<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 February 28, 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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Rowe Furniture Corporation
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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 proceeding 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 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 February 28, 1999
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Common stock, par value $1.00 per share 12,289,294 shares
<PAGE>
THE ROWE COMPANIES
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Part 1. Financial Information
Consolidated Balance Sheets - February 28,1999 and
November 29,1998 4
Consolidated Statements of Income - Three Months
Ended February 28, 1999 and March 1, 1998 5
Consolidated Statements of Cash Flows - Three Months
Ended February 28, 1999 and March 1, 1998 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Quantitative and Qualitative Disclosures about Market Risk 12
Forward Looking Statements 12
Part II. Other Information 13
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
3
<PAGE>
THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, November 29,
1999 1998
------------ ------------
(Unaudited) (Audited)
($ in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15 $ 2,480
Accounts receivable, net 34,326 29,631
Inventories (Note 4) 23,571 22,666
Deferred income tax asset 181 181
Prepaid expenses 948 1,060
------------ ------------
Total current assets 59,041 56,018
PROPERTY AND EQUIPMENT, net 29,412 26,530
GOODWILL, net 12,504 12,612
OTHER NONCURRENT ASSETS 15,120 15,302
------------ ------------
$ 116,077 $ 110,462
============ ============
LIABILITIES
CURRENT LIABILITIES
Current maturities of long - term debt $ 487 $ 487
Short term borrowings 3,967 2,093
Accounts payable and accrued liabilities 21,395 22,032
Income taxes payable 2,686 933
------------ ------------
Total current liabilities 28,535 25,545
LONG - TERM DEBT 33,758 33,796
DEFERRED LIABILITIES 5,898 5,885
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Total liabilities 68,191 65,226
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STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
<CAPTION>
February 28, November 29,
1999 1998
---------------------------
<S> <C> <C> <C> <C>
Authorized shares 20,000,000 20,000,000
Issued shares 14,943,449 14,905,795 14,943 14,906
Outstanding shares 12,289,294 12,264,576
CAPITAL IN EXCESS OF PAR VALUE 9,457 9,363
RETAINED EARNINGS 41,376 38,713
------------ ------------
65,776 62,982
Less treasury stock 2,654,155 shares in 1999 and
2,641,219 shares in 1998, at cost (17,890) (17,746)
------------ ------------
Total stockholders' equity 47,886 45,236
------------ ------------
$ 116,077 $ 110,462
============ ============
</TABLE>
4
<PAGE>
THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND MARCH 1, 1998
UNAUDITED
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<TABLE>
<CAPTION>
1999 1998
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($ in thousands-except per share amounts)
<S> <C> <C>
Net shipments $ 59,966 $ 45,331
Cost of shipments 43,499 33,244
-------- --------
Gross profit 16,467 12,087
Selling and administrative expenses 11,241 8,047
-------- --------
Operating income 5,226 4,040
Interest expense (590) (118)
Other income 271 330
-------- --------
Earnings before taxes 4,907 4,252
Taxes on income 1,815 1,654
-------- --------
Net earnings $ 3,092 $ 2,598
======== ========
Earnings per common share $ 0.25 $ 0.21
======== ========
Weighted average common shares 12,278 12,553
======== ========
Earnings per common share assuming dilution $ 0.24 $ 0.20
======== ========
Weighted average common shares and equivalents 13,294 12,946
======== ========
Dividends declared and paid per share $ 0.035 $ 0.030
======== ========
</TABLE>
5
<PAGE>
THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND MARCH 1, 1998
UNAUDITED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------- --------
($ in thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 55,271 $ 41,865
Cash paid to suppliers and employees (54,853) (45,304)
Income taxes paid, net of refunds (61) (620)
Interest paid (590) (118)
Interest received 66 59
Other receipts - net 230 232
-------- --------
Net cash and cash equivalents provided by
(used in) operating activities 63 (3,886)
-------- --------
Cash flows from investing activities:
Capital expenditures (3,923) (1,798)
Payments to acquire business - (218)
-------- --------
Net cash used in investing activities (3,923) (2,016)
-------- --------
Cash flows from financing activities:
Net borrowings under line of credit 1,875 6,555
Payments to reduce long-term debt (37) -
Proceeds from issuance of common stock 131 61
Dividends paid (430) (377)
Purchase of treasury stock (144) (207)
-------- --------
Net cash provided by financing activities 1,395 6,032
-------- --------
Net increase (decrease) in cash and cash equivalents (2,465) 130
Cash and cash equivalents at beginning of period 2,480 850
-------- --------
Cash and cash equivalents at end of period $ 15 $ 980
======== ========
</TABLE>
6
<PAGE>
THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND MARCH 1, 1998
UNAUDITED
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Reconciliation of Net Earnings to Net Cash
Provided By Operating Activities:
<TABLE>
<CAPTION>
1999 1998
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($ in thousands)
<S> <C> <C>
Net earnings $ 3,092 $ 2,598
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Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,214 877
Provision for deferred compensation 151 203
Payments made for deferred compensation (159) (269)
Provision for losses on accounts receivable - 84
Change in operating assets and liabilities net of effect
of acquisition of business:
Decrease (increase) in accounts receivable (4,695) (3,466)
Decrease (increase) in inventories (905) 457
Decrease (increase) in prepaid expenses 114 172
Decrease (increase) in cash surrender value
of life insurance (28) (28)
Decrease (increase) in other assets 146 (431)
Increase (decrease) in accounts payable (1,524) (3,418)
Increase (decrease) in accrued expenses 903 (1,699)
Increase (decrease) in income taxes payable 1,754 1,034
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Total adjustments (3,029) (6,484)
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Net cash provided by (used in) operating activities $ 63 $(3,886)
======= =======
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
=======
</TABLE>
7
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THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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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. See Item 4 of Part II for
additional information about the annual meeting.
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 February 28, 1999 and the results
of operations and cash flows for the three months ended February 28,
1999 and March 1, 1998.
Note 3 - The results of operations for the three-months ended February 28,1999
and March 1, 1998 are not necessarily indicative of the results to be
expected for the full year.
Note 4 - Inventory components are as follows:
<TABLE>
<CAPTION>
February 28, November 29,
1999 1998
------------ ------------
($ in thousands)
<S> <C> <C>
Finished Goods $ 5,722 $ 5,325
Work - In - Process 4,739 4,494
Raw Materials 13,110 12,847
------------ ------------
$ 23,571 $ 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 three months ended February 28, 1999, include
three months of activity for both Wexford and Mitchell Gold, while the
period ended March 1, 1998 includes two months activity for Wexford
only.
Note 6 - In August, 1998, the Company entered into an agreement to invest $2.5
million in Storehouse, Inc. ("Storehouse"), and subject to certain
conditions, acquire all outstanding shares of its common stock. The
acquisition price to be paid, if the acquisition occurs, will be based
upon the financial performance of Storehouse for the twelve month
period ending April 30, 1999.
8
<PAGE>
THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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UNAUDITED
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Results of Operations:
- ---------------------
Three Months ended February 28, 1999 Compared to Three Months ended March 1,
1998.
Net shipments during the first three months of 1999 increased by $14,635,000, or
32.3%, to $59,966,000 from $45,331,000 in 1998. Approximately $11,100,000 of
this increase results from the inclusion of three months of Mitchell Gold
shipments and an extra month of Wexford shipments in the first quarter of 1999
(See Note 5).
Gross profit during the first three months of 1999 increased by $4,380,000, or
36.2%, to $16,467,000 from $12,087,000 in 1998. Gross profit as a percentage of
net shipments during the first quarter of 1999 increased to 27.5% from 26.7% 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 three months of 1999
increased by $3,194,000, or 39.7%, to $11,241,000 from $8,047,000 in 1998.
Selling and administrative expenses as a percentage of net shipments during the
first three months of 1999 increased to 18.7% from 17.8% in 1998. These
increases reflect the additional costs for Mitchell Gold, expansion of the Home
Elements program and salary and benefit increases.
Operating income was $5,226,000 versus $4,040,000 in the prior year. The
increase related to higher shipments and gross profit percentage, partially
offset by increased selling and administrative expenses.
Net interest expense during the first three months of 1999 increased by $472,000
to $590,000 from $118,000 in 1998. The increase in net interest expense resulted
primarily 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 three months of 1999 decreased by $59,000 to
$271,000 from $330,000 in 1998, due to various miscellaneous items.
Net earnings during the first three months of 1999 increased by $494,000 to
$3,092,000 from $2,598,000 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.
9
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THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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UNAUDITED
- --------------------------------------------------------------------------------
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 $63,000 during the first three
months of 1999 versus $3,886,000 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 $3,923,000 during the first three months of 1999 and
$1,798,000 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 new systems for Year 2000
compliance and to improve efficiency and certain other additions of equipment
and systems.
Net cash provided by financing activities during the first three months of 1999
was $1,395,000 versus $6,032,000 in 1998. 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
purchase of treasury stock.
The Company has unsecured short-term bank lines of credit totaling $40 million.
The interest rates of those lines of credit do not exceed the prime rate. The
amount outstanding under the lines of credit as of February 28, 1999 was
approximately $4.0 million.
In February, 1999, the Company announced plans to acquire land and construct a
replacement manufacturing facility for its Salem, Virginia upholstery facility.
Costs to complete this project in late 1999 are estimated to be approximately
$22 million. The Company is in discussions with banking institutions to obtain
funding for this project.
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.
10
<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 and is testing these activities.
Management estimates that the Company is 90% 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 is conducting a follow-up survey with those business partners, who 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 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 has 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 will be
corrected and that there would be no material adverse impact on the Company's
operations.
11
<PAGE>
THE ROWE COMPANIES AND WHOLLY - OWNED SUBSIDIARIES
- --------------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
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.
12
<PAGE>
PART II-- OTHER INFORMATION
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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.
- -------------------------------------------------------------
The annual meeting of shareholders for Rowe Furniture Corporation was held on
March 30, 1999, in McLean, Virginia. As previously discussed in Note 1 to the
Consolidated Financial Statements, the shareholders approved the change in the
Company's name to "The Rowe Companies." In addition, shareholders approved the
re-election of three individuals to the Board of Directors; Charles T. Rosen,
Sidney J. Silver and Arthur H. Dunkin. The shareholders also approved an
increase in the authorized shares of the Company from 20 million shares to 50
million shares, as well as approving an expansion of the authorized shares
available for the existing stock option plan, from 1,968,125 shares to 2,968,125
shares. Voting results are shown below:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Name Change: 11,461,815 57,161 33,778 0
Election of directors:
Charles T. Rosen 11,394,541 158,213 0 0
Sidney J. Silver 11,395,894 156,860 0 0
Arthur H. Dunkin 11,349,717 203,037 0 0
Increase in authorized shares to 50 million 10,798,800 685,296 68,658 0
Increase in authorized shares for Stock Option Plan 8,007,356 591,685 88,676 2,865,037
</TABLE>
Item 5. Other Information.
- --------------------------
At a meeting of the Board of Directors following the annual meeting of
shareholders, the bylaws of the Company were amended to increase the number of
directors from nine to ten. Mitchell Gold, President and Chief Executive Officer
of The Mitchell Gold Co., was elected to a one-year term as Director of the
Company.
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
a. Exhibits: Exhibit 27- Financial Data Schedule for the first quarter of 1999.
b. Reports on Form 8-K: None
13
<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: April 13, 1999 /s/ Arthur H. Dunkin
----------------------
Arthur H. Dunkin
Secretary-Treasurer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-28-1999
<PERIOD-START> NOV-29-1998
<PERIOD-END> FEB-28-1999
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 34,326
<ALLOWANCES> 852
<INVENTORY> 23,571
<CURRENT-ASSETS> 59,041
<PP&E> 29,412
<DEPRECIATION> 33,299
<TOTAL-ASSETS> 116,077
<CURRENT-LIABILITIES> 28,535
<BONDS> 33,758
0
0
<COMMON> 14,943
<OTHER-SE> 32,943
<TOTAL-LIABILITY-AND-EQUITY> 116,077
<SALES> 59,966
<TOTAL-REVENUES> 59,966
<CGS> 43,499
<TOTAL-COSTS> 43,499
<OTHER-EXPENSES> 10,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 590
<INCOME-PRETAX> 4,907
<INCOME-TAX> 1,815
<INCOME-CONTINUING> 3,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,092
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
