<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 27, 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 February 27, 2000
- --------------------------------------- --------------------------------
Common stock, par value $1.00 per share 13,220,924 shares
<PAGE>
THE ROWE COMPANIES
INDEX
Part I. Financial Information Page
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Consolidated Balance Sheets - February 27, 2000 and
November 28, 1999 4
Consolidated Statements of Income - Three Months
Ended February 27, 2000 and February 28,1999 5
Consolidated Statements of Cash Flows - Three Months
Ended February 27, 2000 and February 28,1999 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Quantitative and Qualitative Disclosures about Market Risk 12
Forward Looking Statements 12
Part II. Other Information 13
<PAGE>
PART I - - FINANCIAL INFORMATION
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
February 27, November 28,
2000 1999
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(Unaudited) (Audited)
($ in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36 $ 5,104
Accounts receivable, net 36,872 38,340
Inventories (Note 4) 45,303 41,381
Deferred income tax asset 238 238
Prepaid expenses and other 3,194 3,098
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Total current assets 85,643 88,161
PROPERTY AND EQUIPMENT, net 36,253 36,186
GOODWILL, net 27,599 27,938
OTHER NONCURRENT ASSETS 15,896 16,295
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$ 165,391 $ 168,580
============= =============
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt $ 353 $ 353
Short term bank borrowings 5,578 4,164
Accounts payable and accrued liabilities 35,798 39,282
Income taxes payable 1,836 1,783
Customer deposits 7,494 8,620
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Total current liabilities 51,059 54,202
LONG-TERM DEBT 52,650 54,608
DEFERRED LIABILITIES 5,432 5,111
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Total liabilities 109,141 113,921
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STOCKHOLDERS' EQUITY
COMMON STOCK, par value $1 per share:
February 27, November 28,
2000 1999
==========================
Authorized shares 50,000,000 50,000,000
Issued shares 16,518,627 16,512,962 16,519 16,513
Outstanding shares 13,220,924 13,260,833
CAPITAL IN EXCESS OF PAR VALUE 23,077 23,039
RETAINED EARNINGS 38,004 36,077
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77,600 75,629
Less treasury stock 3,297,703 shares in 2000 and
3,252,129 shares in 1999, at cost (21,350) (20,970)
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Total stockholders' equity 56,250 54,659
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$ 165,391 $ 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 MONTHS ENDED FEBRUARY 27, 2000 AND FEBRUARY 28, 1999
UNAUDITED
================================================================================
<TABLE>
<CAPTION>
2000 1999
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($ in thousands-except per share amounts)
<S> <C> <C>
Net shipments $ 87,475 $ 59,966
Cost of shipments 57,732 43,367
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Gross profit 29,743 16,599
Selling and administrative expenses 25,138 11,373
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Operating income 4,605 5,226
Interest expense (1,066) (590)
Other income 345 271
-------------- --------------
Earnings before taxes 3,884 4,907
Taxes on income 1,492 1,815
-------------- --------------
Net earnings $ 2,392 $ 3,092
============== ==============
Earnings per common share (Note 6) $ 0.18 $ 0.23
============== ==============
Weighted average common shares 13,247 13,506
============== ==============
Earnings per common share
assuming dilution (Note 6) $ 0.17 $ 0.21
============== ==============
Weighted average common shares
and equivalents 13,996 14,623
============== ==============
Dividends declared and paid per share $ 0.035 $ 0.032
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED FEBRUARY 27, 2000 AND FEBRUARY 28, 1999
UNAUDITED
================================================================================
<TABLE>
<CAPTION>
2000 1999
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($ in thousands)
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 87,680 $ 55,271
Cash paid to suppliers and employees (87,402) (54,853)
Income taxes paid, net of refunds (1,439) (61)
Interest paid (1,066) (590)
Interest received 103 66
Other receipts - net 242 230
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Net cash and cash equivalents provided by
(used in) operating activities (1,882) 63
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Cash flows from investing activities:
Proceeds from sales of assets 67 -
Capital expenditures (1,909) (3,923)
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Net cash used in investing activities (1,842) (3,923)
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Cash flows from financing activities:
Net borrowings under line of credit 1,414 1,875
Proceeds from issuance of long-term debt 1,588 -
Payments to reduce long-term debt (3,546) (37)
Proceeds from issuance of common stock 44 131
Dividends paid (464) (430)
Purchase of treasury stock (380) (144)
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Net cash provided by (used in) financing activities (1,344) 1,395
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Net increase (decrease) in cash and cash equivalents (5,068) (2,465)
Cash and cash equivalents at beginning of period 5,104 2,480
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Cash and cash equivalents at end of period $ 36 $ 15
============= =============
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED FEBRUARY 27, 2000 AND FEBRUARY 28, 1999
UNAUDITED
================================================================================
Reconciliation of Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
<TABLE>
<CAPTION>
2000 1999
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($ in thousands)
<S> <C> <C>
Net earnings $ 2,392 $ 3,092
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Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,123 1,214
Provision for deferred compensation 298 151
Payments made for deferred compensation (70) (159)
Provision for losses on accounts receivable 137 -
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,331 (4,695)
Decrease (increase) in inventories (3,923) (905)
Decrease (increase) in prepaid expenses and other (95) 114
Decrease (increase) in other assets 387 118
Increase (decrease) in accounts payable (2,287) (1,524)
Increase (decrease) in accrued expenses (1,102) 742
Increase (decrease) in income taxes payable 53 1,754
Increase (decrease) in customer deposits (1,126) 161
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Total adjustments (4,274) (3,029)
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Net cash provided by (used in) operating activities $ (1,882) $ 63
========== ============
</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 (the "Company") is comprised primarily of Rowe
Furniture, Inc. ("Rowe Furniture"), its core upholstered furniture
subsidiary; The Mitchell Gold Co. ("Mitchell Gold"), a producer of
upholstered and leather furniture; The Wexford Collection, Inc.
("Wexford"), a producer of solid wood furniture; Home Elements, Inc.
("Home Elements"), a 16 store chain of retail specialty home
furnishings stores; and Storehouse, Inc. ("Storehouse"), 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 February 27, 2000 and the results
of operations and cash flows for the three months ended February 27,
2000 and February 28,1999.
Note 3 - The results of operations for the three months ended February 27, 2000
and February 28,1999 are not necessarily indicative of the results to
be expected for the full year.
Note 4 - Inventory components are as follows:
February 27, November 28,
2000 1999
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($ in thousands)
Retail merchandise $ 19,203 $ 18,000
Finished goods 3,042 3,166
Work-in-process 5,085 4,391
Raw materials 17,973 15,824
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$ 45,303 $ 41,381
======== ========
Note 5 - Effective August 1, 1999, the Company acquired Storehouse, a 43 store
chain of retail furniture stores. The Company accounted for the
acquisition using the purchase method of accounting. Accordingly,
the results of operations at Storehouse are included only in the
Consolidated Statements of Income for the three months ended February
27, 2000.
Note 6 - The following table shows the components of the earnings per share
computations shown in the Consolidated Statements of Income.
8
<PAGE>
Three Months Ended
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February 27, February 28,
2000 1999
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(in thousands)
Net earnings available to basic shares $ 2,392 $ 3,092
Add interest expense on assumed conversion
of convertible debentures, net of tax 33 33
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Net earnings available to diluted shares $ 2,425 $ 3,125
======= =======
Weighted average common shares
outstanding (Basic) 13,247 13,506
Effect of dilutive stock options and
convertible debentures 749 1,117
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Weighted average common shares and
equivalents outstanding (Diluted) 13,996 14,623
======= =======
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
------- ------- ----- ------------ ------------
($ in thousands)
2000
----
<S> <C> <C> <C> <C> <C>
Revenue $ 63,598 $ 29,835 $ - $ (5,958) $ 87,475
Earnings (loss) before taxes 4,373 (492) 78 (75) 3,884
Total assets 115,651 48,178 95,736 (94,174) 165,391
1999
----
Revenue $ 57,490 $ 4,152 $ - $ (1,676) $ 59,966
Earnings (loss) before taxes 4,724 (135) 360 (42) 4,907
Total assets 102,975 5,147 69,031 (61,076) 116,077
</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:
- ---------------------
Three Months Ended February 27, 2000 Compared to Three Months Ended February
28,1999.
Net shipments during the first three months of 2000 increased by $27,509,000, or
45.9%, to $87,475,000 from $59,966,000 in 1999. Approximately $20,500,000 of
this increase resulted from the inclusion of three months of Storehouse
shipments in 2000 (see Note 5).
Gross profit during the first three months of 2000 increased by $13,144,000, or
79.2%, to $29,743,000 from $16,599,000 in 1999. Gross profit as a percentage of
net shipments during the first three months in 2000 increased to 34.0% 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 profit as a percentage of net shipments increased to 28.4%,
primarily from increased sales at Home Elements, improved product mix and higher
production volumes at Mitchell Gold, partially offset by approximately $290,000
in costs incurred to move from the Salem, Virginia upholstery facility to the
new facility in Elliston, Virginia and additional manufacturing costs at
Wexford.
Selling and administrative expenses during the first three months of 2000
increased by $13,765,000, or 121.0%, to $25,138,000 from $11,373,000 in 1999.
The increase in selling and administrative expenses reflects the additional
costs for Storehouse, expansion of the Home Elements program, growth at Mitchell
Gold, additional goodwill amortization and additional salaries and benefits.
Selling and administrative expenses as a percentage of net shipments during the
first three months of 2000 increased to 28.7% from 19.0% in 1999. The percentage
increase in selling and administrative expenses primarily reflects the addition
of Storehouse for 2000. Also included in selling and administrative expenses was
approximately $380,000 in pre-opening expenses primarily for new retail
locations that, under new accounting guidance, was expensed in the current
period. Previously, these costs would have been deferred and amortized over the
first twelve months of new store operations.
Operating income was $4,605,000 versus $5,226,000 in the prior year. The
decrease primarily related to moving and pre-opening costs as described above,
as well as the additional manufacturing costs at Wexford.
Net interest expense during the first three months of 2000 increased by $476,000
to $1,066,000 from $590,000 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 increases in the performance-based spread.
Net earnings during the first three months of 2000 decreased by $700,000 to
$2,392,000 from $3,092,000 in 1999, primarily reflecting the change in
accounting rules related to costs to open additional stores, moving costs at the
new upholstery facility, and increased borrowing costs, as well as an increase
in the effective tax rate from 37% in 1999 to 38.4% in 2000 primarily as a
result of increased goodwill amortization.
10
<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 used in operating activities was $1,882,000 during the first three
months of 2000 versus $63,000 provided 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.
Capital expenditures were $1,909,000 during the first three months of 2000 and
$3,923,000 in 1999. In 2000, a significant expenditure was made for a production
planning and scheduling system at Rowe Furniture to improve management of the
production process and inventory. Expenditures in 1999 included final costs for
the new Mitchell Gold facility and new mainframe and systems expenditures at
Rowe Furniture.
Net cash used in financing activities during the first three months of 2000 was
$1,344,000 versus $1,395,000 provided by 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,
repurchases of common stock and issuance of common stock upon the exercise of
stock options.
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 February 27, 2000 was
approximately $5.6 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.
11
<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 term loans, revolving loans, lines
of credit and Industrial Revenue Bonds 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
- -------------------------------------------------------------------------------
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 first 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
------------------
Date: April 11, 2000 /s/ Arthur H. Dunkin
----------------------------
Arthur H. Dunkin
Secretary-Treasurer
and
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-03-2000
<PERIOD-END> FEB-27-2000
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 36,872
<ALLOWANCES> 975
<INVENTORY> 45,303
<CURRENT-ASSETS> 85,643
<PP&E> 36,253
<DEPRECIATION> 38,936
<TOTAL-ASSETS> 165,391
<CURRENT-LIABILITIES> 51,059
<BONDS> 52,650
0
0
<COMMON> 16,519
<OTHER-SE> 39,731
<TOTAL-LIABILITY-AND-EQUITY> 165,391
<SALES> 87,475
<TOTAL-REVENUES> 87,475
<CGS> 57,732
<TOTAL-COSTS> 57,732
<OTHER-EXPENSES> 24,793
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,066
<INCOME-PRETAX> 3,884
<INCOME-TAX> 1,492
<INCOME-CONTINUING> 2,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,392
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
