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 June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-25246
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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.)
160 VILLAGE STREET, BIRMINGHAM, ALABAMA 35242
- -----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(205) 408-7600
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(Registrant's telephone number, including Area Code)
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 July 13, 2000
- --------------- -----------------------------------
$ .01 par value 829,291
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 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19-20
Signatures
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands) June 30, December 31,
2000 1999
--------- -----------
Assets
Cash and cash equivalents 2,152 710
Cash in escrow -- 1,000
Accounts receivable, less
allowances for doubtful accounts 30,804 25,706
Inventories 19,900 14,545
Refundable income taxes -- 6,908
Prepaid expenses and other
current assets 6,157 4,846
------- --------
Total current assets 59,013 53,715
Property, plant and equipment, net 24,239 16,462
Goodwill, net 253,286 231,377
Other assets 7,323 6,508
------- -------
Total Assets 343,861 308,062
======= =======
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 3,700 $3,700
Accounts payable 8,388 4,265
Accrued interest 6,577 5,560
Other accrued liabilities 17,891 13,469
------- -------
Total current liabilities 36,556 26,994
Long-term debt, net of current portion 214,813 198,258
Deferred income taxes 1,099 1,099
------- -------
Total liabilities 252,468 226,351
------- -------
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, 1,000,000 shares
authorized at June 30,2000 and
20,000,000 shares authorized at
3
June 25,1999, 829,291 and 7,181,908
shares issued and outstanding at
June 30, 2000 and June 25, 1999
respectively 8 8
Additional paid-in capital 85,469 79,392
Retained earnings 5,916 2,311
------- -------
Total stockholders' equity 91,393 81,711
------- -------
$343,861 $308,062
======= =======
See accompanying notes.
WinsLoew Furniture, Inc and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
------------------------- ----------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales $57,425 $47,679 $96,778 $80,589
Cost of sales 32,981 27,983 56,532 48,014
-------- -------- -------- --------
Gross profit 24,444 19,696 40,246 32,575
Selling, general
and administrative
expenses 8,647 7,545 15,520 13,270
Amortization 1,743 318 3,261 634
-------- -------- -------- --------
Operating income 14,054 11,833 21,465 18,671
Interest expense/
(income) 6,844 (46) 13,381 77
-------- -------- -------- --------
Income before
income taxes 7,210 11,879 8,084 18,594
Provision for
income taxes 3,995 4,529 4,479 7,060
------- -------- -------- --------
Net income $3,215 $7,350 $3,605 $11,534
======= ======= ======= =======
See accompanying notes.
4
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) For the Six Months Ended
-------------------------
June 30, June 25,
2000 1999
--------- ----------
Cash flows from operating activities:
Net income $ 3,605 $11,534
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,666 1,381
Provision for losses on accounts
receivable 227 460
Changes in operating assets and
liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable (224) (850)
Inventories (146) 967
Prepaid expenses and other
current assets 29 367
Refundable income taxes 6,908 ---
Other assets and goodwill, net (5) (591)
Accounts payable 2,086 2,283
Accrued interest 1,017 ---
Other accrued liabilities 1,157 2,595
Deferred income taxes --- 111
------- -------
Total adjustments 15,715 6,723
Net cash provided by
operating activities 19,320 18,257
------- -------
Cash flows from investing activities:
Capital expenditures, net of disposals (1,171) (242)
Going private transactions (22) ---
Investment in subsidiaries (39,242) ---
------- -------
Net cash used in investing activities (40,435) (242)
-------- -------
Cash flows from financing activities:
Net payments under
revolving credit agreements (7,345) (1,423)
Net borrowings under acquisition line 20,000 ---
Net borrowings under IDB agreement 3,900 ---
Proceeds from issuance of
common stock, net 7,400 ---
Repurchase and cancellation of stock (1,323) (3,186)
5
Deferred financing costs (75) ---
-------- -------
Net cash used in by financing
activities 22,557 (4,609)
-------- -------
Net increase in cash and
cash equivalents 1,442 13,406
Cash and cash equivalents at
beginning of year 710 475
------ -------
Cash and cash equivalents at
end of period $ 2,152 $13,881
====== =======
For the Six Months Ended
-------------------------
June 30, June 25,
2000 1999
--------- ----------
Supplemental disclosures:
Interest paid $11,631 $186
Income taxes paid $1,189 $5,125
====== =======
Investing activities included the acquisition of Wabash Valley
Manufacturing and Stewart Clark
Fair value of assets acquired $44,419
Cash acquired (276)
Liabilities assumed (4,901) $39,242
========
See accompanying notes
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") that 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 6
consolidated financial statements and notes
thereto contained in the Company's Annual
Report on Form 10-K for the year ended December
31, 1999, 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 second quarter,
which is from March 31, 2000 through June 30, 2000.
The results of operations for this period are
not necessarily indicative of the results to be
expected for the full year.
On August 27, 1999, Trivest Furniture
Corporation, an affiliate of Trivest, merged
with and into WinsLoew, and WinsLoew was the
surviving corporation. Trivest Furniture
Corporation was a newly formed Florida
corporation organized by an investor group led
by Trivest, including two private investment
partnerships affiliated with Trivest and
members of senior management, for the purpose
of acquiring WinsLoew. The cash merger
consideration, option cancellation payments and
related fees and expenses, which totaled
approximately $282.6 million, were provided by
the following sources: $78 million in equity
contributions; borrowings of $95.0 million of
term loans under our $155.0 million senior
credit facility; proceeds from the sale of
units consisting of the original notes and
warrants of approximately $102.5 million; and
available cash on hand of approximately $7.1
million. The acquisition resulted in goodwill
of approximately $198.1 million and was
accounted for under the purchase method of
accounting.
2. Inventories
Inventories consisted of the following:
(In thousands)
June 30, December 31,
2000 1999 7
---------- ------------
Raw materials $12,879 $11,502
Work in process 2,070 1,751
Finished Goods 4,951 1,292
------- -------
$19,900 $14,545
======= =======
3. Long-term Debt
Proceeds from borrowings under the Company's
senior credit facility were used to acquire the assets of
Stuart Clark. Approximately $2.9 million was borrowed
Under the Company's revolving credit line.
In addition, $3.9 million was borrowed under a bond
Agreement with the Industrial Development Board of the
City of Haleyville, Alabama. The proceeds are being
used to expand the manufacturing capacity
at the Company's existing Haleyville facility.
4. Capital Stock
At December 31, 1999, there were 780,000 shares
outstanding. Since December 31, 1999 and as of
June 30, 2000, the Company has acquired 13,225
shares for $1.3 million. In association with
the Wabash acquisition, an additional 60,103
shares were issued for $7.1 million. In addition,
2,011 shares were issued for $0.3 million in conjunction
with the Stuart Clark acquisition. Finally, an
additional 402 shares were issued to employees
for $0.05 million. As of June 30, 2000 there were
829,291 shares outstanding.
5. Acquisitions
On June 16, 2000 the Company purchased certain
assets of Stuart Clark, Inc. and its affiliates.
The purchase price of approximately $3.1 million
was paid in cash and financed with $0.3 million of
equity investment and borrowings of $2.8 million under
the Company's revolving credit facility. The
acquisition resulted in goodwill of approximately
$2.8 million and was accounted for under the purchase
method of accounting. The operating results of Stuart
Clark for the period of June 17 through June 30
have been included in the consolidated
operating results for the second quarter.
On March 31, 2000 the Company purchased all of
the stock of Wabash. The purchase price of
approximately $35.5 million was paid in cash 8
and financed with $7.1 million of equity
investment, borrowings of $20.0 million under
the acquisition loan and $8.4 million under the
revolving credit facility. The acquisition
resulted in goodwill of $21.9 million and was
accounted for under the purchase method of
accounting. During the second quarter an
additional $0.6 million payment was made as
part of the final working capital purchase
adjustment. The payment was financed under the
Company's revolving credit facility.
The operating results of Wabash
have been included in the consolidated
operating results for the second quarter.
On July 23, 1999, the Company acquired all of
the stock of Pompeii, a manufacturer of upper-
end aluminum casual furniture sold into the
contract and residential markets. The purchase
price of approximately $18.2 million, including
fees and expenses, was paid in cash and funded
with internally generated funds. The
acquisition resulted in goodwill of
approximately $14.0 million and was accounted
for under the purchase method of accounting.
The following unaudited pro forma information
has been prepared assuming that the Stuart
Clark, Wabash Valley and Pompeii acquisitions,
as well as the going-private transaction occurred
on January 1, 1999. Permitted pro forma adjustments
include only the effects of events directly
attributable to the transactions that are
factually supportable and expected to have a
continuing impact. The pro forma results are
not necessarily indicative of what actually
would have occurred if the transactions had
been in effect for the entire period presented.
Six months ended
(In thousands) June 30, June 25,
2000 1999
Net sales $105,500 $103,520
Income (loss) before taxes 8,014 5,848
Net income (loss) $ 3,562 $ 2,740
9
6. Segment Information
The Company has three segments organized and managed based on the products
sold. The Company evaluates performance and allocates resources based on
gross profit. There are no intersegment sales/transfers. Export revenues
are not material.
(In thousands) Three Months Ended Six Months Ended
------------------------ ----------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
--------- -------- -------- --------
NET SALES:
Casual products $40,078 $26,005 $59,730 $39,639
Contract seating products 14,495 17,687 30,220 33,572
Ready to assemble products 2,852 3,987 6,828 7,378
------- ------- ------- -------
Total net sales $57,425 $47,679 $96,778 $80,589
======= ======= ======= =======
SEGMENT GROSS PROFIT:
Casual products $18,313 $12,561 $27,657 $19,028
Contract seating products 5,609 6,190 11,217 11,809
Ready to assemble products 522 945 1,372 1,738
------- ------- ------- -------
Total segment gross profit 24,444 19,696 40,246 32,575
Reconciling items:
Selling, general and
administrative expenses 8,647 7,545 15,520 13,270
Amortization 1,743 318 3,261 634
------- ------- ------ -------
Operating income 14,054 11,833 21,465 18,671
Interest expense (income),net 6,844 (46) 13,381 77
------- ------- ------ ------
Income before income taxes $ 7,210 $11,879 $ 8,084 $18,594
======= ======= ======= =======
(In thousands) June 30, June 25,
2000 1999
-------- --------
SEGMENT ASSETS:
Casual products $112,791 $49,762
Contract seating products 29,025 23,941
Ready to assemble products 6,791 8,018
------- -------
Total 148,607 81,721
Reconciling items:
Corporate 195,254 14,746
------- -------
Total consolidated assets $343,861 $96,467
======= =======
10
Management's Discussion and Analysis of Financial Condition
And Results of Operations
General
We design, manufacture and distribute three
principal product lines: casual furniture
designed for residential, commercial and
institutional use; seating products designed
for commercial and institutional use; and
ready-to-assemble furniture designed for
household use.
We market our casual furniture products,
consisting principally of medium to upper-end
casual indoor and outdoor furniture, under the
Winston, Texacraft, Tropic Craft and
Pompeii brand names. We currently manufacture
and sell over 25 separate style collections of
casual furniture products that include
traditional, European, and contemporary design
patterns. Within each style collection there
are multiple products including chairs, tables,
chaise lounges and accessory pieces such as
ottomans, cocktail tables, end tables, tea
carts and umbrellas constructed of extruded,
tubular and cast aluminum, steel, wrought iron,
wood and fiberglass.
Our seating products are marketed under the
Loewenstein and Stuart Clark brand names and include
Over 300 distinct models, ranging from contemporary to
traditional styles, of wood, metal and
upholstered chairs, reception area love seats,
sofas and stools.
We sell our ready-to-assemble products under
the Southern Wood Products brand name to mass
merchandisers and catalog wholesalers. Our
ready-to-assemble products include
promotionally priced traditional ready-to-
assemble "flatline" and "spindle" furniture and
a new line of fully assembled case goods
furniture products designed for household use.
During 1997 the Company adopted a plan to dispose of its RTA operations.
In addition to the products described above, WinsLoew's RTA products included
ergonomically designed computer workstations, which the Company denoted as
"space savers" and an extensive line of futons, futon frames and related
accessories. 11
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses and completed the liquidation of the futon business. At the end
of 1997 and during 1998, the Company attempted to sell its remaining RTA
facility but was unable to obtain a satisfactory offer. The Company devoted
significant management time to the operation resulting in improved
profitability by the end of 1998. Due to the recovery, the Company decided
to retain Southern Wood.
The amounts reflected hereafter include Southern Wood as a continuing
operation.
The Company purchased Tropic craft and Pompeii in June 1998
and July 1999, respectively. The acquisitions were accounted
for under the purchase method of accounting and accordingly,
the operating results of Tropic Craft and Pompeii have been
included in the consolidated operating results since their
respective dates of acquisition (See Note 5 to the unaudited
financial statements).
On August 27, 1999, WinsLoew completed its merger with Trivest
Furniture. (See Note 1 to the unaudited financial statements).
The results of the transaction are hereafter reflected.
The Company purchased Wabash Valley Manufacturing and Stuart
Clark in March 2000 and June 2000, respectively.
The acquisitions were accounted for under the purchase method
of accounting and accordingly, the operating results of
Wabash Valley Manufacturing and Stuart Clark have been
included in the consolidated operating results since their
respective dates of acquisition (See Note 5 to the unaudited
financial statements).
Results of Operations
The following table sets forth net sales, gross profit, and gross margin as a
percent of net sales for the respective periods for each of the Company's
product lines (in thousands, except for percentages):
Three Months Ended
------------------------------------------------
June 30, 2000 June 25, 1999
------------------------ -----------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
------- ------- ------ ------- ------ ------
Casual furniture $40,078 $18,313 45.7% $26,005 $12,561 48.3%
Contract seating 14,495 5,609 38.7% 17,687 6,190 35.0%
RTA 2,852 522 18.3% 3,987 945 23.7%
------- ------- ------- ------
Total $57,425 $24,444 42.6% $47,679 $19,696 41.3%
======= ======= ======= =======
12
Six Months Ended
------------------------------------------------
June 30, 2000 June 25, 1999
------------------------ -----------------------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
------- ------- ------ ------- ------ ------
Casual furniture $59,730 $27,657 46.3% $39,639 $19,028 48.0%
Contract seating 30,220 11,217 37.1% 33,572 11,809 35.2%
RTA 6,828 1,372 20.1% 7,378 1,738 23.6%
------- ------- ------- ------
Total $96,778 $40,246 41.6% $80,589 $32,575 40.4%
======= ======= ======= =======
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 Six Months Ended
------------------ -------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
-------- -------- -------- --------
Gross margin 42.6% 41.3% 41.6% 40.4%
Selling, general and
administrative expense 15.1% 15.8% 16.0% 16.5%
Amortization 3.0% 0.7% 3.4% 0.7%
Operating income 24.5% 24.8% 22.2% 23.2%
Interest expense (income),net 11.9% (0.1)% 13.8% 0.1%
Income before income taxes 12.6% 24.9% 8.4% 23.1%
Net income 5.6% 15.4% 3.7% 14.3%
Comparison of Three Months Ended June 30, 2000 and June 25, 1999
"Net Sales".
WinsLoew's consolidated net sales
for the second quarter of 2000, $57.4 million,
increased $9.7 million or 20.4 % from $47.7
million in the second quarter 1999.
Casual product line sales increased by 7.1%
from the second quarter of 1999 excluding the
effect of the Pompeii and Wabash acquisitions. When
including the acquisition of Pompeii and Wabash, casual
sales increased 54.1% during the second quarter
of 2000 when compared to the second quarter of
1999. Management believes that due to its high
quality, innovative designs and short lead times,
existing retail customers have continued to allocate
more floor space, requiring larger inventories of the
Company's casual aluminum furniture. Sales in
the contract seating product line,
excluding the effect of the Stuart Clark
acquisition, for the second
quarter decreased by 19.1% when compared to
the same period in 1999. When including the 13
Stuart Clark acquisition, contract sales decreased
18.1% during the second quarter of 2000 when
compared to the second quarter of 1999.
This performance in seating reflects the
general softness in the lodging market that
began in the first quarter of 2000. The
RTA product line experienced a sales decrease
of 28.5% over 1999 as major customers reduced
inventories in response to increased
carrying costs.
"Gross Margin".
Consolidated gross margin was
42.6% in the second quarter of 2000, compared to
41.3% in the second quarter of 1999. Gross
margins in the casual product line decreased from
48.3 % in the second quarter of 1999 to 45.7%
during the first quarter of 2000, due to
the product mix associated with the
Pompeii and Wabash acquisitions.
The gross margin for contract
seating improved to 38.7% in the second quarter
of 2000, compared to 35.0% in the second quarter
of 1999, due to improved raw material pricing,
favorable sales mix and cost
containment measures. Gross margins in the RTA
product line decreased from 23.7% in the second
quarter of 1999 to 18.3% during the second
quarter of 2000 reflecting the decrease in sales
volume.
"Selling, General and Administrative Expenses".
Selling, general and administrative expenses
increased $1.1 million in the second quarter of
2000, compared to the second quarter of 1999.
This increase is attributable to the Pompeii and
Wabash acquisitions. These incremental expenses related
to acquisitions were partially offset by decreases
in volume related expenses.
"Amortization".
Amortization expense increased
$1.4 million in the second quarter of 2000,
compared to the second quarter of 1999, due to
amortization associated with the Pompeii
and Wabash acquisitions as well as
the going-private transaction.
"Operating Income".
As a result of the above,
operating income increased by $2.2 million, to
$14.1 million (24.5% of net sales) in the second
quarter of 2000, compared to $11.8 million
(24.8% of net sales) in the second quarter of
1999.
"Interest Expense". 14
Interest expense increased by
$6.9 million in the second quarter of 2000,
compared to the first quarter of 1999.
Excluding the effect of the acquisitions,
the Company has increased its debt by $194.6
million from the second quarter of 1999 as a
result of the going-private transaction.
"Provision for Income Taxes".
The Company's effective tax rate from continuing operations
for the second quarter of 2000 was 55.4%
compared to 38.0% for the first six months of
1999. The effective tax rate is greater than
the federal statutory rate due primarily to the
effect of state income taxes and non-deductible
goodwill amortization.
Comparison of Six Months Ended June 30, 2000 and June 26, 1999
Net Sales: WinsLoew's consolidated net sales for the first six months of
2000, $96.8 million, increased $16.2 million, or 20.1%, from $80.6 million
in the first six months of 1999.
Casual product line sales increased by 10.9%
In the first six months of 2000, compared
to the first six months of 1999 excluding the
effect of the Pompeii and Wabash acquisitions. When
including the acquisition of Pompeii and Wabash, casual
sales increased 50.7% during the first six months
of 2000 when compared to the same period of
1999. Management believes that this increase in demand
is primarily due to the Company's emphasis on quality,
leading the industry through innovative designs and
providing customer flexibility with its delivery
program during the short casual retail season
Sales in the contract seating product line,
For the first six months of 2000,
excluding the effect of the Stuart Clark
acquisition, decreased by 10.5% when compared to
the first six months of 1999. When including the
Stuart Clark acquisition, contract sales decreased
10.0% during the first six months of 2000 when
compared to the same period of 1999.
This performance in seating reflects the
general softness in the lodging market. The
RTA product line experienced a sales decrease
of 7.5% for the first half of 2000, when compared to the
comparable prior year period due to major customers
reducing inventories during the second quarter.
Gross Margin: Consolidated gross margin was 41.6% in the first
six months of 2000, compared to 40.4% in the first six months
of 1999. The casual product line gross margin decreased to 46.3%
in the first half of 2000 compared to 48.0% in the first half
of 1999, due to the product mix resulting from 15
the Pompeii and Wabash acquisitions.
The gross margin for contract seating products improved to 37.1%
in the first six months of 2000 compared to 35.2%
in the first six months of 1999 due to a favorable product mix.
The RTA product line gross margin decreased to 20.1% in the
first two quarters of 2000 compared to 23.6% in the
first two quarters of 1999,as a result of sales volume decrease.
Selling, General and Administrative Expenses: SG&A expenses increased
$2.2 million in the first six months of 2000, compared to SG&A expense
of $13.3 million in the first six months of 1999.
The increase was primarily the result of incremental expenditures
associated with acquisitions. These additional expenses were
partially offset through cost reduction measures.
Operating Income: As a result of the above, operating income
increased by $2.8 million, to $21.5 million (22.2% of net sales)
in the first half of 2000 compared to $18.7 million (23.2% of net sales)
in the first half of 1999.
Interest Expense: The Company's interest expense increased
$13.3 million in the first six months of 2000, compared to
the first six months of 1999, primarily due to increased debt
service associated with the going-private transaction and
secondarily to debt service resulting from acquisitions.
Provision for Income Taxes: The Company's effective tax rate for the first
six months of 2000 was 55.4% compared to 38.0% for the first six months of
1999. The effective tax rate is greater than the federal statutory rate
primarily 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, and 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 with a resulting impact on consumer
purchases of outdoor furniture products.
16
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 debt service and working capital,
including accounts receivable and inventory
requirements. The Company has historically
financed its short-term liquidity needs with
internally generated funds and revolving line
of credit borrowings. The company actively
monitors its cash balances and applies
available funds to reduce borrowings under its
long-term revolving line of credit. At June
30, 2000, the Company had $22.5 million of
working capital and $37.2 million of unused
and available funds under its revolving credit
facility.
"Cash Flows from Operating Activities". Cash provided
by operating activities was $19.3 million and
$18.3 million for the first six months of 2000
and 1999 respectively.
"Cash Flows from Investing Activities". Cash
used in investing activities was $40.4 million
and $0.2 million for the first six months of
2000 and 1999 respectively. Cash invested
during the first half of 2000 included
acquisitions of $39.2 million and $1.4
million to purchase property plant and equipment.
"Cash Flows From Financing Activities". Net cash
provided by financing activities during the
first half of 2000 was $22.6 million
compared to net cash used in financing activities
of $4.6 million in the first half of 1999.
A total of $39.3 million of the cash provided in
2000 was for the Wabash and Stuart
Clark acquisitions, with an additional
$3.9 million provided by issuing IDB bonds.
Cash was primarily used during
The first six months of 2000 to retire revolving
credit debt and to repurchase shares of the Company's
stock.
Foreign Exchange Forward Contracts
WinsLoew purchases some raw materials from
several Italian suppliers. These purchases
expose the Company to the effects of 17
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 margins.
The Company elected to hedge a portion of its
exposure to purchases made in 2000 by entering
into foreign currency forward contracts with a value
of $3.2 million, of which $1.6 million were outstanding
and unsettled at June 30, 2000. The Company did
not incur significant gains or losses during
the first quarter as a result of these foreign
currency transactions. The Company's hedging
activities relate solely to its component
purchases in Italy; the Company does not
speculate in foreign currency.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, we are subject to legal
proceedings and other claims arising in the
ordinary course of our business. We maintain
insurance coverage against potential claims in
an amount that we believe to be adequate. Based
primarily on discussions with counsel and
management familiar with the underlying
disputes and except as described below, we
believe that we are not presently a party to
any litigation, the outcome of which would have
a material adverse effect on our business,
financial condition, results of operations or
future prospects.
As reported in Part I item III of the Company's 18
Annual Report on from 10-K for the fiscal year
ended December 31, 1999, and incorporated
herein by reference, the Company and former
members of its board of directors have been
named as defendants in a lawsuit filed on March
25,1999 in the Circuit Court of Jefferson
County, Alabama, styled Craig Smith v. WinsLoew
Furniture, Inc. et al. On June 14, 1999, the
Company and its directors filed a motion to
dismiss the lawsuit or, in the alternative, to
grant summary judgment in our favor. After a
hearing held on November 11, 1999, the court
granted our motion to dismiss but gave the
plaintiff 30 days' leave to file an amended
complaint.
The plaintiff filed an amended complaint on
December 15, 1999 and another motion to dismiss
was filed on behalf of all defendants on
February 28, 2000. A hearing on the motion to
dismiss was set for April 11, 2000. The court
subsequently denied the Company's motion to
dismiss and a status conference has been
scheduled for November 28, 2000.
We believe that the claims set forth in the
lawsuit are without merit and we intend to
vigorously defend this
lawsuit.
Item 4. Submission of Matters to a Vote of
Security Holders
(a) None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Stock Purchase Agreement by and
among Doug Curtis,et al., the
Stockholders of Wabash Valley Manufacturing,
Inc. and Wabash Manufacturing, Inc. dated
as of March 31, 2000 (2.1)*
10.2 Employment Agreement between Jerry
Shilling and
Wabash Valley Manufacturing, Inc. (2.2)*
10.3 Employment Agreement between
Michael Shilling and
Wabash Valley Manufacturing, Inc. (2.3)*
10.4 Subscription and Shareholder 19
Agreement between Michael
Shilling and WinsLoew Furniture,
Inc. (2.4)*
10.5 Subscription and Shareholder
Agreement Between Jerry
Shilling and WinsLoew Furniture, Inc. (2.5)*
10.6 Asset Purchase Agreement
Between Loewenstein, Inc. and Stuart-Clark, Inc.,
Stuart-Clark Office Furniture Division, Inc.,
And Stuart-Clark Manufacturing, Inc. (1)
27 Financial Data Schedule
* Incorporated by reference to the exhibits
shown in parenthesis, and filed with the
Registrant's registration statement on form 8-K
dated April 10, 2000.
(1) Filed herewith
(b) Reports on Form 8-K
During the quarter for which this Quarterly
Report on Form 10-Q is filed, the Registrant
filed a current report on Form 8-K, dated April
10, 2000
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
By:/s/ Bobby Tesney
July 24, 2000 Bobby Tesney
President and Chief Executive Officer
July 24, 2000 By:/s/ Vincent A.Tortorici, Jr.
Vincent A. Tortorici, Jr.
Chief Financial Officer
20
