<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 30, 1999 Commission File Number 1-10226
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THE ROWE COMPANIES
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(Exact name of registrant as specified in its charter)
NEVADA 54-0458563
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Tysons Boulevard, Suite 710, McLean, Virginia 22102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 703-847-8670
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None
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorted period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class Outstanding at May 30, 1999
- -------------------------------------- ---------------------------
Common stock, par value $1.00 per share 12,172,869 shares
<PAGE>
THE ROWE COMPANIES
INDEX
Page
----
Part I. Financial Information
Consolidated Balance Sheets - May 30, 1999
and November 29, 1998 4
Consolidated Statements of Income - Three
Months and Six Months Ended May 30, 1999
and May 31, 1998 5
Consolidated Statements of Cash Flows - Six
Months Ended May 30, 1999 and May 31, 1998 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Quantitative and Qualitative Disclosures about
Market Risk 12
Forward Looking Statements 12
Part II. Other Information 13
<PAGE>
PART I - - FINANCIAL INFORMATION
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 30, November 29,
----------------- ----------------
1999 1998
----------------- ----------------
(Unaudited) (Audited)
($ in thousands)
<S> <S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15 $ 2,480
Accounts receivable, net 32,817 29,631
Inventories (Note 4) 23,533 22,666
Deferred income tax asset 181 181
Prepaid expenses 1,516 1,060
-------- --------
Total current assets 58,062 56,018
PROPERTY AND EQUIPMENT, net 29,584 26,530
GOODWILL, net 12,922 12,612
OTHER NONCURRENT ASSETS 16,362 15,302
-------- --------
$116,930 $110,462
======== ========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt $ 487 $ 487
Short term bank borrowings 4,063 2,093
Accounts payable and accrued liabilities 22,710 22,032
Income taxes payable 920 933
-------- --------
Total current liabilities 28,180 25,545
LONG-TERM DEBT 33,716 33,796
DEFERRED LIABILITIES 6,079 5,885
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Total liabilities 67,975 65,226
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<CAPTION>
May 30, 1999 November 29, 1998
------------ -----------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
Authorized shares 50,000,000 20,000,000
Issued shares 14,995,374 14,905,795 14,995 14,906
Outstanding shares 12,172,869 12,264,576
CAPITAL IN EXCESS OF PAR VALUE 9,616 9,363
RETAINED EARNINGS 43,986 38,713
-------- --------
68,597 62,982
Less treasury stock 2,822,505 shares in 1999 and
2,641,219 shares in 1998, at cost (19,642) (17,746)
-------- --------
Total stockholders' equity 48,955 45,236
-------- --------
$116,930 $110,462
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE AND SIX MONTHS ENDED
MAY 30, 1999 AND MAY 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 30, May 31, May 30, May 31,
1999 1998 1999 1998
------- ------- -------- --------
($ in thousands - except per share amounts)
<S> <C> <C> <C> <C>
Net shipments $63,895 $45,617 $123,861 $90,948
Cost of shipments 46,287 33,914 89,787 67,158
------- ------- -------- -------
Gross profit 17,608 11,703 34,074 23,790
Selling and administrative
expenses 12,522 7,754 23,763 15,801
------- ------- -------- -------
Operating income 5,086 3,949 10,311 7,989
Interest expense (552) (155) (1,141) (273)
Other income 336 106 607 436
------- ------- -------- -------
Earnings before taxes 4,870 3,900 9,777 8,152
Taxes on income 1,828 1,471 3,643 3,125
------- ------- -------- -------
Net earnings $ 3,042 $ 2,429 $ 6,134 $ 5,027
======= ======= ======== =======
Earnings per common share $0.25 $0.19 $ 0.50 $ 0.40
======= ======= ======== =======
Weighted average common shares 12,216 12,510 12,247 12,532
======= ======= ======== =======
Earnings per common share
assuming dilution $0.23 $0.19 $ 0.47 $ 0.39
======= ======= ======== =======
Weighted average common shares and 13,134 12,944 13,214 12,935
equivalents ======= ======= ======== =======
Dividends declared and paid per share
<CAPTION>
Quarter Ended 1999 1998
------------- -------- -------
<S> <C> <C>
First quarter $ 0.035 $ 0.030
Second quarter 0.035 0.030
-------- -------
Total for the six months
ended May 30, 1999
and May 31, 1998 $ 0.070 $ 0.060
======== =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 30, 1999 AND MAY 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
($ in thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 120,675 $ 90,448
Cash paid to suppliers and employees (113,174) (88,417)
Income taxes paid, net of refunds (3,656) (3,697)
Interest paid (1,142) (273)
Interest received 140 254
Other receipts - net 467 182
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Net cash and cash equivalents provided by
(used in) operating activities 3,310 (1,503)
--------- --------
Cash flows from investing activities:
Capital expenditures (5,251) (2,423)
Payments to acquire business - (400)
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Net cash used in investing activities (5,251) (2,823)
--------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit 1,970 6,503
Payments to reduce long-term debt (79) -
Proceeds from issuance of common stock 342 664
Dividends paid (860) (754)
Purchase of treasury stock (1,897) (2,460)
--------- --------
Net cash provided by (used in) financing activities (524) 3,953
--------- --------
Net increase (decrease) in cash and cash equivalents (2,465) (373)
Cash and cash equivalents at beginning of period 2,480 850
--------- --------
Cash and cash equivalents at end of period $ 15 $ 477
========= ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
MAY 30, 1999 AND MAY 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
Reconciliation of Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
1999 1998
------------------ -------------------
($ in thousands)
<S> <C> <C>
Net earnings $ 6,134 $ 5,027
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Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,017 2,158
Provision for deferred compensation 466 421
Payments made for deferred compensation (293) (345)
Provision for losses on accounts receivable - (1,218)
Change in operating assets and liabilities net of effect
of acquisition of business:
Decrease (increase) in accounts receivable (3,186) (500)
Decrease (increase) in inventories (867) 104
Decrease (increase) in prepaid expenses (455) 32
Decrease (increase) in cash surrender value of
life insurance (60) (60)
Decrease (increase) in other assets (1,128) (1,453)
Increase (decrease) in accounts payable (865) (5,096)
Increase (decrease) in accrued expenses 1,560 (1)
Increase (decrease) in income taxes payable (13) (572)
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Total adjustments (2,824) (6,530)
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Net cash provided by (used in) operating activities $ 3,310 $(1,503)
======= =======
Supplemental schedule of non-cash investment activities:
Fair value of assets acquired, other
than cash and cash equivalents $ 7,490
Liabilities assumed (6,490)
Amounts due to sellers (782)
-------
Cash payments made $ 218
=======
See notes to consolidated financial statements
</TABLE>
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 1 - At the annual meeting of shareholders held March 30, 1999, the
shareholders approved changing the name of the Company from Rowe
Furniture Corporation to The Rowe Companies (the "Company"). The name
change reflects the Company's expansion of its manufacturing
operations through acquisitions and growth of its retail operations.
The Rowe Companies is comprised primarily of Rowe Furniture, Inc., its
core upholstered furniture subsidiary; The Mitchell Gold Co., a
producer of upholstered and leather furniture; The Wexford Collection,
Inc., a producer of solid wood furniture and Home Elements, Inc., a
chain of retail specialty home furnishings stores.
Note 2 - In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the financial position as of May 30, 1999 and the results of
operations and cash flows for the six months ended May 30, 1999 and
May 31, 1998.
Note 3 - The results of operations for the six months ended May 30, 1999 and
May 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
Note 4 - Inventory components are as follows:
<TABLE>
<CAPTION>
May 30, November 29,
1999 1998
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($ in thousands)
<S> <C> <C>
Finished Goods $ 6,228 $ 5,325
Work-in-Process 4,131 4,494
Raw Materials 13,174 12,847
------- -------
$23,533 $22,666
======= =======
</TABLE>
Note 5 - On January 1, 1998, through a newly created subsidiary, The Wexford
Collection, Inc. ("Wexford"), the Company acquired the assets and
assumed certain liabilities of J & M Designs Ltd.-Carson, California.
On October 31, 1998, the Company acquired all of the issued and
outstanding common stock of The Mitchell Gold Co. ("Mitchell Gold").
The six months ended May 30, 1999 include six months of activity for
both Wexford and Mitchell Gold, while the period ended May 31, 1998
includes five months activity for Wexford only.
Note 6 - On June 16, 1999, the Company announced that it has reached final
agreement for the previously announced proposed acquisition of
Storehouse, Inc. ("Storehouse"), of Atlanta, GA, a 43 store chain of
retail furniture stores. The acquisition is expected to close on or
about July 31, 1999. The Company will utilize a $25 million revolving
credit facility to fund the approximately $12 million cash purchase
price and retire $13 million in long-term debt of Storehouse.
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
Results of Operations:
- ---------------------
Six Months Ended May 30, 1999 Compared to Six Months Ended May 31, 1998.
Net shipments during the first six months of 1999 increased by $32,913,000, or
36.2%, to $123,861,000 from $90,948,000 in 1998. Approximately $21,800,000 of
this increase results from the inclusion of six months of Mitchell Gold
shipments in the first half of 1999. (See Note 5).
Gross profit during the first six months of 1999 increased by $10,284,000, or
43.2%, to $34,074,000 from $23,790,000 in 1998. Gross profit as a percentage of
net shipments during the first six months in 1999 increased to 27.5% from 26.2%
in 1998. Management believes that the percentage increase was due to improved
product mix, manufacturing efficiencies and higher volume.
Selling and administrative expenses during the first six months of 1999
increased by $7,962,000 or 50.4%, to $23,763,000 from $15,801,000 in 1998.
Selling and administrative expenses as a percentage of net shipments during the
first six months of 1999 increased to 19.2% from 17.4% in 1998. The increase in
selling and administrative expenses reflects the additional costs for Mitchell
Gold, expansion of the Home Elements program, and additional salaries and
benefits. The percentage increase in selling and administrative expenses was
primarily from a gain on the sale of a previously written off Levitz Furniture
receivable, recorded in the second quarter of 1998.
Operating income was $10,311,000 versus $7,989,000 in the prior year. The
increase related to higher shipments and gross profit percentage, partially
offset by increased selling and administrative expenses, net of the Levitz
recovery in 1998.
Net interest expense during the first six months of 1999 increased by $868,000
to $1,141,000 from $273,000 in 1998. The increase in net interest expense
resulted from additional short-term borrowings associated with working-capital
requirements, borrowings used to fund the acquisition of Mitchell Gold, and the
assumption of the Industrial Revenue Bond used to finance the construction of
Mitchell Gold's new production facility.
Other income during the first six months of 1999 increased by $171,000 to
$607,000 from $436,000 in 1998 primarily from a write-down in 1998 of investment
property of approximately $288,000, pre-tax, to reflect estimated value.
Net earnings during the first six months of 1999 increased by $1,107,000 to
$6,134,000 from $5,027,000 in 1998, reflecting higher net shipments and lower
cost of shipments (as a percent to shipments), partially offset by higher
selling and administrative expenses and interest on borrowed funds. Included in
net earnings for 1998 was approximately $0.02 per share after tax from a gain on
sale of a Levitz Furniture receivable, partially offset by an increase in
reserve for bad debts, write-down of investment property and other unusual
charges.
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
Liquidity and Source of Capital:
- -------------------------------
The Company utilizes internally generated funds and bank or other financing to
fund its operating and capital requirements. The Company has minimized its
working capital requirements by improving operating efficiencies in various
aspects of its business, including inventory and receivable management and
product distribution.
Net cash provided by operating activities was $3,310,000 during the first six
months of 1999 versus $1,503,000 net cash used in 1998. Fluctuations in net
cash provided by operating activities are primarily the result of changes in
operating income and changes in working capital accounts, including reduction of
current liabilities for Wexford during 1998.
Capital expenditures were $5,251,000 during the first six months of 1999 and
$2,423,000 in 1998. These expenditures were incurred primarily in connection
with maintaining the Company's production capacity, final construction costs at
Mitchell Gold's new facility, installation of a new mainframe system for
expansion, Year 2000 compliance and to improve efficiency, and certain other
additions of equipment and systems.
Net cash used in financing activities during the first six months of 1999 was
$524,000 versus $3,953,000 net cash provided by financing activities in 1998.
In 1999, these activities related primarily to cash dividends and the purchase
of treasury stock. In 1998, these activities related primarily to the increase
in short-term borrowings for the acquisition of Wexford and its working capital
needs, partially offset by cash dividends and the purchase of treasury stock.
The Company has unsecured short-term bank lines of credit totaling $31 million.
The interest rates on these lines of credit do not exceed the prime rate. The
amount outstanding under the lines of credit as of May 30, 1999 was
approximately $4.1 million.
In May 1999, the Company broke ground on the construction of a new manufacturing
facility in Montgomery County, Virginia, to replace its Salem, Virginia,
upholstery facility. This project will be funded by off-balance sheet
financing. Costs to complete this project in late 1999 and early 2000 are
estimated at approximately $24 million.
In June 1999, the Company announced that it had reached final agreement to
acquire Storehouse, a 43 store chain of retail furniture stores. The Company
will utilize a $25 million revolving credit facility to fund the cash purchase
price and retire long-term debt of Storehouse.
Management believes that net cash provided by operating activities and available
bank lines of credit and other bank financing options will be sufficient to fund
anticipated growth and to meet the Company's anticipated capital requirements
and operating needs through 1999.
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
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 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 has replaced and/or modified core
computer system programs and equipment. Management estimates that it is 95%
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 conducted a follow-up survey with those business partners who did
not have a positive response from initial communications.
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, contingency plans have been developed to address any areas that
fail to achieve Year 2000 compliance through the above methods.
Although resources are being directed towards reducing interruptions caused by
the Year 2000 issue, there is no guarantee that the Company's systems, or the
internal systems of the Company's business partners, will be corrected and that
there would be no material adverse impact on the Company's operations.
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
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 Statements:
Certain portions of this report, particularly the Notes to the Consolidated
Financial Statements and the Management's Discussion and Analysis of Financial
Condition and Results of Operations in Part I of this report, contain forward
looking statements. These statements can be identified by the use of future
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
None
Item 2. Changes in Securities.
- ------------------------------
None
Item 3. Defaults Upon Senior Securities.
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None
Item 5. Other Information.
- --------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
a. Exhibits: Exhibit 27 - Financial Data Schedule for the second quarter of
1999.
b. Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ROWE COMPANIES
------------------
Registrant
Date:
--------------------- ------------------------------
Arthur H. Dunkin
Secretary-Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-28-1999
<PERIOD-END> MAY-30-1999
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 32,817
<ALLOWANCES> 899
<INVENTORY> 23,533
<CURRENT-ASSETS> 58,062
<PP&E> 29,584
<DEPRECIATION> 34,455
<TOTAL-ASSETS> 116,930
<CURRENT-LIABILITIES> 28,180
<BONDS> 33,716
0
0
<COMMON> 14,995
<OTHER-SE> 33,960
<TOTAL-LIABILITY-AND-EQUITY> 116,930
<SALES> 123,861
<TOTAL-REVENUES> 123,861
<CGS> 89,787
<TOTAL-COSTS> 89,787
<OTHER-EXPENSES> 24,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,141
<INCOME-PRETAX> 9,777
<INCOME-TAX> 3,643
<INCOME-CONTINUING> 6,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,134
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.47
</TABLE>
