<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 28, 2000 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 28, 2000
--------------------------------------- ----------------------------
Common stock, par value $1.00 per share 13,114,215 shares
<PAGE>
THE ROWE COMPANIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
----
<S> <C> <C>
Consolidated Balance Sheets - May 28, 2000 and
November 28, 1999 4
Consolidated Statements of Income - Three Months and
Six Months Ended May 28, 2000 and May 30,1999 5
Consolidated Statements of Cash Flows - Six Months
Ended May 28, 2000 and May 30,1999 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Quantitative and Qualitative Disclosures about Market Risk 12
Forward Looking Statements 12
Part II. Other Information 13
</TABLE>
<PAGE>
PART I - - FINANCIAL INFORMATION
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
May 28, November 28,
2000 1999
------------ ------------
(Unaudited) (Audited)
($ in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,270 $ 5,104
Accounts receivable, net 34,314 38,340
Refundable taxes 895 --
Inventories (Note 4) 43,241 41,381
Deferred income tax asset 238 238
Prepaid expenses and other 2,075 3,098
------------ ------------
Total current assets 83,033 88,161
PROPERTY AND EQUIPMENT, net 36,963 36,186
GOODWILL, net (Note 5) 32,340 27,938
OTHER NONCURRENT ASSETS 16,084 16,295
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$ 168,420 $ 168,580
============ ============
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt $ 342 $ 353
Short term bank borrowings 6,755 4,164
Accounts payable and accrued liabilities 35,835 39,282
Income taxes payable -- 1,783
Customer deposits 7,239 8,620
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Total current liabilities 50,171 54,202
LONG-TERM DEBT 56,129 54,608
DEFERRED LIABILITIES 5,712 5,111
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Total liabilities 112,012 113,921
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STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
May 28, 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 23,083 23,039
RETAINED EARNINGS 38,725 36,077
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78,328 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 56,408 54,659
------------ ------------
$ 168,420 $ 168,580
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED MAY 28, 2000 AND MAY 30, 1999
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 28, May 30, May 28, May 30,
2000 1999 2000 1999
------------- ------------- --------------- ---------------
($ in thousands - except per share amounts)
<S> <C> <C> <C> <C>
Net shipments $ 87,741 $ 63,895 $ 175,216 $ 123,861
Cost of shipments 58,054 46,013 115,786 89,512
------------- ------------- --------------- ---------------
Gross profit 29,687 17,882 59,430 34,349
Selling and administrative expenses 26,668 12,796 51,806 24,038
------------- ------------- --------------- ---------------
Operating income 3,019 5,086 7,624 10,311
Interest expense (1,211) (552) (2,277) (1,141)
Other income 347 336 692 607
------------- ------------- --------------- ---------------
Earnings before taxes 2,155 4,870 6,039 9,777
Taxes on income 971 1,828 2,463 3,643
------------- ------------- --------------- ---------------
Net earnings $ 1,184 $ 3,042 $ 3,576 $ 6,134
============= ============= =============== ===============
Earnings per common share $ 0.09 $ 0.23 $ 0.27 $ 0.46
============= ============= =============== ===============
Weighted average common shares 13,134 13,438 13,191 13,472
============= ============= =============== ===============
Earnings per common share
assuming dilution $ 0.09 $ 0.21 $ 0.26 $ 0.43
============= ============= =============== ===============
Weighted average common shares
and equivalents 13,673 14,447 13,835 14,535
============= ============= =============== ===============
Dividends declared and paid per share
Quarter Ended 2000 1999
------------- --------------- ---------------
First quarter $ 0.035 $ 0.032
Second quarter 0.035 0.032
--------------- ---------------
Total for the six months ended May 28, 2000
and May 30, 1999 $ 0.070 $ 0.064
=============== ===============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED MAY 28, 2000 AND MAY 30, 1999
UNAUDITED
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<TABLE>
<CAPTION>
2000 1999
----------- -----------
($ in thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 177,596 $ 121,211
Cash paid to suppliers and employees (171,341) (113,710)
Income taxes paid, net of refunds (5,142) (3,656)
Interest paid (2,277) (1,142)
Interest received 197 140
Other receipts - net 512 467
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Net cash provided by
(used in) operating activities (455) 3,310
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Cash flows from investing activities:
Proceeds from sales of fixed assets 84 --
Capital expenditures (4,739) (5,251)
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Net cash used in investing activities (4,655) (5,251)
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Cash flows from financing activities:
Net borrowings (repayments) under line of credit 2,591 1,970
Proceeds from issuance of long-term debt 9,805 --
Payments to reduce long-term debt (8,293) (79)
Proceeds from issuance of common stock 50 342
Dividends paid (927) (860)
Purchase of treasury stock (950) (1,897)
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Net cash provided by (used in) financing activities 2,276 (524)
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Net decrease in cash (2,834) (2,465)
Cash at beginning of period 5,104 2,480
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Cash at end of period $ 2,270 $ 15
=========== ===========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED MAY 28, 2000 AND MAY 30, 1999
UNAUDITED
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Reconciliation of Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
<TABLE>
<CAPTION>
2000 1999
---- ----
($ in thousands)
<S> <C> <C>
Net earnings $ 3,576 $ 6,134
------- -------
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,257 2,017
Provision for deferred compensation 578 466
Payments made for deferred compensation (70) (293)
Provision for losses on accounts receivable 265 --
Loss on disposition of assets 17 --
Change in operating assets and liabilities net of effect
of acquisition of business:
Decrease (increase) in accounts receivable 3,761 (3,186)
Decrease (increase) in inventories (1,860) (867)
Decrease (increase) in prepaid expenses and other 1,024 (455)
Decrease (increase) in other assets 407 (1,188)
Increase (decrease) in accounts payable (7,920) (865)
Increase (decrease) in accrued expenses (431) 1,024
Increase (decrease) in income taxes payable (2,678) (13)
Increase (decrease) in customer deposits (1,381) 536
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Total adjustments (4,031) (2,824)
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Net cash provided by (used in) operating activities $ (455) $ 3,310
======= =======
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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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
42 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 May 28, 2000 and the results of
operations and cash flows for the six months ended May 28, 2000 and
May 30,1999.
Note 3 - The results of operations for the three months and six months ended
May 28, 2000 and May 30,1999 are not necessarily indicative of the
results to be expected for the full year.
Note 4 - Inventory components are as follows:
May 28, November 28,
2000 1999
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($ in thousands)
Retail merchandise $ 18,140 $ 18,000
Finished goods 3,153 3,166
Work-in-process 4,563 4,391
Raw materials 17,385 15,824
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$ 43,241 $ 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 six month periods ended May 28, 2000.
Effective April 30, 2000, under the terms of the interim earn-out
agreement, the prior shareholders of Mitchell Gold earned an
additional $5 million payment. This payment has been reflected in
goodwill and accrued liabilities. It is anticipated that this payment
will be made in the third quarter.
Note 6 - The following table shows the components of the earnings per share
computations shown in the Consolidated Statements of Income.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
May 28, May 30, May 28, May 30,
2000 1999 2000 1999
------- ------- ------- -------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Net earnings available to basic shares $ 1,184 $ 3,042 $ 3,576 $ 6,134
Add interest expense on assumed conversion
of convertible debentures, net of tax 33 33 65 65
------- ------- ------- -------
Net earnings available to diluted shares $ 1,217 $ 3,075 $ 3,641 $ 6,199
======= ======= ======= =======
Weighted average common shares
outstanding (Basic) 13,134 13,438 13,191 13,472
Effect of dilutive stock options and
convertible debentures 539 1,009 644 1,063
------- ------- ------- -------
Weighted average common shares and
equivalents outstanding (Diluted) 13,673 14,447 13,835 14,535
======= ======= ======= =======
</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 Inter-
Furnishings Furnishings Segment
Segment Segment Other Eliminations Consolidated
------- ------- ----- ------------ ------------
2000 ($ in thousands)
----
<S> <C> <C> <C> <C> <C>
Revenue $128,541 $ 59,206 $ -- $(12,531) $175,216
Pre-tax net earnings(loss) 8,061 (1,287) (524) (211) 6,039
Total assets 112,500 47,582 98,326 (89,988) 168,420
1999
----
Revenue $118,718 $ 8,536 $ -- $ (3,393) $123,861
Pre-tax net earnings(loss) 9,526 (532) 867 (84) 9,777
Total assets 105,455 5,571 66,905 (61,001) 116,930
</TABLE>
9
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
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Results of Operations:
---------------------
Six Months Ended May 28, 2000 Compared to Six Months Ended May 30,1999.
Net shipments during the first six months of 2000 increased by $51,355,000, or
41.5%, to $175,216,000 from $123,861,000 in 1999. Approximately $47,800,000 of
this increase results from the inclusion of six months of Storehouse shipments
in 2000 (see Note 5).
Gross profit during the first six months of 2000 increased by $25,081,000, or
73.0%, to $59,430,000 from $34,349,000 in 1999. Gross profit as a percentage of
net shipments (gross margin) during the first six months in 2000 increased to
33.9% from 27.7% 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 28.5%, primarily from improved
product mix and improvements in gross margin at Mitchell Gold. Gross margin has
been adversely impacted by start-up costs and transition issues at the new
upholstery production facility in Elliston, as well as increases in health and
medical costs at our Rowe Furniture subsidiary. Management anticipates that
these conditions will continue to adversely impact gross margin over the second
half of 2000. In addition, approximately $290,000 in moving costs were incurred
as Rowe Furniture moved into the new upholstery plant.
Selling and administrative expenses during the first six months of 2000
increased by $27,768,000, or 115.5%, to $51,806,000 from $24,038,000 in 1999.
Selling and administrative expenses as a percentage of net shipments during the
first six months of 2000 increased to 29.6% from 19.4% in 1999. The increase in
selling and administrative expenses reflects $22.3 million in 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 $380,000 in pre-opening expenses for new retail locations that,
under new accounting guidance, was expensed in the current period. 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, during the third quarter, the
administrative offices of Rowe Furniture will move into the Elliston facility,
thereby resulting in additional relocation costs.
Operating income was $7,624,000 versus $10,311,000 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 six months of 2000 increased by $1,136,000
to $2,277,000 from $1,141,000 in 1999. The increase in net interest expense
resulted from borrowings used to fund the acquisition of Storehouse and higher
rates on borrowed money as market interest rates have increased over the past
year.
Other income during the first six months of 2000 increased by $85,000 to
$692,000 from $607,000 in 1999.
Net earnings during the first six months of 2000 decreased by $2,558,000 to
$3,576,000 from $6,134,000 in 1999, primarily reflecting the costs to open
additional stores, relocation and start-up costs at Elliston, increased health
and medical costs, and increased borrowing costs, as well as an increase in the
effective tax rate from 37.3% in 1999 to 40.8% in 2000 resulting primarily from
increased non-deductible goodwill amortization.
10
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
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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 used in operating activities was $(455,000) during the first six months
of 2000 versus $3,310,000 provided in 1999. Fluctuations in net cash provided
by (used in) operating activities are primarily the result of changes in
operating income and changes in working capital accounts.
Capital expenditures were $4,739,000 during the first six months of 2000 and
$5,251,000 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 and systems
expenditures for year 2000 and efficiency requirements.
Net cash provided by financing activities during the first six months of 2000
was $2,276,000 versus $(524,000) used in financing activities 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.
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 28, 2000 was
approximately $6.8 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.
Certain of the Company's financing agreements (currently representing
approximately $77 million of outstanding principal) contain financial covenants.
As of May 28, 2000, the Company was in compliance with these covenants. Based
upon current expectations, it is likely that the Company will not achieve
compliance with ratios for debt to cash flow and interest coverage as of the end
of third quarter. The Company has requested modification of the covenants from
the lending institutions to prevent being out of compliance with these covenants
in future periods. There can be no assurance that the lending institutions will
agree to modify the covenants, or that any potential changes in terms associated
with such modifications would not have a material adverse impact on the
operating results or activities of the Company.
11
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNAUDITED
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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.
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.
-------------------------------------------------------------
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
2000.
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: July 11, 2000 /s/ Arthur H. Dunkin
-------------------- ---------------------
Arthur H. Dunkin
Secretary-Treasurer
14
