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 27, 1998
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.
Class Shares Outstanding at April 24, 1998
- --------------- ------------------------------------
$ .01 par value 7,542,258
WINSLOEW FURNITURE, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
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 .............. 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 11
Item 4. Submission of Matters to a Vote of Security
Holders ........................................................... 11
Item 6. Exhibits and Reports on Form 8-K .......................... 11
Signatures ......................................................... 12
2
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands except share
and per share amounts) March 27, December 31,
1998 1997
--------- ------------
Assets
Cash and cash equivalents $ 1,874 $ 707
Accounts receivable, less
allowances for doubtful accounts 27,417 21,124
Inventories 9,400 9,096
Prepaid expenses and other
current assets 4,744 7,391
Net assets of discontinued operations 1,330 2,057
------- --------
Total current assets 44,765 40,375
Net assets of discontinued operations 6,557 6,860
Property, plant and equipment, net 10,371 10,320
Goodwill, net 20,850 21,021
Other assets 1,405 763
------- -------
$83,948 $79,339
======= =======
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 514 $ 515
Accounts payable 4,262 3,187
Other accrued liabilities 7,784 7,336
------- -------
Total current liabilities 12,560 11,038
Long-term debt, net of current portion 16,704 15,908
Deferred income taxes 745 1,367
------- -------
Total liabilities 30,009 28,313
------- -------
Commitments and contingencies
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, 7,542,258 and 7,526,508
shares issued and outstanding at
March 27, 1998 and December 31, 1997 75 75
Additional paid-in capital 25,094 24,926
Retained earnings 28,770 26,025
------- -------
Total stockholders' equity 53,939 51,026
------- -------
$83,948 $79,339
======= =======
See accompanying notes.
3
WinsLoew Furniture, Inc and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Quarters Ended
(In thousands except -------------------------
per share amounts) March 27, March 28,
1998 1997
---------- ----------
Net sales $25,128 $23,136
Cost of sales 16,004 15,783
------- -------
Gross profit 9,124 7,353
Selling, general and
administrative expenses 4,213 4,442
Amortization 244 244
------- -------
Operating income 4,667 2,667
Interest expense 333 857
Income from continuing
operations before income taxes 4,334 1,810
Provision for income taxes 1,589 717
------- -------
Income from continuing operations 2,745 1,093
(Loss) from discontinued
operations, net of taxes -- (275)
------- -------
Net income $2,745 $ 818
======= =======
Basic earnings (loss) per share:
Income from continuing operations $0.36 $0.15
(Loss) from discontinued operations,
net of taxes -- (0.04)
----- ------
Net income $0.36 $0.11
===== ======
Weighted average number of shares 7,535 7,443
===== =====
Diluted earnings (loss) per share:
Income from continuing operations $0.36 $0.15
(Loss) from discontinued operations,
net of taxes -- (0.04)
----- ------
Net income $0.36 $0.11
===== ======
Weighted average number of shares
andcommon stock equivalents 7,683 7,495
===== =====
See accompanying notes.
4
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) For the Quarters Ended
-------------------------
March 27, March 28,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $2,745 $818
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 530 558
Provision for losses on accounts receivable 67 (52)
Change in net assets held for sale 1,030 (2,022)
Changes in operating assets and liabilities,
net of effects from acquistions and dispositions:
Accounts receivable (6,360) (7,767)
Inventories (304) (320)
Prepaid expenses and other current assets 2,647 3,060
Other assets (715) 70
Accounts payable 1,075 79
Other accrued liabilities 448 1,405
Deferred income taxes (622) 45
------- -------
Total adjustments (2,204) (4,944)
------- -------
Net cash provided by (used in)
operating activities 541 (4,126)
------- -------
Cash flows from investing activities:
Capital expenditures, net of disposals (337) (241)
------- -------
Net cash (used in) investing activities (337) (241)
-------- -------
Cash flows from financing activities:
Net borrowings (payments) under revolving
credit agreements 795 5,643
Proceeds from issuance of common stock, net 168 97
Payments on long-term debt -- (849)
Repurchase and cancellation of stock -- (490)
-------- -------
Net cash provided by financing activities 963 4,401
-------- -------
Net increase in cash and cash equivalents 1,167 34
Cash and cash equivalents at beginning of year 707 897
------ -------
Cash and cash equivalents at end of period $1,874 $ 931
====== =======
Supplemental disclosures:
Interest paid $259 $634
Income taxes paid $28 $313
====== =======
See accompanying notes
5
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
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 "WinsLoew"), 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, 1997, 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 are presented for the Company's first
quarter, which is from January 1 through March 27, 1998. The
results of operations for this period are not necessarily
indicative of the results to be expected for the full year.
2. Inventories
Inventories consisted of the following:
(In thousands)
March 27, December 31,
1998 1997
---------- ------------
Raw materials $7,528 $7,597
Work in process 1,453 1,038
Finished Goods 419 461
------ ------
$9,400 $9,096
====== ======
3. Long-term Debt
WinsLoew's amended senior credit facility provides the
Company with a variable amount available under the revolving
line of credit. The amount available under its revolving
credit line is $20 million between July 1 each year through
December 31. The Company may, at its option, elect to
increase the revolving credit line at January 1, to a maximum
of $40 million. For the period January 1, 1998 through June
30, 1998, the Company's maximum revolver is $25 million.
4. Capital Stock
During the first quarter of 1997, the Company retired 50,000
shares of common stock purchased for $490,000. On January
23, 1998, the Board approved a plan authorizing the
repurchase of 1,000,000 shares of the Company's stock in the
open market at times and prices deemed advantageous.
6
5. Discontinued Operations
During 1997 the Company's Board of Directors adopted a
plan to discontinue the Company's ready to assemble ("RTA")
operations. Of the three businesses, two are being held for
sale and one is in the process of being liquidated. The
results of operations for the first quarter of 1998 and 1997
for these business have been classified in the accompanying
statement of income as discontinued operations. Revenues
from discontinued operations were $4,666,000 and $6,430,000
in the first quarter of 1998 and 1997, respectively.
The current net assets of discontinued operations
consists of inventory and receivables, net of current
liabilities including the reserve for estimated losses
through the disposal date. The non-current assets of
discontinued operations consist of property, plant and
equipment and goodwill.
7
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 and contract seating
furniture. 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.
Results of Operations
The following table sets forth net sales, gross profit and
gross margin as a percent of net sales for each of the
Company's product lines (in thousands, except for
percentages):
Three Months Ended
-------------------------------------------------
March 27, 1998 March 28, 1997
---------------------- ----------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
Casual furniture $ 9,630 $4,354 45.2% $ 9,454 $3,618 38.3%
Contract seating 15,498 4,770 30.8% 13,682 3,735 27.3%
------- ------ ------- ------
Total $25,128 $9,124 36.3% $23,136 $7,353 31.8%
======= ====== ======= ======
The following table sets forth certain information relating
to the Company's operations expressed as a percentage of the
Company's net sales:
Three Months Ended
------------------------------
March 27, March 28,
1998 1997
--------- ---------
Gross margin 36.3% 31.8%
Selling, general and
administrative expense 16.8% 19.2%
Amortization 1.0% 1.1%
Operating income 18.6% 11.5%
Interest expense, net 1.3% 3.7%
Income before income
taxes 17.2% 7.8%
Net income 10.9% 3.5%
Comparison of First Quarters Ended March 27, 1998 and March
28, 1997
Net Sales: WinsLoew's reported consolidated net sales for
the first quarter of 1998 increased $2.0 million or 8.6%, to
$25.1 million from $23.1 million in the first quarter of
1997. If the casual wrought iron business, sold in August
1997, is excluded in the first quarter of 1997, consolidated
net sales increased $3.6 million or 16.6%.
8
Both of the Company's product lines experienced sales
increases. The Contract Seating product line experienced a
sales increase of 13.3% due to both core business and
increased demand in the lodging industry. The Casual product
line increased sales by 22.4%, excluding the 1996 quarter
sales for the wrought iron business which was sold in August
1997. The Company believes, that due warm weather in the
Company's largest sales areas, existing retail customers have
allocated more floor space, requiring larger inventories of
the Company's casual aluminum furniture.
Gross Margin: Consolidated gross margin increased to 36.3%
in the first quarter of 1998, compared to 31.8% in the first
quarter of 1997. Both of the Company's product lines
experienced increases in gross margin. The Casual product
line gross margin in the first quarter of 1998 improved by
6.9 percentage points compared to the same period of 1997. A
portion of the improvement is due to the disposition of the
wrought iron business in August 1997 and the balance is due
to lower raw material prices and improved operating
efficiencies in the Company's remaining casual facilities.
The Contract seating product line improved its gross margin
by 3.5 percentage points, primarily due to increased volume
and product mix.
Selling, General and Administrative Expenses: Selling,
general and administrative expenses decreased from the first
quarter of 1998 by $229,000 primarily due to the disposition
of the casual wrought iron business in August 1997 and cost
control programs. Also these expenses decreased to 16.8% of
net sales as the Company continues to leverage these costs
against increases in revenues.
Operating Income: As a result of the above, WinsLoew
recorded operating income of $4.7 million (18.6% of net
sales) in the first quarter of 1998, compared to operating
income of $2.7 million (11.5% of net sales) in the first
quarter of 1997.
Interest Expense: The Company's interest expense decreased
$524,000 in the first quarter of 1998, primarily due to lower
outstanding debt balances.
Provision for Income Taxes: The Company's effective tax
rate of 36.7% in 1998 and 39.6% in 1997 is greater than the
federal statutory rate due to the effect of state income
taxes and non-deductible goodwill amortization.
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
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
WinsLoew'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 27, 1998, the Company had
$32.2 million of working capital and $22.5 million of unused
and available funds under its credit facilities.
9
In June 1996, WinsLoew amended its senior credit facility to
provide the Company with a variable amount available under
the revolving line of credit (see Note 3 to the Consolidated
Financial Statements). Due to the seasonal nature of the
Casual product line, the Company's cash requirements are
usually greater in the first quarter of each year. The June
1996 amendment allows the amount available to fluctuate with
the seasonal nature of the Company's business. After the
first quarter of each year, the Company's cash requirements
from its credit line are less. By the use of a variable
amount of credit availability, the Company can avoid the cost
of an available but unused line of credit.
In July 1996, WinsLoew amended its senior credit facility to
allow the Company to borrow under its acquisition line of
credit to purchase shares of the Company's common stock (see
Note 4 to the Consolidated Financial Statements). As of
March 27, 1998 there was $2.1 million available for such
repurchases.
Cash Flows From Operating Activities: For the first quarter
of 1998, cash provided by operating activities was $.5
million compared to cash used of $4.1 million in the first
quarter of 1997. 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.
During the second quarter, the Company receives payment on
these accounts receivable.
Cash Flows From Investing Activities: WinsLoew's net cash
used in investing activities was $337,000 during the first
quarter of 1998 compared to $241,000 for the first quarter of
1997.
Cash Flows From Financing Activities: Net cash provided by
financing activities was $1.0 million in the first quarter of
1997 compared to $4.4 million in the first quarter of 1997.
At March 28, 1998, the Company has no material commitments
for capital expenditures.
Foreign Exchange Forward Contracts
WinsLoew 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, thereby transferring
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 margins. The Company elected to
hedge a portion of its exposure to purchases made in 1998 by
entering into foreign currency forward contracts with a value
of $1.7 million, all of which is outstanding and unsettled at
March 27, 1998 maturing at approximately $330,000 per month.
The Company has not incurred significant gains or losses from
these foreign currency transactions.
Year 2000
The Company began an assessment of Year 2000 issues on
its computer system in mid-1995 and began the process of
updating hardware and software at each of its facilities.
The Company is in the process of completing its hardware and
software installation at the last facility which is expected
to be completed during the first half of 1998. The company
has no plans to address these issues with its discontinued
operations as the expected date of disposition is mid-1998.
From an ongoing cost standpoint, Year 2000 issues are not
expected to have a significant impact on the Company's
financial position, results of operations or liquidity.
10
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 4. Submission of Matters to a Vote of Security Holders
(a) None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(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.
11
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
-----------------
April 24, 1998 BOBBY TESNEY
President and Chief Executive Officer
/s/ Vincent A. Tortorici, Jr.
-----------------------------
April 24, 1998 VINCENT A. TORTORICI, Jr.
Chief Financial Officer
12
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