<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 27, 2000 Commission File Number 1-10226
--------------- -------
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 August 27, 2000
--------------------------------------- ------------------------------
Common stock, par value $1.00 per share 13,114,215 shares
<PAGE>
THE ROWE COMPANIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
Page
----
<S> <C>
Consolidated Balance Sheets - August 27, 2000 and
November 28, 1999 4
Consolidated Statements of Income - Three Months and
Nine Months Ended August 27, 2000 and August 29,1999 5
Consolidated Statements of Cash Flows - Nine Months
Ended August 27, 2000 and August 29, 1999 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Quantitative and Qualitative Disclosures about Market Risk 13
Forward Looking Statements 13
Part II. Other Information 14
2
</TABLE>
<PAGE>
PART I - - FINANCIAL INFORMATION
3
<PAGE>
<TABLE>
<CAPTION>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------
August 27, November 28,
2000 1999
--------------------- ---------------
(Unaudited) (Audited)
($ in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 930 $ 5,104
Accounts receivable, net 35,707 38,340
Refundable 922 -
taxes
Inventories (Note 4) 41,585 41,381
Deferred income tax asset 238 238
Prepaid expenses and other 2,038 3,098
-------- --------
Total current assets 81,420 88,161
PROPERTY AND EQUIPMENT, net 37,061 36,186
GOODWILL, net 31,988 27,938
OTHER NONCURRENT ASSETS 16,252 16,295
-------- --------
$166,721 $168,580
======== ========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt $ 342 $ 353
Short term bank borrowings 7,516 4,164
Accounts payable and accrued liabilities 32,297 39,282
Income taxes payable - 1,783
Customer deposits 8,721 8,620
-------- --------
Total current 48,876 54,202
liabilities
LONG-TERM DEBT 55,366 54,608
DEFERRED LIABILITIES 5,884 5,111
-------- --------
Total liabilities 110,126 113,921
-------- --------
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
August 27, November 28,
2000 1999
-------------------------------
Authorized shares 50,000,000 50,000,000
Issued shares 16,520,047 16,512,962 16,520 16,513
Outstanding shares 13,114,215 13,260,833
CAPITAL IN EXCESS OF PAR VALUE 23,082 23,039
RETAINED EARNINGS 38,913 36,077
-------- --------
78,515 75,629
Less treasury stock 3,405,832 shares in 2000 and
3,252,129 shares in 1999, at cost (21,920) (20,970)
-------- --------
Total stockholders' equity 56,595 54,659
-------- --------
$166,721 $168,580
======== ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED AUGUST 27, 2000 AND AUGUST 29, 1999
UNAUDITED
--------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
August 27, August 29, August 27, August 29,
2000 1999 2000 1999
---------- --------- --------- ---------
($ in thousands - except per share amounts)
<S> <C> <C> <C> <C>
Net shipments $85,427 $70,234 $260,643 $194,095
Cost of shipments 56,614 48,956 172,400 138,469
------- ------- -------- --------
Gross profit 28,813 21,278 88,243 55,626
Selling and administrative expenses 26,589 17,019 78,395 41,056
------- ------- -------- --------
Operating income 2,224 4,259 9,848 14,570
Interest expense (1,281) (662) (3,558) (1,803)
Other income 395 1,070 1,087 1,677
------- ------- -------- --------
Earnings before taxes 1,338 4,667 7,377 14,444
Taxes on income 686 1,744 3,149 5,387
------- ------- -------- --------
Net earnings $ 652 $ 2,923 $ 4,228 $ 9,057
======= ======= ======== ========
Earnings per common share $ 0.05 $ 0.22 $ 0.32 $ 0.67
======= ======= ======== ========
Weighted average common shares 13,114 13,390 13,165 13,444
======= ======= ======== ========
Earnings per common share
assuming dilution $ 0.05 $ 0.21 $ 0.31 $ 0.63
======= ======= ======== ========
Weighted average common shares
and equivalents 13,579 14,291 13,749 14,454
======= ======= ======== ========
Dividends declared and paid per share
Quarter Ended 2000 1999
------------- -------- --------
First quarter $ 0.035 $ 0.032
Second quarter 0.035 0.032
Third quarter 0.035 0.032
-------- --------
Total for the nine months
ended August 27, 2000 and August 29, 1999 $ 0.105 $ 0.096
======== ========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED AUGUST 27, 2000 AND AUGUST 29, 1999
UNAUDITED
________________________________________________________________________________
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
($ in thousands)
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 262,633 $ 191,529
Cash paid to suppliers and employees (248,702) (179,860)
Income taxes paid, net of refunds (5,854) (5,641)
Interest paid (3,558) (1,803)
Interest received 326 241
Other receipts - net 780 702
--------- ---------
Net cash and cash equivalents provided by
(used in) operating activities 5,625 5,168
--------- ---------
Cash flows from investing activities:
Proceeds from sales of fixed assets 84 19
Capital expenditures (6,695) (6,147)
Payments to acquire business (5,000) (8,892)
--------- ---------
Net cash used in investing activities (11,611) (15,020)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit 3,352 305
Proceeds from issuance of long-term debt 12,201 25,000
Payments to reduce long-term debt (11,452) (10,339)
Proceeds from issuance of common stock 50 443
Dividends paid (1,389) (1,287)
Purchase of treasury stock (950) (2,037)
--------- ---------
Net cash provided by (used in) financing activities 1,812 12,085
--------- ---------
Net increase (decrease) in cash and cash equivalents (4,174) 2,233
Cash and cash equivalents at beginning of period 5,104 2,480
--------- ---------
Cash and cash equivalents at end of period $ 930 $ 4,713
========= =========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED AUGUST 27, 2000 AND AUGUST 29, 1999
UNAUDITED
________________________________________________________________________________
Reconciliation of Net Earnings to Net Cash
Provided By Operating Activities:
<TABLE>
<CAPTION>
2000 1999
------- --------
<S> <C> <C>
($ in thousands)
Net earnings $ 4,228 $ 9,057
------- --------
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,324 4,110
Provision for deferred compensation 750 602
Payments made for deferred compensation (70) (319)
Provision for losses on accounts receivable 744 (194)
Loss (gain) on disposition of assets 19 4
Change in operating assets and liabilities net of
effect of acquisition of business:
Decrease (increase) in accounts receivable 1,889 (5,602)
Decrease (increase) in inventories (204) (1,676)
Decrease (increase) in prepaid expenses and other 1,062 48
Decrease (increase) in other assets 46 (1,494)
Increase (decrease) in accounts payable (6,516) (5,998)
Increase (decrease) in accrued expenses (43) 3,848
Increase (decrease) in income taxes payable (2,705) (254)
Increase (decrease) in customer deposits 101 3,036
------- --------
Total adjustments 1,397 (3,889)
------- --------
Net cash provided by (used in) operating activities $ 5,625 $ 5,168
======= ========
Supplemental schedule of non-cash investment activities:
Fair value of assets acquired, other than cash $ 37,272
Liabilities assumed (28,380)
--------
Cash payments made $ 8,892
========
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
--------------------------------------------------------------------------------
Note 1 - 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;
Home Elements, Inc., a chain of retail specialty home furnishings
stores; and Storehouse, Inc., a 43 store retail furniture chain.
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 August
27, 2000 and the results of operations and cash flows for the
nine months ended August 27, 2000 and August 29,1999.
Note 3 - The results of operations for the three months and nine months
ended August 27, 2000 and August 29,1999 are not necessarily
indicative of the results to be expected for the full year.
Note 4 - Inventory components are as follows:
August 27, November 28,
2000 1999
---------- ------------
($ in thousands)
Retail merchandise $ 16,702 $ 18,000
Finished goods 3,315 3,166
Work-in-process 4,341 4,391
Raw materials 17,227 15,824
-------- --------
$ 41,585 $ 41,381
======== ========
Note 5 - Effective August 1, 1999, the Company acquired Storehouse, a
chain of retail furniture stores. The results of operations at
Storehouse are included in the three and nine month periods ended
August 27, 2000 and for one month in the three and nine-month
periods ended August 29, 1999.
Effective April 30, 2000, under the terms of the interim earn-out
agreement, the prior shareholders of Mitchell Gold earned an
additional $5 million payment. This payment was made in the third
quarter and is reflected in goodwill.
Note 6 - The following table shows the components of the earnings per
share computations shown in the Consolidated Statements of
Income.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ---------------------------------
August 27, August 29, August 27, August 29,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net earnings available to basic shares $ 652 $ 2,923 $ 4,228 $ 9,057
Add interest expense on assumed conversion
of convertible debentures, net of tax 33 33 98 98
------- -------- -------- --------
Net earnings available to diluted shares $ 685 $ 2,956 $ 4,326 $ 9,155
======= ======== ======== ========
Weighted average common shares
outstanding (Basic) 13,114 13,390 13,165 13,444
Effect of dilutive stock options and
convertible debentures 465 901 584 1,010
------- -------- -------- --------
Weighted average common shares and
equivalents outstanding (Diluted) 13,579 14,291 13,749 14,454
======= ======== ======== ========
</TABLE>
Note 7 - The Company's operations are classified into two business segments:
wholesale and retail home furnishings. The wholesale home furnishings
segment manufactures upholstered furniture. Upholstered furniture
includes sofas, loveseats, occasional chairs and sleep sofas, covered
with fabric or leather. Additionally, the segment manufactures a line
of casual wood furniture. The retail home furnishings segment sells
home furnishings and accessories to customers through company-owned
stores. These products consist of upholstered furniture (primarily
obtained from related companies), casegoods and home accessories. The
other category is comprised of additional subsidiaries reviewed by
management including parent company expenses.
<TABLE>
<CAPTION>
Wholesale Retail
Home Home
Furnishings Furnishings Inter-segment
Segment Segment Other Eliminations Consolidated
------- ------- ----- ------------ ------------
2000
----
<S> <C> <C> <C> <C> <C>
Revenue $189,909 $90,432 $ - $(19,698) $260,643
Pre-tax net earnings(loss) 10,659 (2,676) (483) (123) 7,377
Total assets 121,568 45,808 98,696 (99,351) 166,721
1999
----
Revenue $180,350 $20,272 $ - $ (6,527) $194,095
Pre-tax net earnings(loss) 14,223 (949) 1,121 49 14,444
Total assets 108,201 48,264 94,795 (90,886) 160,374
</TABLE>
9
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
--------------------------------------------------------------------------------
Results of Operations:
---------------------
Nine Months Ended August 27, 2000 Compared to Nine Months Ended August 29,1999.
Net shipments during the first nine months of 2000 increased by $66,548,000, or
34.3%, to $260,643,000 from $194,095,000 in 1999. Approximately $65,800,000 of
this increase results from the inclusion of eight additional months of
Storehouse shipments in 2000 (see Note 5).
Gross profit during the first nine months of 2000 increased by $32,617,000, or
58.6%, to $88,243,000 from $55,626,000 in 1999. Gross profit as a percentage of
net shipments (gross margin) during the first nine months in 2000 increased to
33.9% from 28.7% in 1999. Most of this increase resulted from the inclusion of
higher margin retail shipments at Storehouse during 2000. Excluding the effect
of these shipments, gross margin increased to 28.2% from 27.9%, primarily from
increased sales and gross margin at our Home Elements subsidiary. Anticipated
increases in gross margin have been adversely impacted by start-up costs, rent
expense and transition issues at the new upholstery production facility in
Elliston, as well as increases in health and medical costs. Management
anticipates that these conditions will continue to adversely impact gross margin
over the remainder of 2000. In addition, approximately $400,000 in moving costs
were incurred as Rowe Furniture moved into the new upholstery plant, including
approximately $78,000 incurred in the third quarter to move the administrative
offices to the new facility.
Selling and administrative expenses during the first nine months of 2000
increased by $37,339,000, or 90.9%, to $78,395,000 from $41,056,000 in 1999.
Selling and administrative expenses as a percentage of net shipments during the
first nine months of 2000 increased to 30.1% from 21.2% in 1999. The increase in
selling and administrative expenses reflects $31,605,000 in additional selling
and administrative expenses at Storehouse, expansion of the Home Elements
program, growth at Mitchell Gold and additional salaries and benefits. The
percentage increase in selling and administrative expenses primarily reflects
the addition of Storehouse for 2000. Also included in selling and administrative
expenses is approximately $473,000 in pre-opening expenses for new retail
locations that, under new accounting guidance, was expensed as incurred,
including the amortization of costs deferred in 1999 and accelerated into the
first quarter. Such costs previously would have been deferred and amortized over
the first twelve months of new store operations. Management anticipates that
pre-opening expenses will continue to adversely impact earnings as several new
stores are opened over the remainder of the year. In addition, the Company has
provided approximately $750,000 for potential credit losses primarily as a
result of the Heilig-Meyers and other bankruptcy filings.
Operating income was $9,848,000 versus $14,570,000 in the prior year. The
decrease related to higher selling and administrative expenses as a result of
the Storehouse acquisition, the change in accounting for pre-opening expenses,
relocation and start-up costs at Elliston and adverse health and medical costs
at Rowe Furniture.
Net interest expense during the first nine months of 2000 increased by
$1,755,000 to $3,558,000 from $1,803,000 in 1999. The increase in net interest
expense resulted from borrowings used to fund the acquisition of Storehouse,
higher rates on borrowed money as market interest rates have increased over the
past year and an increase in the spread to LIBOR based on changes in the
Company's financial ratios.
Other income during the first nine months of 2000 decreased by $590,000 to
$1,087,000 from $1,677,000 in 1999. This resulted from the inclusion in 1999 of
commission revenue on certain sales at Storehouse.
Net earnings during the first nine months of 2000 decreased by $4,829,000 to
$4,228,000 from $9,057,000 in 1999, primarily reflecting the costs to open
additional stores, relocation and start-up costs at Elliston, increased
10
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
--------------------------------------------------------------------------------
health and medical costs and increased borrowing costs, as well as an increase
in the effective tax rate from 37.3% in 1999 to 42.7% in 2000 resulting
primarily from increased non-deductible goodwill amortization.
Three Months Ended August 27, 2000 Compared to Three Months Ended August 29,
1999.
Net shipments during the third quarter of 2000 increased by $15,193,000, or
21.6%, to $85,427,000 from $70,234,000 in the third quarter of 1999. This
increase resulted from the inclusion of two additional months of Storehouse
shipments in 2000 (see Note 5).
Gross profit during the third quarter of 2000 increased by $7,535,000, or 35.4%,
to $28,813,000 from $21,278,000 in 1999. Gross profit as a percentage of net
shipments (gross margin) during the third quarter of 2000 increased to 33.7%
from 30.3% in 1999. This increase resulted from the inclusion of higher margin
retail shipments at Storehouse during 2000. Excluding the effect of these
shipments, gross margin decreased to 27.8% from 28.1%. Gross margin has been
adversely impacted by rent expense and transition issues at the new upholstery
production facility in Elliston, as well as increases in health and medical
costs. Management anticipates that these conditions will continue to adversely
impact gross margin over the remainder of 2000. In addition, approximately
$78,000 in moving costs were incurred as Rowe Furniture moved the administrative
offices to the new facility during the third quarter of 2000.
Selling and administrative expenses during the third quarter of 2000 increased
by $9,570,000, or 56.2%, to $26,589,000 from $17,019,000 in 1999. Selling and
administrative expenses as a percentage of net shipments during the third
quarter of 2000 increased to 31.1% from 24.2% in 1999. The increase in selling
and administrative expenses reflects $8.6 million in additional selling and
administrative expenses at Storehouse, expansion of the Home Elements program,
growth at Mitchell Gold and additional salaries and benefits. The percentage
increase in selling and administrative expenses primarily reflects the addition
of Storehouse for 2000. In addition, the Company has provided approximately
$400,000 for potential credit losses during the third quarter of 2000, primarily
as a result of the Heilig-Meyers and other bankruptcy filings.
Operating income was $2,224,000 versus $4,259,000 in the prior year quarter. The
decrease related to higher selling and administrative expenses as a result of
the Storehouse acquisition, relocation and transition costs at Elliston,
provisions for potential credit losses and adverse health and medical costs at
Rowe Furniture.
Net interest expense during the third quarter of 2000 increased by $619,000 to
$1,281,000 from $662,000 in 1999. The increase in net interest expense resulted
from borrowings used to fund the acquisition of Storehouse, higher rates on
borrowed money as market interest rates have increased over the past year, and
an increase in the spread to LIBOR based on changes in the Company's financial
ratios.
Other income during the third quarter of 2000 decreased by $675,000 to $395,000
from $1,070,000 in 1999. This resulted from the inclusion in 1999 of commission
revenue on certain sales at Storehouse.
Net earnings during the third quarter of 2000 decreased by $2,271,000 to
$652,000 from $2,923,000 in 1999, primarily reflecting the provisions for
potential credit losses, relocation and transition costs at Elliston, increased
health and medical costs, and increased borrowing costs, as well as an increase
in the effective tax rate from 37.4% in 1999 to 51.3% in 2000 resulting
primarily from increased non-deductible goodwill amortization.
11
<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. In order to minimize working
capital requirements, the Company utilizes programs to increase inventory turns
and decrease days sales outstanding in receivables.
Net cash provided by operating activities was $5,625,000 during the first nine
months of 2000 versus $5,168,000 in 1999. Fluctuations in net cash provided by
operating activities are primarily the result of changes in operating income and
changes in working capital accounts.
During 1999, accounts receivable increased as a result of canceling Mitchell
Gold's factoring arrangement and internally financing accounts receivable. The
decline in receivables during 2000 is due in part to weak volume growth, and to
increased efforts to work down old balances. In addition, inventory growth has
slowed during 2000, in response to lower sales growth and to better manage
working capital.
Capital expenditures were $6,695,000 during the first nine months of 2000 and
$6,147,000 in 1999. In 2000, significant expenditures were made for a production
planning and scheduling system to improve management of the production process
and inventory and to fund new retail store openings. In 1999, expenditures
included final costs for the new Mitchell Gold facility as well as systems
expenditures for year 2000 and efficiency requirements.
The Company acquired Storehouse during the third quarter of 1999, paying
$8,892,000 (net of cash acquired) to acquire the stock. During the third quarter
of 2000, a payment of $5,000,000 was made under the interim earn-out provisions
of the Mitchell Gold purchase agreement.
Net cash provided by financing activities during the first nine months of 2000
was $1,812,000 versus $12,085,000 in 1999. In addition to net borrowings under
short-term lines and payments (net of draws) on long-term revolver loans,
financing activities include dividends paid and repurchases of common stock. Net
cash provided by financing activities in 1999 was used largely to fund the
acquisition of Storehouse.
The Company has unsecured short-term bank lines of credit totaling $18 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 August 27, 2000 was
approximately $7.5 million. During the third quarter, one of the financial
institutions providing a short-term line of credit elected not to renew the line
of credit, thereby reducing available short-term credit facilities from $31
million to $18 million.
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 2000.
The Company's financing agreements contain financial covenants. In anticipation
of being out of compliance with these financial covenants, the Company requested
and received waivers from the lending institutions for the third and fourth
quarters of fiscal year 2000. In conjunction with this agreement, the Company
has agreed to add additional ranges to its borrowing agreements whereby higher
interest rates would be applicable should financial performance, as measured by
funded debt to EBITDA, exceeds 2.75x, effective at the start of the new fiscal
year. The Company has plans to meet with the lending institutions during the
fourth quarter to obtain waivers through fiscal year 2001. There can be no
assurance that the lending institutions will continue to agree to waive the
covenants, or that any potential changes in terms associated with such future
waivers, if any, would not have a material adverse impact on the operating
results or activities of the Company.
12
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
--------------------------------------------------------------------------------
To improve performance against these financial ratios in order to reduce the
potential future impact of the additional interest ranges, and to reduce
financial leverage, the Company has curtailed capital expenditures budgeted for
the fourth quarter of fiscal 2000 where possible, and in planning for fiscal
year 2001, has substantially reduced capital spending plans. The Company
anticipates that capital-spending levels will remain at substantially reduced
levels in fiscal year 2002 as well.
Interest Risk Disclosures:
--------------------------
Because the Company's obligations under its term loans, revolving loans, lines
of credit, Industrial Revenue Bonds and the Elliston facility lease bear
interest at variable rates, the Company is sensitive to changes in interest
rates. A 10% fluctuation in market interest rates would not have a material
impact on earnings during the 2000 fiscal year.
In accordance with the terms of the synthetic lease financing, the Company will
purchase in the fourth quarter a fixed-rate interest swap on $20 million
notional principal for a term of four years at a fixed rate of 6.805% plus the
interest spread as required by our financial performance as specified in the
borrowing agreements. In addition, the Company anticipates entering into
interest rate collar arrangements against certain portions of the Company's
outstanding revolving debt.
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.
13
<PAGE>
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 1. Legal Proceedings.
---------------------------
None
Item 2. Changes in Securities.
------------------------------
None
Item 3. Defaults Upon Senior Securities.
----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
None
Item 5. Other Information.
--------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
a. Exhibits: Exhibit 27 - Financial Data Schedule for the third quarter of
2000.
b. Reports on Form 8-K: None
14
<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
/s/ Garry W. Angle
Date: October 11, 2000 ------------------------------
Garry W. Angle
Vice President - Treasury Management
15
