<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended March 29, 1996
---------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------------
Commission File Number 0-25246
--------------------
WINSLOEW FURNITURE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 63-1127982
- - -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 CAHABA VALLEY PARKWAY, PELHAM, ALABAMA 35124
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including Area Code) (205) 403-0206
--------------
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 shorter 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 latest practicable date.
<TABLE>
<CAPTION>
Class Shares Outstanding at May 10, 1996
----- ----------------------------------
<S> <C>
$.01 par value 8,967,112
</TABLE>
<PAGE> 2
WINSLOEW FURNITURE, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets ........................................................... 3
Consolidated Statements of Income ..................................................... 4
Consolidated Statements of Cash Flows ................................................. 5
Notes to Consolidated Financial Statements .......................................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................ 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................... 12
Item 6. Exhibits and Reports on Form 8-K ..................................................... 12
SIGNATURES .......................................................................................... 13
</TABLE>
2
<PAGE> 3
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) March 29, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 480 $ 396
Accounts receivable, less allowances for doubtful accounts 35,425 30,162
Inventories 20,616 19,920
Prepaid expenses and deferred income taxes 4,839 4,163
-------- --------
Total current assets 61,360 54,641
Property, plant and equipment, net 18,002 18,293
Goodwill, net 30,499 30,720
Other intangible assets, net 196 448
Other assets 1,215 1,268
-------- --------
$111,272 $105,370
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 1,524 $1,815
Accounts payable 3,859 2,690
Other accrued liabilities 7,168 6,459
-------- --------
Total current liabilities 12,551 10,964
Long-term debt, net of current portion 43,703 40,191
Deferred income taxes 1,700 987
-------- --------
Total liabilities 57,954 52,142
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000 shares
authorized, none issued -- --
Common stock; par value $.01 per share, 20,000,000 shares
authorized, 8,967,112 shares issued and outstanding
at March 29, 1996 and December 31, 1995 90 90
Additional paid-in capital 37,640 37,640
Retained earnings 15,588 15,498
-------- --------
Total stockholders' equity 53,318 53,228
-------- --------
$111,272 $105,370
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
WINSLOEW FURNITURE, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) For the Quarters Ended
--------------------------------
March 29, 1996 March 31, 1995
============== ==============
<S> <C> <C>
Net sales $30,957 $29,463
Cost of sales 22,537 23,009
------- -------
Gross profit 8,420 6,454
Selling, general and administrative expenses 6,539 5,387
Amortization 549 503
------- -------
Operating income 1,332 564
Interest expense 1,187 1,011
------- -------
Income (loss) before income taxes and
extraordinary item 145 (447)
Provision for income taxes (benefit) 55 (52)
------- -------
Income (loss) before extraordinary item 90 (395)
Extraordinary item -- (593)
------- -------
Net income (loss) $ 90 $ (988)
======= =======
Earnings (loss) per share:
Income (loss) before extraordinary item $ 0.01 $ (0.04)
Extraordinary item -- (0.06)
------- -------
Net income (loss) $ 0.01 $ (0.10)
======= =======
Weighted average number of shares 8,967 9,218
======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) For the Quarters Ended
---------------------------------
March 29, 1996 March 31, 1995
============== ==============
<S> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net income (loss) $ 90 $ (988)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,043 916
Write-off of loan costs related to early retirement of debt -- 953
Changes in operating assets and liabilities,
net of effects from acquistions:
Accounts receivable (5,263) (2,241)
Inventories (696) (719)
Prepaid expenses and deferred income taxes (676) 402
Other assets (23) --
Accounts payable 1,169 (2,107)
Other accrued liabilities 709 (1,128)
Deferred income taxes 713 7
------ ------
Total adjustments (3,024) (3,917)
------ ------
Net cash used in operating activities (2,934) (4,905)
------ ------
INVESTING ACTIVITIES:
Capital expenditures, net of disposals and reserves (203) (719)
Acquisitions, including acquisition costs, less cash acquired -- (6,780)
------ ------
Net cash used in investing activities (203) (7,499)
------ ------
FINANCING ACTIVITIES:
Net borrowings under revolving credit agreements 5,102 16,647
Repurchase and cancellation of stock -- (3,408)
Payments on long-term debt (1,881) (47)
Increase in term loan upon refinancing -- 1,560
Loan costs -- (1,678)
------ ------
Net cash provided by financing activities 3,221 13,074
------ ------
Net increase in cash and cash equivalents 84 670
Cash and cash equivalents at beginning of year 396 1,054
------ ------
Cash and cash equivalents at end of period $ 480 $1,724
====== ======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 519 $ 934
Income taxes paid $ 73 $ 47
Investing activities included the acquisition of Continental Engineering Group, Inc. in 1995.
Assets acquired, liabilities assumed and consideration paid for this acquisition were as follows:
Fair value of assets acquired $7,968
Cash acquired (131)
Liabilities assumed (1,057)
------
$6,780
======
</TABLE>
See accompanying notes.
5
<PAGE> 6
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of WinsLoew
Furniture, Inc. and subsidiaries (the "Company" or "WLFI"), which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 as filed with the Securities and
Exchange Commission.
All material intercompany balances and transactions have been eliminated. The
preparation of the consolidated financial statements requires the use of
estimates in the amounts reported.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the results for the interim
periods. The results of operations for the first quarter from January 1
through March 29, 1996, are not necessarily indicative of the results to be
expected for the full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In thousands) March 29, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials $11,224 $11,683
Work in process 2,484 1,864
Finished goods 6,908 6,373
------- -------
$20,616 $19,920
======= =======
</TABLE>
3. EXTRAORDINARY ITEM
In the first quarter of 1995, the Company incurred an extraordinary charge of
$593,000, net of an income tax benefit of $360,000, related to prepayment
penalties and the write-off of unamortized deferred loan costs associated with
the retirement of separate credit facilities.
6
<PAGE> 7
4. ACQUISITION OF CONTINENTAL ENGINEERING GROUP, INC.
On March 24, 1995, the Company acquired all of the stock of Continental
Engineering Group, Inc. for approximately $6.8 million. The following
unaudited pro forma information has been prepared assuming that the acquisition
of Continental had occurred on January 1, 1995. The pro forma results are not
necessarily indicative of what actually would have occurred if the acquisition
had been in effect for the entire period presented.
<TABLE>
<CAPTION>
First Quarter Ended
March 31, 1995
-------------------
<S> <C>
Net sales $31,238
Net loss (868)
Net loss (.09)
Average shares outstanding 9,218
</TABLE>
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
WinsLoew is engaged in the design, manufacture and distribution of casual
furniture, contract seating, ready-to-assemble ("RTA") furniture and futons.
WinsLoew's casual furniture products are distributed through independent
manufacturer's representatives, and are constructed of extruded and tubular
aluminum, wrought iron and cast aluminum. These products are distributed
through fine patio stores, department stores and full line furniture stores
nationwide. WinsLoew's contract seating products are distributed to a broad
customer base which includes architectural design firms, and restaurant and
lodging chains. WinsLoew's RTA products include ergonomically-designed
computer workstations, which the Company denotes as "space savers",
promotionally-priced coffee and end tables, wall units and rolling carts.
WinsLoew also manufactures and distributes an extensive line of futons, frames
and related accessories. Distribution of RTA and futon furniture products is
primarily through mass merchandisers, catalogue wholesalers and specialty
retailers.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross margin as a
percent of net sales for the first quarter of 1996 (January 1 through March 29)
and for the first quarter of 1995 (January 1 through March 31) for each of the
Company's product lines (in thousands, except for percentages):
<TABLE>
<CAPTION>
For the First Quarter of
---------------------------------------------------------
1996 1995
--------------------------- --------------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Casual furniture $ 9,326 $3,122 33.5% $ 8,400 $2,573 30.6%
Contract seating 11,695 3,134 26.8% 9,218 2,351 25.5%
RTA furniture 5,756 1,642 28.5% 5,151 1,169 22.7%
Futons 4,180 522 12.5% 6,694 361 5.4%
------- ------ ------- ------
Total $30,957 $8,420 27.2% $29,463 $6,454 21.9%
======= ====== ======= ======
</TABLE>
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales:
<TABLE>
<CAPTION>
For the First Quarter of
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Gross margin 27.2% 21.9%
Selling, general and
administrative expense 21.1% 18.3%
Amortization 1.8% 1.7%
Operating income 4.3% 1.9%
Interest expense, net 3.8% 3.4%
Income (loss) before income taxes
and extraordinary item 0.5% (1.5%)
Net income (loss) 0.3% (3.4%)
</TABLE>
8
<PAGE> 9
COMPARISON OF THE FIRST QUARTERS OF 1996 AND 1995
Net Sales: The Company's consolidated net sales for the first quarter of 1996
increased $1.5 million or 5.1%, to $31.0 million from $29.5 million in the
first quarter of 1995. Three of the Company's four product lines experienced
sales increases. The Contract Seating product line experienced a sales
increase of 26.9% as construction in the lodging industry drove up demand. The
Casual product line increased sales by 11.0%. Due to its high quality and
innovative designs, existing retail customers have allocated more floor space,
and are therefore requiring larger inventories, of the Company's casual
aluminum furniture. RTA product line sales increased by 11.8% due to
Continental Engineering Group, Inc. being included for the entire first quarter
of 1996. The increase in RTA product line sales was offset by the Company's
restructuring of this product line in September, 1995. This restructuring
resulted in the Company exiting the promotionally-priced seating market and
beginning a transition from traditional lower margin RTA products to higher
margin products. Also in the first quarter of 1996, some mass merchants have
purchased fewer products as a result of price increases in the RTA product
line. Futon product line sales decreased by $2.5 million. In September, 1995,
the Company announced a restructuring of this product line, which reduced
product offerings and discontinued sales to some mass merchant customers.
Also, Futon product sales to the specialty store market have declined from the
levels of the first quarter of 1995. With the decision to discontinue sales to
the mass merchant market, the Company has begun to refocus efforts on
rebuilding the specialty store business.
Gross Margin: Consolidated gross margin increased to 27.2% in the first quarter
of 1996, compared to 21.9% in the first quarter of 1995. Each of the Company's
product lines experienced increases in gross margin. The RTA product line
gross margin improved by 5.8 percentage points, primarily due to the
acquisition of Continental Engineering Group, Inc., whose products have higher
gross margins than the Company's traditional RTA products. The Company's sale
of its promotionally-priced seating business eliminated sales of these lower
margin products. The Futon product line improved its gross margin by 7.1
percentage points. As noted above, the Company has reduced lower margin
product offerings and some mass merchant market sales in the Futon product
line, allowing it to achieve improved margins at a lower level of sales. The
Casual and Contract Seating product lines also had improved gross margins in
the first quarter of 1996, due to greater operating efficiencies from increased
sales volumes.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased from the first quarter of 1995 due to the
addition of Continental for the full first quarter of 1996 and increased
commissions as a result of increased sales volume.
Operating Income: As a result of the above, operating income increased by
$768,000 to $1.3 million (4.3% of net sales) in the first quarter of 1996 as
compared to $564,000 (1.9% of net sales) in the first quarter of 1995.
Interest Expense: The Company's net interest expense increased $176,000 in the
first quarter of 1996. The Company has reduced its debt since March 31, 1995
by $13.8 million. However, the Company has had to pay larger spreads between
the base rate and LIBOR and the rates which the Company is obligated to pay to
its lenders. These larger spreads increased the Company's effective interest
rate over those incurred in the first quarter of 1995, more than offsetting the
lower interest costs from lower levels of debt.
Provision for Income Taxes: The Company's 1996 effective tax rate of 38% is
greater than the federal statutory rate due to the effect of state income taxes
and non-deductible goodwill amortization. For the first quarter of 1995, the
effective tax benefit was 11.6% which is less than the federal statutory rate
due to the effect of state income taxes and non-deductible goodwill
amortization.
9
<PAGE> 10
1995 CHARGES FOR RESTRUCTURING
In September, 1995, the Company recorded a charge of $7.1 million related to a
plan to redirect the marketing and operations of the Company's RTA and Futon
product lines. The restructuring plan was substantially completed during 1995.
However, as part of the restructuring, the Company had excess capacity at its
Futon manufacturing facilities. The Company disclosed plans to consolidate its
futon production facilities into fewer locations and sell any excess
facilities. As a result, the Company recorded a charge of $655,000 to reduce
excess facilities to their estimated realizable value. In the first quarter of
1996, management completed its review of the Futon facilities, culminating in a
decision to consolidate its Tennessee operations into two facilities from four
facilities. This consolidation should be completed during the third quarter of
1996 and should result in no material change to the charge recorded in 1995.
SEASONALITY AND QUARTERLY INFORMATION
The furniture industry is cyclical and sensitive to changes in general economic
conditions, consumer confidence, discretionary income, interest rate levels and
credit availability.
Sales of casual products are typically higher in the second quarter and fourth
quarters of each year, primarily as a result of (1) high retail demand for
casual furniture in the second quarter, preceding the summer months, and (2)
the impact of special sales programs on fourth quarter sales. The Company's
casual product sales will also be affected by weather conditions during the
peak retail selling season and the resulting impact on consumer purchases of
outdoor furniture products.
The results of operations for any interim quarter are not necessarily
indicative of results for a full year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital to
support its debt service, accounts receivable and inventory requirements. The
Company has historically financed its short-term liquidity needs with
internally generated funds and revolving credit facility borrowings. The
Company actively monitors its cash balances and applies available funds to
reduce borrowings under its long-term revolving line of credit. At March 29,
1996, the Company had $48.8 million of working capital and $11.2 million of
unused and available funds under its credit facilities. The Company has
reduced its debt by $13.8 million since March 31, 1995, increasing its unused
and available funds by $9.1 million.
Cash Flows From Operating Activities: For the first quarter of 1996, cash used
in operating activities was $2.9 million compared to cash used of $4.9 million
in the first quarter of 1995. During the first four months of each year,
accounts receivable in the Casual Furniture division normally increase due to
extended payment terms offered to customers. The reduction in cash used for
operations in the first quarter of 1996 compared to 1995 is primarily the
result of a cash management program which management began in 1995. This
program has conserved cash by reducing accounts receivable and inventory in all
divisions below those levels which the Company had historically maintained.
Cash Flows From Investing Activities: The Company's net cash used in investing
activities was $203,000 during the first quarter of 1996, compared to $7.5
million in 1995. The Company paid $6.8 million in cash, including capitalized
acquisition costs, to purchase Continental Engineering in 1995. During 1996,
the Company reduced its net capital equipment expenditures by $516,000 from its
levels in the first quarter of 1995.
10
<PAGE> 11
Cash Flows From Financing Activities: Net cash provided by financing activities
was $3.2 million in the first quarter of 1996, compared to $13.1 million in
1995. The decrease is attributable to $7.0 million borrowed to finance the
acquisition of Continental Engineering and $3.4 million borrowed to finance the
repurchase of the Company's common stock in 1995.
At March 29, 1996, the Company has no material commitments for capital
expenditures.
FOREIGN EXCHANGE FORWARD CONTRACTS
The Company purchases some raw materials from several Italian suppliers. These
purchases expose the Company to the effects of fluctuations in the value of the
U.S. dollar versus the Italian lira. If the U.S. dollar declines in value
versus the Italian lira, the Company will pay more in U.S. dollars for these
purchases. To reduce its exposure to loss from such potential foreign exchange
fluctuations, the Company will occasionally enter into foreign exchange forward
contracts. These contracts allow the Company to buy Italian lira at a
predetermined exchange rate and thereby transfer the risk of subsequent
exchange rate fluctuations to a third party. However, if the Company is unable
to continue such forward contract activities and the Company's inventories
increase in connection with expanding sales activities, a weakening of the U.S.
dollar against the Italian lira could result in reduced gross margin. During
the first quarter of 1996, the Company purchased $1.8 million of these
materials. The Company elected not to hedge its exposure and did not incur
significant gains or losses from these foreign currency transactions.
11
<PAGE> 12
Part II. Other Information
Item 1. Legal Proceedings
The Company is, from time to time, involved in routine litigation. None of
such routine litigation in which the Company is presently involved is material
to its financial position, results of operations or liquidity.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this Quarterly Report on Form 10-Q is being filed.
12
<PAGE> 13
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 thereunto duly authorized.
WINSLOEW FURNITURE, INC.
/s/ Bobby Tesney
----------------------------------------
May 10, 1996 BOBBY TESNEY
President and Chief Executive Officer
/s/ Vincent A. Tortorici, Jr.
----------------------------------------
May 10, 1996 VINCENT A. TORTORICI, Jr.
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WINSLOEW FURNITURE, INC. FOR THE THREE MONTHS ENDED
MARCH 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-29-1996
<CASH> 480
<SECURITIES> 0
<RECEIVABLES> 35,425
<ALLOWANCES> 0
<INVENTORY> 20,616
<CURRENT-ASSETS> 61,360
<PP&E> 18,002
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,272
<CURRENT-LIABILITIES> 12,551
<BONDS> 43,703
0
0
<COMMON> 90
<OTHER-SE> 53,228
<TOTAL-LIABILITY-AND-EQUITY> 111,272
<SALES> 30,957
<TOTAL-REVENUES> 30,957
<CGS> 22,537
<TOTAL-COSTS> 22,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,187
<INCOME-PRETAX> 145
<INCOME-TAX> 55
<INCOME-CONTINUING> 90
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
