a high level
of quality and value.
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INSURANCE
The Company maintains what management believes is a complete liability and
property insurance program. Additionally, the Company maintains a self-insurance
program for that portion of health care costs not covered by insurance.
FINANCING
The Company utilizes bank financing to partially fund working capital
requirements, capital investments, a stock repurchase program, investments in
other companies and funding of acquisitions. In 1998, overall funding
requirements increased and the Company entered into a borrowing arrangement in
November 1998 in the form of a $25 million revolving loan. Beyond this
financing, the Company maintains committed credit lines in the amount of $40
million through four banks. At year-end 1998, the $25 million revolving loan was
fully utilized and $2.1 million of committed credit lines were outstanding.
The Company is currently negotiating an additional bank revolving credit
facility in anticipation of closing the acquisition of Storehouse in 1999. As
previously indicated, the Company has invested $2.5 million in Storehouse, a 42
store chain of furniture stores and, subject to Storehouse reaching certain
financial objectives for the year ending April 30, 1999, is committed to
purchase 100% of the outstanding shares of this company.
In conjunction with the purchase of Mitchell Gold, the Company guaranteed and
assumed responsibility for the $6.0 million Industrial Revenue Bond used to
finance the construction of a new production facility.
As a result of the $25 million revolving loan entered into in November 1998, the
previously indicated Industrial Revenue Bond for Mitchell Gold, new financing to
fund the anticipated purchase of Storehouse and increased working capital
requirements, interest expense in 1999 will significantly increase over the
level incurred in 1998.
GOODWILL
The Company recognized approximately $2.6 million in goodwill from the
acquisition of Wexford and approximately $10 million in goodwill from the
acquisition of Mitchell Gold. Additional goodwill will be incurred if the
Storehouse acquisition is completed in 1999. Given the timing of the
acquisitions in 1998 and the possible acquisition of Storehouse in 1999, the
charge to the Company in 1999 for goodwill will increase significantly.
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ITEM 2. PROPERTIES.
The following table sets forth certain information concerning the Company's
manufacturing facilities:
<TABLE>
<CAPTION>
Approximate
Size in
Location Description Square Feet
- -------- ----------- -----------
<S> <C> <C>
Salem, Virginia Administrative Office
and Manufacturing 335,000
Salem, Virginia Manufacturing 241,000
Poplar Bluff, Missouri Manufacturing 300,000
Morehouse, Missouri Manufacturing 136,000
Carson, California Administrative Office
and Manufacturing 103,000
Taylorsville, N. Carolina (2) Administrative Office
and Manufacturing 315,000
</TABLE>
In addition, the Company leases executive offices in McLean, Virginia. The
Company considers its manufacturing and office facilities to be adequate and
well-maintained.
In addition to its manufacturing and office facilities, the Company owns the
following properties that are held for investment and are leased on a net basis:
<TABLE>
<CAPTION>
Approximate
Lease Size in
Location Expires Description Square Feet
- -------- ------- ----------- -----------
<S> <C> <C> <C>
Christiansburg, Virginia Various thru
02-28-02 Industrial 79,000*
Jessup, Maryland Various thru Office/
12-31-04 Industrial 180,000
Sylmar, California 03-31-04 Industrial 115,000
</TABLE>
*12,000 square feet is currently leased
Investment properties located in Christiansburg, Virginia and Sylmar, California
were originally acquired by the Company between 1972 and 1985 for utilization as
manufacturing facilities. In past years, the Company ceased utilizing these
facilities for its own operations and determined that the best return on these
properties could be realized by leasing them to third parties. In February 1995,
the Company completed the sale of a 175,000 square foot warehouse in Sylmar,
California. The warehouse had been held by the Company as investment property.
The after-tax gain was approximately $3.0 million, net of lost rents during the
disposition period. In June of 1995, the Company purchased other rental
income-producing property in Jessup, Maryland to permit a "tax-deferred"
exchange with the proceeds realized from this transaction. A retail property
located in Leesburg, Florida, which was acquired in 1984,
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was sold during fiscal year 1997. In 1998, the value of the the investment
property in Christiansburg, Virginia was written down by $288,000 to more
appropriately reflect current value as new tenants have not been secured to
occupy leasable space. Aggregate rental income from investment properties, net
of commissions, was $1,422,000, $1,399,000 and $ 1,412,000 in 1996, 1997 and
1998, respectively.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings, other than routine litigation incidental
to the business of the Company. While the outcome of these routine legal
proceedings cannot be predicted with certainty, it is the opinion of management
that the resolution of these legal proceedings should not have a material
adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies, or otherwise, during the quarter ended November 29, 1998.
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Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The information contained under the caption "Stock Price and
Dividend Data" on page 20 in the Annual Report to Stockholders for the fiscal
year ended November 29, 1998 is included in Exhibit 13 hereto and incorporated
herein by reference.
(b) Approximate Number of Equity Security Holders.
Approximate Number of Record
Title of Class Holders as of November 29, 1998
-------------- -------------------------------
Common Stock, par value 1,000
$1.00 per share
ITEM 6. SELECTED FINANCIAL DATA.
The information contained under the caption "Five-year Summary" on page 8 in the
Annual Report to Stockholders for the fiscal year ended November 29, 1998 is
included in Exhibit 13 hereto and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The management's discussion and analysis of financial condition and results of
operations section on pages 9 and 10 of the Annual Report to Stockholders for
the fiscal year ended November 29, 1998 is included in Exhibit 13 hereto and
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RISK DISCLOSURES
Because the Company's obligations under its revolving loans, lines of credit and
Industrial Revenue Bonds bear interest at variable rates, the Company is
sensitive to changes in prevailing interest rates. A 10% fluctuation in market
interest rates would not have a material impact on earnings during the 1999
fiscal year.
FORWARD LOOKING INFORMATION
Certain portions of this report, and particularly the Notes to the Consolidated
Financial Statements and the Management's Discussion and Analysis of Financial
Condition and Results of Operations in Part II of this report and the portions
of Item II in Part I contain forward looking statements. These statements can be
identified by the use of future
14
<PAGE>
tense or dates or terms such as "believe," "expect," "anticipate" or "plan."
Important factors could cause actual results to differ materially from those
anticipated by some of the statements made in this report. Some of the factors
include, among other things, changes from anticipated levels of sales, whether
due to future national or regional economic and competitive conditions, customer
acceptance of existing and new products, or otherwise; pending or future
litigation; pricing pressures due to excess capacity; raw material cost
increases; transportation cost increases; the inability of a major customer to
meet its obligations; loss of significant customers in connection with a merger
or acquisition, bankruptcy or otherwise; actions of current or new competitors;
increased advertising costs associated with promotional efforts; change of tax
rates; change of interest rates; future business decisions and other
uncertainties, all of which are difficult to predict and many of which are
beyond the control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following information on pages 11 to 20 in the Annual Report to Stockholders
of the fiscal year ended November 29, 1998 is included in Exhibit 13 hereto and
incorporated herein by reference:
Consolidated Balance Sheets - - November 29, 1998 and November 30, 1997
Consolidated Statements of Income - -
Years Ended November 29, 1998, November 30, 1997 and December 1, 1996
Consolidated Statements of Stockholders' Equity - -
Years Ended November 29, 1998, November 30, 1997 and December 1,
1996.
Consolidated Statements of Cash Flows --
Years Ended November 29, 1998, November 30, 1997 and December 1,
1996.
Notes to Consolidated Financial Statements (includes selected quarterly
financial data)
Report of Independent Certified Public Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
15
<PAGE>
PART III
Notwithstanding anything below to the contrary, the Report of the Compensation
and Stock Option Committees and the Performance Graph contained on pages 13
through 15 of the Company's 1999 Annual Meeting Proxy Statement are not
incorporated by reference in this Form 10-K.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by Item 10 is contained in the Company's 1999 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is contained in the Company's 1999 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is contained in the Company's 1999 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is contained in the Company's 1999 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The consolidated balance sheets as of November 29, 1998 and
November 30, 1997 and the related consolidated statements of
income, stockholders' equity, cash flows and notes to
consolidated financial statements for each of the three years in
the period ended November 29, 1998 together with the report of
BDO Seidman, LLP dated January 8, 1999, appearing in the 1998
Annual Report to Stockholders are incorporated herein by
reference. The following additional financial data should be read
in conjunction with the consolidated financial statements in such
1998 Annual Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Certified Public Accountants on Financial
Statement Schedule.
Schedule II-Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or the
required information is shown in the consolidated financial
statements and notes thereto.
3. Exhibits:
Exhibit
Number Exhibit
- ------ -------
3.1 Articles of Incorporation of the Company (incorporated by
reference to the Company's Registration Statement on Form S-1 No.
33-74504 filed with the Securities and Exchange Commission on
January 27, 1994)
3.2 By-laws of the Company (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504 filed
with the Securities and Exchange Commission on January 27, 1994)
4 Specimen Stock Certificate (incorporated by reference to the
Company's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on January 5, 1994)
10.1 Rowe Furniture Corporation 1983 Stock Option and Incentive Plan
(incorporated by reference to the Company's Registration
Statement on Form S-1 No. 33-74504 filed with the Securities and
Exchange Commission on January 27, 1994)
17
<PAGE>
10.2 Rowe Furniture Corporation 1993 Stock Option and Incentive Plan
(incorporated by reference to the Company's registration
Statement on Form S-8 No. 2-94943 filed with the Securities and
Exchange Commission on October 18, 1993)
10.3 Rowe Furniture Corporation Merged 401(k) and Employee Stock
Ownership Plan dated December 1, 1991 (incorporated by reference
to the Company's Registration Statement on Form S-1 No. 33-74504
filed with the Securities and Exchange Commission on January 27,
1994)
10.4 Rowe Furniture Corporation Amended and Restated Supplemental
Executive Retirement Plan II (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504 filed
with the Securities and Exchange Commission on January 27, 1994)
10.5 Employment Agreement dated December 6, 1984 between the Company
and Mr. Harvey I. Ptashek (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504 filed
with the Securities and Exchange Commission on January 27, 1994)
10.6 Employment Agreement dated December 5, 1985 between the Company
and Mr. Arthur H. Dunkin (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504 filed
with the Securities and Exchange Commission on January 27, 1994)
10.7 Rowe Furniture Corporation Cash-or-Deferred Non-Qualified
Executive Retirement Plan (incorporated by reference to the
Company's Form 10-K filed with the Securities and Exchange
Commission on February 27, 1995)
10.8 Employment Agreement dated February 2, 1998 between the Company
and Mr. Gerald M. Birnbach (incorporated by reference to the
Company's Form 10-K filed with the Securities and Exchange
Commission on February 12, 1998)
13 Portions of the Annual Report for the year ended November 29,
1998
21 List of Subsidiaries
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule
(b) Reports on Form 8-K.
On November 16, 1998, a Form 8-K was filed reporting that on October
30, 1998, Rowe Furniture Corporation (the "Company") completed its acquisition
of The
18
<PAGE>
Mitchell Gold Co., Inc. ("MGC") pursuant to the Stock Purchase Agreement dated
September 25, 1998, among the Company, MGC, and the two stockholders of MGC,
Mitchell S. Gold and Robert T. Williams, Jr. (the "Agreement"), The acquisition
was effected through the purchase by the Company of all the issued and
outstanding shares of the capital stock of MGC from Mr. Gold and Mr. Williams in
exchange for a purchase price consisting of (i) an initial payment of $13
million, comprised of (1) $10 million in cash and (2) $3 million of convertible
debentures, (ii) an interim earn-out amount, if earned of $5 million and (iii) a
long-term earn-out amount, if earned, up to a maximum of $19 million (total
maximum purchase price $32 million). The Agreement was included as an exhibit to
the Company's Current Report on Form 8-K filed on October 7, 1998. The Company
funded the $10 million cash portion of the initial payment by drawing upon an
existing line of credit made in the ordinary course of business by a bank. MGC,
a manufacturer of upholstered furniture, is now operated as a wholly-owned
subsidiary of the Company.
On January 14, 1999, a Form 8K/A was filed reporting that as previously
reported, on October 31, 1998, Rowe Furniture Corporation (the "Company")
completed its acquisition of The Mitchell Gold Co., Inc. ("MGC") pursuant to the
Stock Purchase Agreement, dated September 25, 1998. Pursuant to the requirements
of the Securities and Exchange Act of 1934, the Registrant amended Item 7.
Financial Statements and Exhibits of its Report on Form 8-K dated October 31,
1998 to include the financial statements and pro forma financial information
required as part of this item as a exhibit to the amendment to the Company's
Report on Form 8-K dated October 31, 1998 to include the following items: (1)
Pro Forma Financial Statements (Unaudited), Pro Forma Combined Financial
Statements - Introduction, Pro Forma Combined Balance Sheet as of August 30,
1998, Pro Forma Combined Statement of Income for the nine months ended August
30, 1998, Pro Forma Combined Statement of Income for the year ended November 30,
1997, Notes to Pro Forma Combined Financial Statements. (2) The Mitchell Gold
Co. - Audited Financial Statements and Notes to Audited Financial Statements,
Independent Accountants' Report, Balance Sheets as of April 30, 1998 and 1997,
Statements of Income for the years ended April 30, 1998 and 1997, Statements of
Retained Earnings for the years ended April 30, 1998 and 1997, Statements of
Cash Flows for the years ended April 30, 1998 and 1997, Summary of Accounting
Policies, Notes to Financial Statements and (3) The Mitchell Gold Co. Unaudited
Financial Statements, Balance Sheets as of August 30, 1998 and 1997 (Unaudited),
Statements of Income for the four months ended August 30, 1998 and 1997
(Unaudited), Statements of Cash Flows for the four months ended August 30, 1998
and 1997 (Unaudited).
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ROWE FURNITURE CORPORATION
By: /s/ ARTHUR H. DUNKIN
----------------------------------
February 19, 1999 A. H. Dunkin, Secretary-Treasurer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- -----
Chairman of the Board
/s/ GERALD M. BIRNBACH President, Director February 19, 1999
- ------------------------
G. M. Birnbach (Principal Executive Officer)
/s/ RICHARD E. CHENEY Director February 19, 1999
- ------------------------
R. E. Cheney
Secretary-Treasurer, Director
/s/ ARTHUR H. DUNKIN (Principal Financial and February 19, 1999
- ------------------------
A. H. Dunkin Accounting Officer)
/s/ HARVEY I. PTASHEK Director February 19, 1999
- ------------------------
H. I. Ptashek
20
<PAGE>
/s/ CHARLES T. ROSEN Director February 19, 1999
- -----------------------
C. T. Rosen
/s/ KEITH J. ROWE Director February 19, 1999
- -----------------------
K. J. Rowe
/s/ SIDNEY J. SILVER Director February 19, 1999
- -----------------------
S. J. Silver
/s/ ALLAN TOFIAS Director February 19, 1999
- -----------------------
Allan Tofias
/s/ GERALD O. WOODLIEF Director February 19, 1999
- -----------------------
G. O. Woodlief
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Rowe Furniture Corporation
Salem, Virginia
The audits referred to in our report dated January 8, 1999, relating to the
consolidated financial statements of Rowe Furniture Corporation, which is
contained in Item 8 of this Form 10-K (incorporated in Item 8 of the Form 10-K
by reference to the annual report of stockholders for the year ended November
29, 1998) included the audit of the financial statement schedule listed in the
accompanying index. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
High Point, North Carolina /s/ BDO SEIDMAN, LLP
--------------------
January 8, 1999 BDO SEIDMAN, LLP
22
<PAGE>
ROWE FURNITURE CORPORATION
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 29, 1998, NOVEMBER 30, 1997 AND DECEMBER 1, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------------------
(1) (2)
CHARGED TO
BALANCE AT CHARGED TO CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND COSTS AND ACCOUNTS DEDUCTIONS - END OF
DESCRIPTION OF PERIOD EXPENSES EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
Accounts - 1998 $ 316 $ (1,285) $ - $ (1,844)(A) $ 875
Allowance for doubtful
Accounts - 1997 $ 300 $ 3,918 $ - $ 3,902(B) $ 316
Allowance for doubtful
Accounts - 1996 $ 300 $ 490 $ - $ 490(C) $ 300
</TABLE>
(A) Accounts charged off less bad debt recoveries of $1,980,000
(B) Accounts charged off less bad debt recoveries of $274,000
(C) Accounts charged off less bad debt recoveries of $69,000
<PAGE>
EXHIBIT 13
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Fiscal Year Ended) 11/29/98(1) 11/30/97
<S> <C> <C>
Net shipments $ 193,400 $ 144,118
Net earnings(2)(3) $ 11,200 $ 6,286
Net earnings per common share basic $ 0.90 $ 0.49
Stockholders' equity $ 45,236 $ 39,442
Book value per share $ 3.69 $ 3.14
Dividends paid per share $ 0.12 $ 0.10
Current ratio 2.2 to 1 1.9 to 1
</TABLE>
(1) The 1998 amounts include The Wexford Collection, Inc., acquired January 1,
1998 and The Mitchell Gold Co., acquired October 31, 1998
(2) The results of operations for 1997 include unusual charges, net of taxes,
of $2.7 million, or $0.20 per share, primarily associated with the write-
off of a receivable from Levitz Furniture.
(3) The results of operations for 1998 include an after-tax gain of
approximately $0.02 per share reflecting the sale of Levitz Furniture
receivable, partially offset by an increase in reserve for bad debts,
write-down of investment property and other unusual charges.
- --------------------------------------------------------------------------------
ROWE FURNITURE
Founded in 1946, Rowe Furniture Corporation is a leading manufacturer of medium-
priced high quality upholstered furniture. We make sofas, loveseats, chairs and
other seating pieces in our production facilities in Salem, Virginia and Poplar
Bluff, Missouri. We offer dozens of furniture styles and hundreds of fabric
choices. We are suppliers to a broad cross-section of the market.
We sell our products to more than 1,000 national, regional and local retailers.
More than 100 stores have dedicated Rowe Furniture Galleries. In addition we
export our products to Canada, South America, Europe, the Middle East, Asia and
Australia. Our growth continues to outpace the industry.
ABOUT THE COVER
On the cover: Gerald "Jerry" M. Birnbach, Rowe Chairman and President with
Lulu, the lead spokesbulldog for The Mitchell Gold Co. "Our acquisition of
Mitchell Gold is indicative of our commitment to capitalize on the opportunities
presented by the non-traditional specialty home furnishings retailers in the
marketplace. Mitchell Gold delivers the product, service, consumer and
corporate culture these merchants want. Bringing this company into our family
is one of the most exciting and dramatic changes in our 52 years in business,"
GMB.
ANNUAL MEETING
- --------------
The annual meeting of stockholders will be held at 10:00 a.m. on Tuesday, March
30, 1999 at the Ritz Carlton 1700 Tysons Blvd. McLean, Virginia. Copies of the
Company's Annual Report to the SEC on Form 10-K will be available in early
March. If you would like a copy without charge, please write A. H. Dunkin,
Secretary-Treasurer 1650 Tysons Boulevard Suite 710 McLean, Virginia 22102.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Year Ended November 29, 1998
Compared to Year Ended November 30, 1997
Net shipments in 1998 increased by $49,282,000, or 34.2%, to $193,400,000 from
$144,118,000 in 1997. Management believes that shipments increased primarily
from the addition of new dealers, increased purchases by existing customers and
favorable product mix. Included in net shipments were eleven months and one
month of operations at newly acquired subsidiaries, The Wexford Collection, Inc.
(" Wexford") and The Mitchell Gold Co. ("Mitchell Gold"), respectively (see Note
2). Excluding these new subsidiaries, net shipments in 1998 increased more than
23% versus 1997.
In 1999, the Company expects shipments to its largest customer to be
considerably less due to an announcement from Levitz Furniture that
approximately 25 of their retail locations will be closed. Management believes
that this reduction in shipments will be more than offset by increases from
existing customers such as Sears Homelife, the addition of new customers such as
Storehouse, Inc., and increased sales at Company-owned Home Elements stores. In
addition, shipments should also increase due to a full year of shipments for
Mitchell Gold.
Gross profit in 1998 increased by $12,668,000 or 32.5%, to $51,622,000 from
$38,954,000 in 1997. As a percentage of shipments, gross profit in 1998
decreased to 26.7% 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 at Rowe and lower margins at
Wexford. Gross profit, as a percent of shipments in 1999, is not expected to be
impacted significantly due to the acquisition of Mitchell Gold or changes in
customers, but should increase because of higher volume, improved product mix,
improved manufacturing efficiencies and increased sales at Company-owned Home
Elements stores.
Selling and administrative expenses in 1998 increased by $3,662,000, or 12.1%,
to $33,841,000 from $30,179,000 in 1997. The increase in selling and
administrative expenses was primarily from higher direct selling expenses and
salaries. As a percentage of shipments, selling and administrative expenses in
1998 decreased to 17.5% from 20.9% in 1997. The percentage decrease in selling
and administrative expenses in 1998 resulted primarily from a gain on the sale
of Levitz Furniture receivable previously written off ($3.9 million) in August
1997. This recovery in 1998, partially offset by an increase in the reserve for
bad debts and other unusual charges, reduced expenses by $750,000, pre-tax (see
Note 12). Selling and administrative expenses, as a percent of shipments in
1999, are expected to increase due to amortization of goodwill as a result of
the acquisition of Mitchell Gold (expected to be approximately $400,000), and
because of the reduction in 1998 expense from the gain on the Levitz receivable.
Operating income in 1998 increased by $9,006,000, or 102.6%, to $17,781,000 from
$8,775,000 in 1997. 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. The previous year's operating income included
the Levitz Furniture receivable write-off of approximately $3,900,000.
Interest expense in 1998 increased by $415,000, or 148.7%, to $694,000 from
$279,000 in 1997. The increase in interest expense resulted from additional
short-term borrowings primarily associated
<PAGE>
with working capital requirements for Wexford, capital expenditures and
purchases of treasury stock. Interest expense in 1999 is expected to increase
approximately $1.3 million due to the additional borrowing levels primarily
resulting from the acquisition of Mitchell Gold.
Other income in 1998 decreased by $347,000 to $1,043,000 from $1,390,000 in 1997
primarily from a write-down of investment property of approximately $288,000,
pre-tax, to reflect estimated values (see Note 1).
Net earnings increased by $4,914,000, or 78.2%, to $11,200,000 in 1998 from
$6,286,000 in 1997. Included in net earnings in 1998 is approximately $0.02 per
share after-tax 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. Net earnings in 1997 were impacted by $0.20 per share due
to the write-off of the Levitz receivable.
Year Ended November 30, 1997
Compared to Year Ended December 1, 1996
Net shipments in 1997 increased by $1,395,000, or 1.0%, to $144,118,000 from
$142,723,000 in 1996. In the first half of 1997 compared to 1996, net shipments
decreased 2%, negatively impacted by the elimination of certain unprofitable
product categories and a generally unfavorable business environment. This
decrease was more than offset by a 4.0% increase in net shipments in the second
half of the year, primarily from new product introductions, new dealers and
overall improvement in business conditions.
Gross profit in 1997 increased by $1,361,000, or 3.6%, to $38,954,000 from
$37,593,000 in 1996. As a percentage of shipments, gross profit in 1997
increased to 27.0% from 26.3% in 1996. Management believes that the percentage
increase was due primarily to favorable product mix and improvements in
manufacturing efficiencies.
Selling and administrative expenses in 1997 increased by $2,834,000, or 10.4%,
to $30,179,000 from $27,345,000 in 1996. As a percentage of shipments, selling
and administrative expenses in 1997 increased to 20.9% from 19.2% in 1996. The
increase in selling and administrative expenses resulted primarily from the
write-off of Levitz Furniture receivable ($3.9 million). Excluding this unusual
charge, expenses as a percentage of shipments declined approximately 1%,
primarily from a reduction in advertising and store opening expenses at the
Company-owned retail operations.
Operating income in 1997 decreased by $1,473,000, or 14.4%, to $8,775,000 from
$10,248,000 in 1996. The decrease in operating income was primarily
attributable to the write-off of the Levitz Furniture receivable, offset by the
improvement in gross profit and other reduced selling and administrative
expenses.
Interest expense in 1997 decreased by $64,000, or 18.7%, to $279,000 from
$343,000 in 1996. The decrease in interest expense resulted from the elimination
of long-term debt and a decrease in short-term borrowings.
Other income in 1997 decreased by $92,000 to $1,390,000 from $1,482,000 in 1996.
The decrease in other income was due primarily to a vacancy in rental property
located in Christiansburg, Virginia, partially offset by a gain from the sale of
rental property located in Leesburg, Florida.
<PAGE>
Net earnings decreased by $766,000, or 10.9%, to $6,286,000 in 1997 from
$7,052,000 in 1996. The decrease in net earnings was due primarily to 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 income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital requirements
with internally generated funds. Working capital needs along with capital
expenditures and purchases under the Company's stock repurchase program
necessitated use of short-term bank financing throughout most of 1998. In
November 1998, the Company entered into a revolving bank loan for $25,000,000 to
fund the acquisition of Mitchell Gold and provide working capital for the
Company and its subsidiaries (see Notes 2 & 6).
Net cash provided by operating activities was $3,011,000, $11,207,000 and
$7,042,000 in 1998, 1997 and 1996, respectively. Fluctuations in net cash
provided by operating activities are primarily the result of changes in net
income and changes in working capital accounts, including reduction of supplier
payables and payments to eliminate factoring loans at Wexford.
Capital expenditures were $6,951,000, $3,261,000 and $3,859,000 for 1998, 1997
and 1996, respectively. These expenditures were incurred primarily in connection
with the expansion of the Company's production capacity and additions of
equipment and information systems. The Company also invested $2,500,000 in the
form of a subordinated loan to Storehouse, Inc., (see Note 2).
Financing activities provided (utilized) net cash of $18,512,000, ($9,331,000)
and ($1,644,000) in 1998, 1997 and 1996, respectively. These activities
primarily consisted of the repurchase of the Company's common stock, dividends
paid to stockholders and payments to reduce long-term debt offset by the
revolving bank loan and increased short-term borrowings in 1998.
Management anticipates that the Company's capital expenditures for 1999 will
approximate $20.0 million. These expenditures consist primarily of the potential
construction of a replacement facility for one of the Company's manufacturing
plants in Salem, Virginia. Additionally, expenditures will be used to purchase
capital equipment at its facilities for efficiency improvements and capacity
expansions, along with additions and upgrades to computerized systems and
expansion of additional Company-owned Home Elements retail locations.
The amount outstanding under the lines of credit was $2,093,000 as of November
29, 1998. The Company has a total of $40,000,000 available under existing lines
of credit.
The Company believes that net cash provided by operating activities, available
bank loans and various alternative financing will be utilized to fund
anticipated growth and to meet the Company's foreseeable capital requirements
and operating needs through 1999.
The Company has entered into an agreement with Storehouse, Inc. ("Storehouse")
to acquire all of the outstanding common stock of Storehouse, subject to certain
conditions of financial performance for the twelve-month period ending April 30,
1999. The pending acquisition of Storehouse, if it occurs, is expected to be
funded by a revolving bank loan. Such an acquisition will require additional
funding for working capital, store openings and other related costs. The
acquisition is not expected to have a
<PAGE>
material adverse effect on the financial condition of the Company.
YEAR 2000
The Year 2000 issue is the result of computer systems that used two digits
rather than four to define the applicable year, which may prevent such systems
from accurately processing dates ending in the year 2000 and after. This could
result in system failures or in miscalculations causing disruption of
operations, including, but not limited to, an inability to process transactions,
to send and receive electronic data, or to engage in routine business activities
and operations.
In 1997, the Company established a Year 2000 task force to develop and implement
a Year 2000 compliance plan. The Company has completed an assessment of the
impact on its operations and through this effort has compiled an inventory of
computer programs and equipment potentially subject to change. New software has
been installed in connection with a more fully integrated system that has
addressed a portion of the Company's Year 2000 issues. The Company is currently
in the process of replacing and/or modifying core computer system programs and
equipment and is testing these activities. Management estimates that the Company
is 80% complete in its Year 2000 compliance. The Company's goal is to be
completely Year 2000 compliant by the third quarter of 1999.
In addition, the Company has initiated communications with business partners to
determine the extent of their efforts to remedy their Year 2000 issues. The
Company has scheduled a follow-up survey with any business partner, which did
not have a positive response from initial communications. Although resources are
being directed towards reducing interruptions caused by the Year 2000 issue,
there is no guarantee the internal systems or the systems of the Company's
business partners will be corrected and that there would be no material adverse
impact on the Company's operations.
Management believes at this time that costs associated with replacing these
systems and equipment should not have a material adverse effect on the Company.
In 1998, expenses were approximately $150,000 with additional estimated
expenditures of $450,000 in 1999, excluding the replacement of integrated and
core systems.
Although management expects internal systems to be Year 2000 compliant as
described above, a contingency plan will be developed during 1999.
FORWARD LOOKING STATEMENTS
Statements concerning the Company's business outlook or future economic
performance, anticipated profitability, revenues, expenses or other financial
items; together with other statements that are not historical facts, are
"forward looking statements" as that term is defined under Federal Securities
Laws. "Forward looking statements" are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from those stated
in such statements. Such risks, uncertainties and factors include, but are not
limited to industry cycles, fluctuations in customer demand and order patterns,
the seasonal nature of the business, changes in pricing, and general economic
conditions, as well as other risks detailed in the Company's filings with the
Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
Rowe Furniture Corporation Annual Report 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
Year Ended
11/29/98 11/30/97 12/1/96
----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) In Cash
Cash flows from operating activities:
Cash received from customers $ 189,437 $ 142,136 $ 138,270
Cash paid to suppliers and employees (180,372) (128,135) (128,641)
Income taxes paid, net of refunds (6,403) (3,781) (4,013)
Interest paid (694) (279) (343)
Interest received 337 306 479
Other receipts - net 706 960 1,290
--------- --------- ---------
Net cash and cash equivalents provided by
operating activities 3,011 11,207 7,042
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment - 338 35
Capital expenditures (6,951) (3,261) (3,859)
Payments to acquire businesses (10,442) - -
Investment in Storehouse, Inc. (Note 2) (2,500) - -
--------- --------- ---------
Net cash used in investing activities (19,893) (2,923) (3,824)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) under line of credit 362 (1,879) 1,475
Proceeds from issuance of long-term debt 25,000 - -
Payments to reduce long-term debt (1,444) (420) (634)
Proceeds from issuance of common stock 968 388 249
Dividends paid (1,498) (1,308) (1,075)
Purchase of treasury stock (4,876) (6,112) (1,659)
--------- --------- ---------
Net cash provided by (used in) financing activities 18,512 (9,331) (1,644)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,630 (1,047) 1,574
Cash at beginning of year 850 1,897 323
--------- --------- ---------
Cash at end of year $ 2,480 $ 850 $ 1,897
========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings $ 11,200 $ 6,286 $ 7,052
--------- --------- ---------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,773 2,777 2,487
Provision for deferred compensation 762 979 1,017
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Payments made for deferred compensation (590) (526) (426)
Deferred income taxes 545 (50) (320)
Provision for losses on accounts receivable (recoveries) (1,285) 3,919 490
Loss (gain) on disposition of assets - (124) 287
Change in operating assets and liabilities net of effects
of acquisition of businesses:
Decrease (increase) in accounts receivable (3,963) (1,982) (4,453)
Decrease (increase) in inventories (2,164) (2,071) 63
Decrease (increase) in prepaid expenses (468) (8) 594
Decrease (increase) in cash value of life insurance (112) (120) (116)
Decrease (increase) in other assets 490 (35) 15
Increase (decrease) in accounts payable (2,549) 2,326 (466)
Increase (decrease) in accrued expenses (2,628) (164) 818
--------- --------- ---------
Total adjustments (8,189) 4,921 (10)
--------- --------- ---------
Net cash provided by operating activities $ 3,011 $ 11,207 $ 7,042
========= ========= =========
Supplemental Disclosures of Cash Flows:
Fair value of assets acquired other than cash $ 31,955
Liabilities assumed (18,513)
Convertible debentures issued (3,000)
---------
Payments to acquire businesses $ 10,442
==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
Rowe Furniture Corporation Annual Report 1998
Five Year Summary
<TABLE>
<CAPTION>
1998(1) 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net shipments $193,400 $144,118 $142,723 $124,939 $111,201
Gross profit 51,622 38,954 37,593 30,496 28,687
Operating income 17,781 8,775 10,248 5,706 9,458
Net earnings (2)(3)(4) $ 11,200 $ 6,286 $ 7,052 $ 7,207 $ 6,782
Working capital $ 30,473 $ 17,404 $ 18,232 $ 14,907 $ 16,605
Total assets 110,462 63,710 64,280 58,035 48,098
Long-term debt 33,796 - - 569 864
Stockholders' equity $ 45,236 $ 39,442 $ 40,188 $ 35,621 $ 32,339
Net earnings per common share - basic $ 0.90 $ 0.49 $ 0.53 $ 0.53 $ 0.48
Weighted average common shares 12,429 12,955 13,370 13,607 14,038
Net earnings per common share assuming dilution $ 0.87 $ 0.47 $ 0.51 $ 0.52 $ 0.47
Weighted average common shares and equivalents 12,844 13,333 13,743 13,804 14,563
Cash dividends paid per share $ 0.12 $ 0.10 $ 0.08 $ 0.08 $ 0.06
</TABLE>
Weighted average shares and per share amounts have been adjusted to give
retroactive effect to three-for-two stock splits declared December 16, 1993 and
November 10, 1994 and the adoption of SFAS 128, "Earnings per Share".
(1) The 1998 amounts include The Wexford Collection, Inc., acquired January 1,
1998 and The Mitchell Gold Co., acquired October 31, 1998 (See Note 2 of the
financial statements).
(2) The results of operations for 1997 include unusual charges, net of taxes, of
$2.7 million, or $0.20 per share, primarily associated with the write-off of
a receivable from Levitz Furniture.
(3) The results of operations for 1998 include an after-tax gain of
approximately $0.02 per share reflecting the sale of Levitz Furniture
receivable, partially offset by an increase in reserve for bad debts, write-
down of investment property and other unusual charges.
(4) The results of operations for 1995 include an after-tax gain on the sale of
property of approximately $3.0 million, or $0.22 per share and an after-tax
restructuring charge of $265,000, or $0.02 per share.
<PAGE>
<TABLE>
<CAPTION>
Rowe Furniture Corporation Annual Report 1998
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
11/29/98 11/30/97
----------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,480 $ 850
Accounts receivable (net of allowance
for losses of $875,000 in 1998 and $316,000 in 1997) (Note 12) 29,631 20,789
Inventories (Notes 1 & 3) 22,666 14,454
Deferred income taxes (Note 11) 181 194
Prepaid expenses 1,060 500
--------- ---------
Total current assets 56,018 36,787
--------- ---------
PROPERTY AND EQUIPMENT (Notes 1, 4 & 6) 26,530 14,853
--------- ---------
OTHER ASSETS
Cash value of life insurance (Note 7) 3,750 3,638
Investment property (net of accumulated depreciation of
$2,403,000 in 1998 and $1,902,000 in 1997) (Notes 1 & 9) 7,844 8,209
Goodwill (net of amortization of $161,000 in 1998) (Notes 1 & 2) 12,612 -
Miscellaneous (Note 2) 3,708 223
--------- ---------
Total other assets 27,914 12,070
--------- ---------
$ 110,462 $ 63,710
========= =========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6) $ 487 $ -
Short-term bank borrowings (Note 5) 2,093 1,731
Accounts payable 16,928 13,538
Accrued expenses:
Compensation 3,013 1,019
Income taxes 933 857
Other 1,817 1,847
Deferred compensation - current portion (Note 7) 274 391
--------- ---------
Total current liabilities 25,545 19,383
LONG-TERM DEBT (Note 6) 33,796 -
DEFERRED COMPENSATION (Note 7) 3,250 2,961
DEFERRED INCOME TAXES (Note 11) 2,635 1,924
--------- ---------
Total liabilities 65,226 24,268
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4, 7, 8 & 9)
STOCKHOLDERS' EQUITY (Note 10)
COMMON STOCK, par value $1 per share:
1998 1997
-----------------------------
Authorized shares 20,000,000 20,000,000
Issued shares 14,905,795 14,667,783 14,906 14,668
Outstanding shares 12,264,576 12,543,522
CAPITAL IN EXCESS OF PAR VALUE 9,363 8,633
RETAINED EARNINGS 38,713 29,011
--------- ---------
62,982 52,312
LESS TREASURY STOCK - 2,641,219 shares in
1998 and 2,124,261 shares in 1997, at cost (17,746) (12,870)
--------- ---------
Total stockholders' equity 45,236 39,442
--------- ---------
$ 110,462 $ 63,710
========= =========
Ratio of current assets to current liabilities 2.2 to 1 1.9 to 1
Ratio of cash and receivables
to current liabilities 1.3 to 1 1.1 to 1
</TABLE>
See notes to consolidated financial statements
<PAGE>
Rowe Furniture Corporation Annual Report 1998
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
11/29/98 11/30/97 12/1/96
-----------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net shipments (Note 12) $ 193,400 $ 144,118 $142,723
Cost of shipments 141,778 105,164 105,130
--------- --------- --------
Gross profit 51,622 38,954 37,593
Selling and administrative expenses (Note 12) 33,841 30,179 27,345
--------- --------- --------
Operating income 17,781 8,775 10,248
Interest expense (694) (279) (343)
Other income, net (Note 9) 1,043 1,390 1,482
--------- --------- --------
Earnings before taxes 18,130 9,886 11,387
Taxes on income (Note 11) 6,930 3,600 4,335
--------- --------- --------
Net earnings $ 11,200 $ 6,286 $ 7,052
========= ========= ========
Net earnings per common share (Note 1) $0.90 $ 0.49 $0.53
========= ========= ========
Weighted average common shares 12,429 12,955 13,370
========= ========= ========
Net earnings per common share assuming dilution (Note 1) $ 0.87 $ 0.47 $ 0.51
========= ========= ========
Weighted average common shares and equivalents 12,844 13,333 13,743
========= ========= ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
Rowe Furniture Corporation Annual Report 1998
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Year Ended November 29, 1998, November 30, 1997 and December 1, 1996
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------------------- -------------------------
Capital in
Shares $1 Par Excess of Retained Number of
Issued Value Par Value Earnings Shares Cost
------------------------------------- ----------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 3, 1995 14,416,104 $ 14,416 $ 8,248 $ 18,056 1,005,571 $ 5,099
Acquisition of treasury stock 303,674 1,659
Cash dividends paid, $0.08 per share (1,075)
Exercise of stock options 147,999 148 101
Net earnings for the year ended
December 1, 1996 7,052
---------- ---------- ------- --------- ------------ --------
Balance at December 1, 1996 14,564,103 14,564 8,349 24,033 1,309,245 6,758
Acquisition of treasury stock 815,016 6,112
Cash dividends paid, $0.10 per share (1,308)
Exercise of stock options 103,680 104 284
Net earnings for the year ended
November 30, 1997 6,286
---------- ---------- ------- --------- ------------ --------
Balance at November 30, 1997 14,667,783 14,668 8,633 29,011 2,124,261 12,870
Acquisition of treasury stock 516,958 4,876
Cash dividends paid, $0.12 per share (1,498)
Exercise of stock options 238,012 238 730
Net earnings for the year ended
November 29, 1998 11,200
---------- --------- ------- --------- ------------ --------
Balance at November 29, 1998 14,905,795 $ 14,906 $ 9,363 $ 38,713 2,641,219 $ 17,746
========== ========= ======= ========= ============ ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business- The Company is primarily a manufacturer of upholstered
and wood household furniture, selling throughout the United States and in some
international markets. Sales are recognized when products are shipped and
invoiced to customers. Substantially all of the Company's trade accounts
receivable are from companies in the retail furniture industry. Management
periodically performs credit evaluations of its customers and generally does not
require collateral. The Company uses credit insurance to minimize the risk on
certain accounts. The Company has no concentrated credit risk with any
individual customer except as described in Note 12.
Principles of Consolidation- The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany
transactions and balances have been eliminated.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Inventories-Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Equipment and Depreciation- Property and equipment are stated at cost.
For financial reporting purposes, depreciation is computed over the estimated
useful lives of the assets using primarily the straight-line method. Accelerated
methods are used for income tax purposes. Assets are depreciated for financial
reporting purposes based on estimated useful lives as follows: buildings and
improvements (5 to 45 years); machinery and equipment (3 to 10 years); leasehold
improvements (terms of leases).
Long-Lived Assets- Long-lived assets, such as property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value. This
policy is in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." 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.
Fair Value of Financial Instruments- Financial instruments of the Company
include long-term debt and line of credit agreements. Based upon the current
borrowing rates available to the Company, estimated fair values of these
financial instruments approximate their recorded carrying amounts.
Intangible Assets- Intangible assets consist principally of values assigned to
the excess of cost over the fair value of net assets acquired (Goodwill). These
assets are being amortized using the straight-line method over 25 years. The
Company evaluates the carrying amount of goodwill based on
<PAGE>
profitability projections and estimated future cash flows. If estimated future
cash flows are not sufficient to recover the carrying amount of goodwill, the
assets will be written down to fair value.
Advertising Costs- Costs incurred for advertising are expensed when incurred.
Costs incurred under cooperative advertising programs are recognized when the
related revenues are recognized. The charges to expense were $4,357,000,
$3,638,000 and $4,105,000 in 1998, 1997 and 1996, respectively.
Income Taxes- Income taxes are calculated using the liability method specified
by Statement of Financial Accounting Standards No. 109, "Accounting For Income
Taxes."
Earnings Per Share- In 1998, the Company 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 during the period. Outstanding
stock options and convertible debentures, 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.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Weighted average common shares outstanding (Basic) 12,429 12,955 13,370
Effect of dilutive stock options and convertible debentures 415 378 373
------ ------ ------
Weighted average common shares and equivalents
outstanding (Diluted) 12,844 13,333 13,743
====== ====== ======
</TABLE>
Statement of Cash Flows- For purposes of the Statements of Cash Flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Fiscal Year- The Company's accounting fiscal year end is the Sunday of each year
closest to November 30.
Reclassifications- Certain prior year amounts have been reclassified to conform
to current year presentation. The reclassifications have no effect on the
results of operations previously reported.
NOTE 2- ACQUISITIONS
On January 1, 1998, the Company, through a newly created subsidiary, The Wexford
Collection, Inc., acquired the assets and assumed certain liabilities of J & M
Designs, Ltd.-Carson, California, a manufacturer of solid wood reproductions.
The purchase price included $200,000 paid in cash and contingent payments based
on future earnings up to $5 million, less adjustments. The Company has accounted
for the acquisition using the purchase method of accounting and the operations
are included in the Consolidated Statements of Income from the date of
acquisition.
On August 25, 1998, the Company entered into an agreement to make an investment
of $2.5 million, in the form of a subordinated loan, in Storehouse, Inc.
("Storehouse") and subject to certain
<PAGE>
conditions acquire all outstanding shares of its common stock. The acquisition
price to be paid will be based upon the financial performance of Storehouse for
the twelve-month period ending April 30, 1999. The $2.5 million investment is
included in miscellaneous assets in the Consolidated Balance Sheets.
Storehouse, a privately owned company in Atlanta, Georgia, operates a chain of
42 retail furniture stores in the northeast, southeast and southwest. The
acquisition is expected to close not later than July 31, 1999 and Storehouse
would operate as a wholly owned subsidiary of the Company.
On October 31, 1998, the Company acquired all of the issued and outstanding
common stock of The Mitchell Gold Co. ("Mitchell Gold"), a privately owned
company located in North Carolina. The purchase price of Mitchell Gold consisted
of an initial payment of $13 million, comprised of $10 million in cash and $3
million of convertible debentures. Additional earn-out provisions allow for a
maximum purchase price of $32 million, if certain earnings targets are attained.
The Company has accounted for the acquisition using the purchase method of
accounting.
Mitchell Gold, a manufacturer of upholstered furniture, is now operated as a
wholly owned subsidiary of the Company. The operations of Mitchell Gold are
included in the Consolidated Statements of Income from the date of acquisition.
The unaudited pro forma combined information has been prepared by the Company's
management based upon historical financial statements of the Company and
Mitchell Gold and give effect to the transaction as if it had occurred at the
beginning of the periods presented. This unaudited pro forma information may not
be indicative of the results that actually would have occurred if the
combination had been in effect on the date indicated or which may be obtained in
the future.
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
11/29/98 11/30/97
-------- --------
(in thousands, except per share amounts)
<S> <C> <C>
Net shipments $ 226,844 $167,690
Net earnings $ 11,164 $ 5,836
Net earnings per common share $ 0.90 $ 0.45
Net earnings per common share
assuming dilution $ 0.88 $ 0.45
</TABLE>
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
(in thousands)
Finished goods $ 5,325 $ 3,500
Work-in-process 4,494 2,822
Raw materials 12,847 8,132
------- -------
Total inventories $22,666 $14,454
======= =======
</TABLE>
NOTE 4- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Land $ 298 $ 249
Buildings and improvements 19,387 17,071
Machinery and equipment 32,371 25,995
Construction-in-process 6,732 1,042
------- -------
58,788 44,357
Less accumulated depreciation 32,258 29,504
------- -------
Net property and equipment $26,530 $14,853
======= =======
</TABLE>
The construction-in-process in 1998 related primarily to a new manufacturing
facility for Mitchell Gold with an estimated cost to complete of approximately
$800,000.
<PAGE>
NOTE 5- SHORT-TERM BORROWINGS
The Company has unsecured short-term lines of credit of $40,000,000 with banks
at rates not to exceed the prime interest rate. The following summarizes
aggregate short-term borrowings:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
( in thousands)
<S> <C> <C> <C>
Amount outstanding at year end $ 2,093 $1,731 $ 3,610
Maximum amount outstanding at any month end $12,956 $5,394 $ 7,710
Average borrowings (based on weighted daily balances) $ 9,255 $3,840 $ 4,256
Weighted average interest rate during the year 6.1% 6.2% 6.5%
Weighted average interest rate at year end 5.7% 6.4% 6.3%
</TABLE>
NOTE 6- LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998
--------
(in thousands)
<S> <C>
Revolving bank loan $25,000
Industrial revenue bonds 5,785
Convertible debentures 3,000
Other 498
--------
34,283
Less current maturities 487
--------
Total long-term debt $33,796
========
</TABLE>
In November 1998, the Company executed an agreement for an unsecured revolving
bank loan payable in full on April 30, 2002. The agreement requires quarterly
interest payments at the London Interbank Offering Rate ("Libor") plus a spread
ranging from .35% to 1.30%. The revolving bank loan contains financial covenants
including ratios on leverage to cash flow, debt to total capitalization and
interest coverage. At November 29, 1998 the Company was in compliance with the
provisions of the agreement. The proceeds from the loan were used to provide
working capital for the Company and its subsidiaries and to fund the initial
purchase amount to acquire Mitchell Gold (see Note 2).
The industrial revenue bond proceeds were used to construct a new manufacturing
and office facility for the Company's wholly-owned subsidiary, Mitchell Gold.
Principal payments are required ranging from $220,000 to $405,000 through 2017.
Interest rates range from 3.0% to 5.0%. The bonds are collateralized primarily
by the new facility under construction (see Note 4).
The convertible debentures were issued in connection with the acquisition of
Mitchell Gold as part of the initial purchase amount. The convertible debentures
can be converted to 357,676 shares of the Company's common stock, based on the
market price at closing, at any time after October 31, 1999
<PAGE>
and prior to October 31, 2001. The debentures bear interest at the rate of 7%,
payable quarterly (see Note 2).
The aggregate annual maturities of long-term debt during each of the five fiscal
years subsequent to November 29, 1998 are approximately $487,000 in 1999;
$382,000 in 2000; $3,310,000 in 2001; $25,249,000 in 2002, $255,000 in 2003 and
$4,600,000 thereafter.
The Company had no long-term debt at November 30, 1997.
NOTE 7- DEFERRED COMPENSATION PLANS
Effective December 1, 1986, as amended in 1991, the Company established deferred
compensation contracts for certain officers of the Company. The contracts fixed
a minimum level for retirement benefits to be paid to participants based on age
at retirement with the Company. The contracts are not funded. Charges to expense
were $101,000 in 1998, $457,000 in 1997 and $488,000 in 1996.
The Company also has deferred compensation agreements with key employees.
Vesting is based upon age and years of service. Life insurance contracts have
been purchased which may be used to fund these agreements. The charges to
expense were $140,000 in 1998, $107,000 in 1997 and $174,000 in 1996.
The Company has a Cash-Or-Deferred Non-Qualified Executive Retirement Plan for
certain executive officers of the Company. The Plan enables participants to
defer income on a pre-tax basis and is not funded. The Company matches a portion
of the deferral for participants. The charges to expense were $168,000 in 1998,
$132,000 in 1997 and $105,000 in 1996.
NOTE 8- EMPLOYEE BENEFIT PLANS
The Company contributed $188,000 in 1998, $158,000 in 1997 and $124,000 in 1996
to the Merged 401(k) and Employee Stock Ownership Plan (401 (k) Plan).
The Company made contributions to the Merged Thrift and Employee Stock Ownership
Plan (Thrift Plan) in the amount of $343,000 in 1998, $259,000 in 1997 and
$208,000 in 1996.
Substantially all employees are covered under a 401 (k) Plan or Thrift Plan.
NOTE 9- COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is obligated under long-term real estate leases for offices,
warehouse, showroom and retail locations expiring at various dates through 2007
with certain renewal options. Rental payments charged to expense were $2,205,000
in 1998, $1,762,000 in 1997 and $1,399,000 in 1996.
The Company is a lessor of its investment properties primarily under long-term
operating leases. The lease arrangements have initial terms of three to twelve
years and some contain provisions to
<PAGE>
increase the monthly rentals at specific intervals. Rental income, net of
commissions, was $1,412,000 in 1998, $1,399,000 in 1997 and $1,422,000 in 1996
and is included in other income in the accompanying Statements of Income.
Minimum lease commitments at November 29, 1998 under long-term operating real
estate leases are as follows:
<TABLE>
<CAPTION>
Lease Expense Lease Income
------------- ------------
<S> <C> <C>
1999 $2,676,000 $1,438,000
2000 2,034,000 1,366,000
2001 1,890,000 1,260,000
2002 1,800,000 1,223,000
2003 1,671,000 1,108,000
Thereafter 2,715,000 1,735,000
----------- ----------
$12,786,000 $8,130,000
=========== ==========
</TABLE>
In addition, the Company is obligated through a dedicated contract carriage
agreement for delivery services for periods ranging from 1 to 7 years. Current
monthly expense is approximately $300,000 plus a variable mileage charge.
HEALTH INSURANCE PLAN
The Company maintains a self-insurance program for that portion of health care
costs not covered by insurance. The Company is liable for claims up to $100,000
per family annually, and aggregate claims up to $4,300,000 in 1998. Self-
insurance costs are accrued based upon the aggregate of the liability for
reported claims and an estimated liability for claims incurred but not reported.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain key officers of the Company,
which provide for salary continuation of two years in the event of termination
of employment without cause. In addition, the Company has an agreement with an
officer, which provides annual compensation of $792,000, adjusted for changes in
the consumer price index, through November 30, 2001.
In connection with the acquisitions in 1998, the Company has employment
agreements with certain key officers of the new subsidiaries for a period of
five years from the closing date with salaries ranging from $175,000 to
$275,000.
NOTE 10 - COMMON STOCK
At November 29, 1998, the Company had two stock option plans, which are
described below. The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related Interpretation in accounting for the Plan.
Under APB Opinion 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
Under the 1993 incentive stock option plan, 1,968,125 shares of unissued common
stock or treasury stock have been made available for grants. These options were
granted at market value on the date
<PAGE>
of grant, have been adjusted for stock splits and are exercisable for a term of
ten years from the date of grant.
Under the 1983 incentive stock option plan (as amended), 2,847,655 shares of
unissued common stock or treasury stock were available for grants. These options
are exercisable for a term of five to ten years from the date of grant. The
options were granted at market value on the date of grant and have been adjusted
for stock splits. Effective January 28, 1993, no further options may be granted
under this plan.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation costs for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimated the fair value of each stock option at the
grant date by using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996,
respectively; dividend yield of one percent for all years; expected volatility
of 42.0, 32.7 and 33.7 percent; risk-free interest rates of 5.2%, 6.0% and 6.0%;
expected lives of 4 and 8 years.
Under the accounting provisions of FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings
As reported $11,200,000 $6,286,000 $7,052,000
Pro forma $10,474,000 $6,209,000 $6,239,000
Net earnings per common
share
As reported $ 0.90 $ 0.49 $ 0.53
Pro forma $ 0.84 $ 0.48 $ 0.47
Net earnings per common
share assuming dilution
As reported $ 0.87 $ 0.47 $ 0.51
Pro forma $ 0.82 $ 0.47 $ 0.45
</TABLE>
A summary of the status of the Company's two fixed stock option plans, as of the
balance sheet date and changes during the years ending on those dates, is
presented below:
<PAGE>
<TABLE>
<CAPTION>
November 29, 1998 November 30, 1997 December 1, 1996
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning
of year 995,294 $ 5.16 1,084,224 $4.89 884,398 $3.76
Granted 676,389 7.90 33,500 8.81 390,200 6.28
Exercised (238,012) 4.07 (103,680) 3.74 (147,999) 1.68
Forfeited (6,750) 11.75 (18,750) 4.16 (42,375) 5.28
---------- ---------- ----------
Outstanding
at end of year 1,426,921 $ 6.61 995,294 $5.16 1,084,224 $4.89
========== ========== ==========
Weighted-average
fair value of
options granted
during the year $ 4.41 $ 3.30 $ 3.65
========== ========== ==========
</TABLE>
The following table summarizes information about fixed stock options outstanding
at November 29, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Range Number Weighted Weighted Number Weighted
of Outstanding at Average Average Exercisable Average
Exercise November 29 Remaining Exercise November 29 Exercise
Prices 1998 Contractual Life Price 1998 Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.86 - $1.11 77,453 3 $ 1.08 77,453 $ 1.08
2.70 - 3.07 91,123 4 2.95 91,123 2.95
4.25 - 5.50 356,806 5 4.82 356,806 4.82
6.88 - 7.63 382,200 7 7.22 367,700 7.23
8.03 - 9.00 485,589 9 8.42 54,000 8.53
11.75 33,750 5 11.75 33,750 11.75
--------- -------
1,426,921 $ 6.61 980,832 $ 5.81
========= =======
</TABLE>
NOTE 11- TAXES ON INCOME
Provisions for income taxes in the Consolidated Statements of Income consisted
of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Current $6,385,000 $3,650,000 $4,655,000
Deferred 545,000 (50,000) (320,000)
---------- ---------- ----------
Total taxes on income $6,930,000 $3,600,000 $4,335,000
========== ========== ==========
</TABLE>
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The source of
the temporary differences and their effects on deferred taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Bad debt reserve $ 335,000 $ 111,000
Deferred compensation 1,404,000 1,304,000
Other 349,000 13,000
----------- -----------
Gross deferred tax assets 2,088,000 1,428,000
----------- -----------
Basis of investment property 1,926,000 2,027,000
Depreciation 1,426,000 1,056,000
Prepaid expenses 232,000 75,000
Receivables 958,000 -
----------- -----------
Gross deferred tax liabilities 4,542,000 3,158,000
----------- -----------
Net deferred tax liability $(2,454,000) $(1,730,000)
=========== ===========
Included in the balance sheet:
Deferred income tax asset-current $ 181,000 $ 194,000
Deferred income tax liabilities-non current (2,635,000) (1,924,000)
----------- -----------
Net deferred tax liability $(2,454,000) $(1,730,000)
=========== ===========
</TABLE>
The following summary reconciles taxes at the federal statutory tax rate with
the actual taxes:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Income tax expense computed
at the statutory rate $ 6,245,000 $ 3,360,000 $3,885,000
State income taxes, net of
federal income tax benefit 480,000 304,000 325,000
Life insurance transactions ( 41,000) (40,000) (26,000)
Other items, net 246,000 (24,000) 151,000
----------- ----------- ----------
Total taxes on income $ 6,930,000 $ 3,600,000 $4,335,000
=========== =========== ==========
</TABLE>
NOTE 12 - MAJOR CUSTOMER INFORMATION
Shipments to one customer, Levitz Furniture ("Levitz"), as a percent of net
shipments, amounted to 10% in 1998, 16% in 1997 and 17% in 1996. Receivables
from this customer as a percent of year end receivables amounted to 6% in 1998
and 14% in 1997. Shipments to the Company's top ten customers, as a percent of
net shipments, amounted to 30% in 1998, 34% in 1997 and 35% in 1996.
Levitz filed a voluntary petition for protection under Chapter XI of the federal
bankruptcy code on September 5, 1997. The Company wrote off the balance of its
receivable from Levitz in full ($3.9
<PAGE>
million) as of the bankruptcy date. In April 1998, the Company sold the
receivable and was able to recover approximately $1.8 million.
NOTE 13 - QUARTERLY FINANCIAL INFORMATION
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net shipments $45,331 $45,617 $47,972 $54,480
Gross profit 12,087 11,703 12,528 15,304
Net earnings (3) 2,598 2,429 2,232 3,941
Net earnings per common share (1) (3) 0.21 0.19 0.18 0.32
Net earnings per common share
assuming dilution (1) (3) 0.20 0.19 0.17 0.31
1997
Net shipments $35,416 $32,912 $34,335 $41,455
Gross profit 9,793 8,680 9,048 11,433
Net earnings (loss) (2) 2,110 1,693 (904) 3,387
Net earnings (loss) per common share
(1) (2) 0.16 0.13 (0.07) 0.27
Net earnings (loss) per common share
assuming dilution (1) (2) 0.15 0.13 (0.07) 0.26
</TABLE>
(1) Earnings per share calculations for each of the quarters are based on the
weighted average shares outstanding for each period. The sum of the
quarters may not necessarily be equal to the full year earnings per share
amounts.
(2) Earnings for the third quarter of 1997 include the effects of unusual
charges of $2.7 million, after tax, relating primarily to the write-off of
the Levitz Furniture receivable (see Note 12).
(3) Earnings for the second quarter of 1998 include a gain of approximately
$0.02 per share, after tax, in unusual items reflecting the sale of the
Levitz Furniture receivable partially offset by increase in reserve for bad
debts, write-down of investment property and other unusual charges.
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income, as defined, includes all changes in equity,
except those resulting from investments by owners and distributions to owners.
SFAS No. 130 is effective for periods beginning after December 15, 1997, and
requires comparative information for earlier years to be restated. Management
will adopt SFAS No. 130 in 1999 and will report comprehensive income when
applicable. Results of operations and financial position, however, are not
expected to be impacted by implementation of this standard.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which supercedes SFAS No. 14, "Financial
Reporting for Segments of a
<PAGE>
Business Enterprise." SFAS No. 131 establishes standards for the way that public
companies report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131 is
effective for periods beginning after December 15, 1997, and requires
comparative information for earlier years to be restated. The Company is engaged
principally in one line of business, manufacturing of household furniture, which
represents more than 90% of consolidated sales. Management will adopt this
standard in 1999 and report as one operating segment until other segments become
reportable.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities", which is
effective for fiscal years beginning after December 15, 1998. The SOP requires
that the costs of start-up activities be expensed as incurred. Currently, the
Company defers all costs incurred prior to the opening of a new Company-owned
store and amortizes these costs over the store's first twelve months of
operations. The SOP requires companies to report the initial application of the
standard as a cumulative effect of an accounting change. The Company will adopt
this standard in fiscal 2000. Management believes that the adoption of this
standard will not have a material effect on the Company's results.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 requires companies to recognize all derivative
contracts as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Historically, the Company has not entered into derivative
contracts either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard on
December 1, 1999 to affect its financial statements.
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Rowe Furniture Corporation is responsible for the accuracy and
consistency of all the information contained in the annual report, including all
accompanying consolidated financial statements. The statements have been
prepared to conform with generally accepted accounting principles and include
amounts based on management's estimates and judgments.
Rowe Furniture Corporation maintains a system of internal accounting controls
designed to provide reasonable assurance that financial records are accurate,
Company assets are safeguarded, and financial statements present fairly the
consolidated financial position of the Company.
The Audit Committee of the Board of Directors, composed solely of outside
directors, reviews the scope of audits and the findings of the independent
certified public accountants. The auditors meet regularly with the Audit
Committee to discuss audit and financial issues.
BDO Seidman, LLP, the Company's independent certified public accountants, has
audited the financial statements prepared by management. Their opinion on the
financial statements is presented as follows.
Gerald M. Birnbach Arthur H. Dunkin
Chairman of the Board and President Secretary-Treasurer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Rowe Furniture Corporation
Salem, Virginia
We have audited the accompanying consolidated balance sheets of Rowe Furniture
Corporation and subsidiaries as of November 29, 1998 and November 30, 1997 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended November 29, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rowe Furniture
Corporation and subsidiaries at November 29, 1998 and November 30, 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended November 29, 1998 in conformity with generally accepted
accounting principles.
High Point, North Carolina BDO SEIDMAN, LLP
January 8, 1999
<PAGE>
STOCK PRICE AND DIVIDEND DATA
- -----------------------------
<TABLE>
<CAPTION>
Market Price Dividends
Quarter Ended High Low Paid Per Share
<S> <C> <C> <C> <C>
1998 March 1 9 9/16 6 5/8 $0.030
May 31 11 9 0.030
August 30 10 3/16 8 1/8 0.030
November 29 10 7/8 6 7/8 0.030
------
$0.120
======
1997 March 2 9 3/4 7 7/8 $0.025
June 1 8 7/8 7 1/4 0.025
August 31 8 15/16 7 1/8 0.025
November 30 8 3/16 6 1/8 0.025
------
$0.100
======
</TABLE>
The Company's shares are traded on the New York Stock Exchange under the symbol
ROW. On November 29, 1998, the Company had approximately 1,000 stockholders of
record.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CORPORATE OFFICERS AND DIRECTORS
Officers Directors
<S> <C> <C>
Gerald M. Birnbach Gerald M. Birnbach Keith J. Rowe
Chairman of the Board and President Chairman of the Board and President Private Investor
Arthur H. Dunkin Richard E. Cheney Sidney J. Silver
Secretary-Treasurer Former Chairman Emeritus of the Partner - Silver, Freedman &
Board of Hill and Knowlton, Inc. Taff, LLP
Arthur H. Dunkin Allan Tofias
Secretary-Treasurer Former Managing Partner -
Tofias, Fleishman, Shapiro &
Harvey I. Ptashek Company, P.C.
Retired - Senior Vice President
Gerald O. Woodlief
Charles T. Rosen Retired - Senior Vice President
Vice President - Luth Research, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUBSIDIARY OFFICERS:
ROWE INDUSTRIES, INC.
<TABLE>
<S> <C> <C>
Wildon H. Adkins, Jr. Timothy J. Fortune D. Wayne Owens
Vice President - Upholstery Design Vice President - Human Resources Assistant Vice President -
Safety
Garry W. Angle Timothy W. Garnett
Assistant Treasurer Assistant Vice President Bruce A. Rotramel
Assistant Secretary
Kenneth E. Bentz Jack G. Heaton
Vice President Vice President J. Steve Shelor
Vice President
Barry A. Birnbach Corey J. Keifetz
Vice President - Special Account Sales Vice President - Fabrics Richard W. Sorensen
Vice President
Bruce M. Birnbach John R. Mays
Vice President - Merchandising Vice President - Finance
John R. Clark Mark S. Moseley
Assistant Vice President Vice President - Marketing
Human Resources
ROWE SHOWPLACE, INC THE MITCHELL GOLD CO.
DBA: Home Elements
Mitchell S. Gold
Lorri A. Kelley President
Executive Vice President
Robert T. Williams, Jr.
THE WEXFORD COLLECTION, INC. Executive Vice President
Mary E. Beck
President
</TABLE>
<PAGE>
CORPORATE INFORMATION
<TABLE>
<S> <C> <C>
CORPORATE HEADQUARTERS SHOWROOM TRANSFER AND DIVIDEND
1650 Tysons Boulevard, Suite 710 High Point, North Carolina DISBURSING AGENT
McLean, Virginia 22102 Wachovia Bank of North
703-847-8670 Carolina, N.A.
GENERAL COUNSEL Boston, MA 02266
Manufacturing Facilities: Silver, Freedman & Taff, LLP 800-633-4236
Washington, D.C.
Rowe Industries, Inc.
Poplar Bluff, Missouri AUDITORS DIVIDEND REINVESTMENT
Morehouse, Missouri BDO Seidman, LLP AND STOCK PURCHASE PLAN
Salem, Virginia (2) High Point, North Carolina Wachovia Shareholder Services
P. O. Box 8218
The Mitchell Gold Co. Boston, Massachusetts 02266
Taylorsville, North Carolina 800-633-4236
The Wexford Collection, Inc.
Carson, California
</TABLE>
<PAGE>
EXHIBIT (21)
ROWE FURNITURE CORPORATION
AND WHOLLY-OWNED SUBSIDIARIES
LIST OF SUBSIDIARIES
--------------------
The Company has seven wholly-owned subsidiaries:
(1) Rowe Industries, Inc., a Virginia Corporation
(2) Rowe Properties, Inc., a California Corporation
(3) Rowe ShowPlace, Inc., a Virginia Corporation
(4) Rowe Worldwide, Inc., a US Virgin Islands Corporation
(5) The Wexford Collection, Inc., a California Corporation
(6) Rowe Diversified, Inc., a Delaware Corporation
(7) The Mitchell Gold Co., a North Carolina Corporation
<PAGE>
EXHIBIT (23)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Rowe Furniture Corporation
Salem, Virginia
We hereby consent to the incorporation by reference of our reports dated
January 8, 1999, relating to the consolidated financial statements and schedule
of Rowe Furniture Corporation appearing in the Company's Annual Report on Form
10-K for the year ended November 29, 1998 into the Company's previously filed
registration statements file numbers 2-94943, 33-90486, 33-77766, and 33-77768.
High Point, North Carolina /s/ BDO SEIDMAN, LLP
-----------------------
February 19, 1999 BDO SEIDMAN, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-29-1998
<PERIOD-END> NOV-29-1998
<CASH> 2,480
<SECURITIES> 0
<RECEIVABLES> 29,631
<ALLOWANCES> 875
<INVENTORY> 22,666
<CURRENT-ASSETS> 56,018
<PP&E> 58,788
<DEPRECIATION> 32,258
<TOTAL-ASSETS> 110,462
<CURRENT-LIABILITIES> 25,545
<BONDS> 33,796
14,906
0
<COMMON> 0
<OTHER-SE> 30,330
<TOTAL-LIABILITY-AND-EQUITY> 110,462
<SALES> 193,400
<TOTAL-REVENUES> 193,400
<CGS> 141,778
<TOTAL-COSTS> 141,778
<OTHER-EXPENSES> 32,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> 18,130
<INCOME-TAX> 6,930
<INCOME-CONTINUING> 11,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,200
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.87
</TABLE>
