FORM 10-Q
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
(Mark one) |
(X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 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 I-91 |
Furniture Brands
International, Inc.
(Exact
name of registrant as specified in its charter)
Delaware |
43-0337683 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
101 South Hanley Road, St. Louis, Missouri |
63105 | |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code | (314) 863-1100 |
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 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act). |
Yes X | No |
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. |
54,721,186 shares as of July 31, 2004
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended June 30, 2004.
Consolidated Balance Sheets |
Consolidated Statements of Operations: |
Three Months Ended June 30, 2004 | |
Three Months Ended June 30, 2003 |
Six Months Ended June 30, 2004 | |
Six Months Ended June 30, 2003 |
Consolidated Statements of Cash Flows: |
Six Months Ended June 30, 2004 | |
Six Months Ended June 30, 2003 |
Notes to Consolidated Financial Statements |
The financial statements are unaudited, but include all adjustments (consisting of normal recurring adjustments) which the management of the Company considers necessary for a fair presentation of the results of the period. The results for the three months and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year.
FURNITURE BRANDS
INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, | December 31, | ||||||||||
2004 |
2003 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 56,550 | $ | 71,668 | |||||||
Receivables, less allowances of $20,440 | |||||||||||
($19,378 at December 31, 2003) | 372,458 | 366,448 | |||||||||
Inventories...(Note 1) | 430,377 | 414,684 | |||||||||
Deferred income taxes | 25,602 | 25,563 | |||||||||
Prepaid expenses and other current assets | 11,560 |
7,689 |
|||||||||
Total current assets | 896,547 |
886,052 |
|||||||||
Property, plant and equipment | 680,356 | 673,931 | |||||||||
Less accumulated depreciation | 382,269 |
363,368 |
|||||||||
Net property, plant and equipment | 298,087 |
310,563 |
|||||||||
Goodwill | 183,789 | 183,789 | |||||||||
Other intangible assets | 169,671 | 169,671 | |||||||||
Other assets | 34,580 |
28,184 |
|||||||||
$ | 1,582,674 |
$ | 1,578,259 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accrued interest expense | $ | 1,025 | $ | 1,992 | |||||||
Accounts payable and other accrued expenses | 184,652 |
180,827 |
|||||||||
Total current liabilities | 185,677 |
182,819 |
|||||||||
Long-term debt | 302,400 | 303,200 | |||||||||
Deferred income taxes | 78,641 | 69,796 | |||||||||
Other long-term liabilities | 42,445 | 55,542 | |||||||||
Shareholders' equity: | |||||||||||
Preferred stock, authorized 10,000,000 | |||||||||||
Shares, no par value - issued, none | -- | -- | |||||||||
Common stock, authorized 200,000,000 shares, | |||||||||||
$1.00 stated value - issued 56,482,541 | |||||||||||
Shares at June 30, 2004 and 56,277,066 | |||||||||||
shares at December 31, 2003 | 56,483 | 56,277 | |||||||||
Paid-in capital | 227,923 | 221,388 | |||||||||
Retained earnings | 762,760 | 726,932 | |||||||||
Accumulated other comprehensive income (Note 3) | (24,090 | ) | (31,446 | ) | |||||||
Treasury stock at cost (1,761,355 shares at | |||||||||||
June 30, 2004 and 330,409 shares at | |||||||||||
December 31, 2003) | (49,565 |
) | (6,249 |
) | |||||||
Total shareholders' equity | 973,511 |
966,902 |
|||||||||
$ | 1,582,674 |
$ | 1,578,259 |
||||||||
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS
INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
(Dollars in thousands
except per share data)
(Unaudited)
Three Months | Three Months | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2004 |
2003 |
|||||||
Net sales | $ | 575,682 | $ | 579,612 | ||||
Costs and expenses: | ||||||||
Cost of operations | 413,728 | 420,557 | ||||||
Selling, general and administrative expenses | 120,085 | 105,414 | ||||||
Depreciation and amortization | 12,606 |
12,614 |
||||||
Earnings from operations | 29,263 | 41,027 | ||||||
Interest expense | 3,934 | 4,868 | ||||||
Other income, net | 467 |
959 |
||||||
Earnings before income tax expense | 25,796 | 37,118 | ||||||
Income tax expense | 9,194 |
13,543 |
||||||
Net earnings | $ | 16,602 |
$ | 23,575 |
||||
Net earnings per common share: | ||||||||
Basic | $ | 0.30 |
$ | 0.42 |
||||
Diluted | $ | 0.30 |
$ | 0.42 |
||||
Weighted average common shares outstanding | ||||||||
(Note 2): | ||||||||
Basic | 55,301,296 |
55,697,528 |
||||||
Diluted | 55,921,396 |
56,216,090 |
||||||
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS
INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
(Dollars in thousands
except per share data)
(Unaudited)
Six Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2004 |
2003 |
|||||||
Net sales | $ | 1,234,213 | $ | 1,193,456 | ||||
Costs and expenses: | ||||||||
Cost of operations | 884,613 | 857,056 | ||||||
Selling, general and administrative expenses | 238,888 | 219,602 | ||||||
Depreciation and amortization | 25,223 |
25,518 |
||||||
Earnings from operations | 85,489 | 91,280 | ||||||
Interest expense | 8,860 | 9,925 | ||||||
Other income, net | 1,174 |
1,728 |
||||||
Earnings before income tax expense | 77,803 | 83,083 | ||||||
Income tax expense | 27,992 |
30,467 |
||||||
Net earnings | $ | 49,811 |
$ | 52,616 |
||||
Net earnings per common share: | ||||||||
Basic | $ | 0.89 |
$ | 0.95 |
||||
Diluted | $ | 0.88 |
$ | 0.94 |
||||
Weighted average common shares outstanding | ||||||||
(Note 2): | ||||||||
Basic | 55,752,228 |
55,675,831 |
||||||
Diluted | 56,501,237 |
56,108,081 |
||||||
See accompanying notes to consolidated financial statements.
FURNITURE BRANDS
INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months | Six Months | |||||||||||||
Ended | Ended | |||||||||||||
June 30, | June 30, | |||||||||||||
2004 |
2003 |
|||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net earnings | $ | 49,811 | $ | 52,616 | ||||||||||
Adjustments to reconcile net earnings to net cash | ||||||||||||||
provided by operating activities: | ||||||||||||||
Depreciation and amortization | 25,223 | 25,518 | ||||||||||||
Other, net | (838 | ) | 502 | |||||||||||
Increase in receivables | (6,010 | ) | (19,053 | ) | ||||||||||
Increase in inventories | (15,693 | ) | (1,569 | ) | ||||||||||
Increase in prepaid expenses and other assets | (5,562 | ) | (2,861 | ) | ||||||||||
Increase (decrease) in accounts payable, accrued | ||||||||||||||
interest expense and other accrued expenses | 4,866 | (8,470 | ) | |||||||||||
Increase (decrease) in net deferred tax liabilities | 4,647 | (473 | ) | |||||||||||
Increase (decrease) in other long-term liabilities | (8,231 |
) | 7,654 |
|||||||||||
Net cash provided by operating activities | 48,213 |
53,864 |
||||||||||||
Cash flows from investing activities: | ||||||||||||||
Proceeds from the disposal of assets | 4,645 | 157 | ||||||||||||
Additions to property, plant and equipment | (14,402 |
) | (23,745 |
) | ||||||||||
Net cash used by investing activities | (9,757 |
) | (23,588 |
) | ||||||||||
Cash flows from financing activities: | ||||||||||||||
Payments of long-term debt | (800 | ) | (31,600 | ) | ||||||||||
Proceeds from the issuance of common stock | 4,230 | -- | ||||||||||||
Payments of cash dividends | (13,983 | ) | -- | |||||||||||
Proceeds from the issuance of treasury stock | 7,478 | 1,177 | ||||||||||||
Payments for the purchase of treasury stock | (50,499 |
) | -- |
|||||||||||
Net cash used by financing activities | (53,574 |
) | (30,423 |
) | ||||||||||
Net decrease in cash and cash equivalents | (15,118 | ) | (147 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 71,668 |
15,074 |
||||||||||||
Cash and cash equivalents at end of period | $ | 56,550 |
$ | 14,927 |
||||||||||
Supplemental Disclosure: | ||||||||||||||
Cash payments for income taxes, net | $ | 23,650 |
$ | 35,908 |
||||||||||
Cash payments for interest expense | $ | 9,542 |
$ | 9,912 |
||||||||||
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Dollars in thousands except per share data)
(Unaudited)
(1) | Inventories are summarized as follows: |
June 30, | December 31, | |||||||
2004 |
2003 |
|||||||
Finished products | $ | 259,412 | $ | 252,582 | ||||
Work-in-process | 56,951 | 52,513 | ||||||
Raw materials | 114,014 |
109,589 |
||||||
$ | 430,377 |
$ | 414,684 |
|||||
(2) | Weighted average shares used in the computation of basic and diluted net earnings per common share are as follows: |
Three Months Ended |
Six Months Ended |
June 30, 2004 |
June 30, 2003 |
June 30, 2004 |
June 30, 2003 |
|||||||||||
Weighted average shares used | ||||||||||||||
for basic net earnings per | ||||||||||||||
common share | 55,301,296 | 55,697,528 | 55,752,228 | 55,675,831 | ||||||||||
Effect of dilutive securities: | ||||||||||||||
Stock options | 620,100 |
518,562 |
749,009 |
432,250 |
||||||||||
Weighted average shares used | ||||||||||||||
for diluted net earnings | ||||||||||||||
per common share | 55,921,396 |
56,216,090 |
56,501,237 |
56,108,081 |
||||||||||
(3) | Other comprehensive income is as follows: |
Six Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2004 |
2003 |
|||||||
Net earnings | $ | 49,811 | $ | 52,616 | ||||
Other comprehensive income, net | ||||||||
of tax: | ||||||||
Financial instruments accounted | ||||||||
for as hedges | 7,725 | 2,573 | ||||||
Foreign currency translation | (369 |
) | 227 |
|||||
Other comprehensive income | 7,356 |
2,800 |
||||||
$ | 57,167 |
$ | 55,416 |
|||||
The components of accumulated other comprehensive income, each presented net of tax benefit, are as follows:
June 30, | December 31, | |||||||
2004 |
2003 |
|||||||
Market value of financial | ||||||||
instruments accounted | ||||||||
for as hedges | $ | 5,087 | $ | (2,638 | ) | |||
Minimum pension liability | (28,170 | ) | (28,170 | ) | ||||
Foreign currency translation | (1,007 |
) | (638 |
) | ||||
$ | (24,090 |
) | (31,446 |
) |
(4) | The Company accounts for stock-based employee compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25. Had compensation cost for the Company's stock-based compensation plan been determined consistent with SFAS No. 123, net earnings and net earnings per common share would have been as follows: |
June 30, | June 30, |
2004 |
2003 |
2004 |
2003 |
|||||||||||
Net earnings - as reported | $ | 16,602 | $ | 23,575 | $ | 49,811 | $ | 52,616 | ||||||
Deduct: Stock-based employee | ||||||||||||||
compensation expense | ||||||||||||||
determined under fair value | ||||||||||||||
based method, net of | ||||||||||||||
tax benefit | (1,220 |
) | (1,405 |
) | (2,440 |
) | (2,776 |
) | ||||||
Net earnings - pro forma | $ | 15,382 |
$ | 22,170 |
$ | 47,371 |
$ | 49,840 |
||||||
Earnings per share-basic: | ||||||||||||||
As reported | $ | 0.30 | $ | 0.42 | $ | 0.89 | $ | 0.95 | ||||||
Pro forma | $ | 0.28 | $ | 0.40 | $ | 0.85 | $ | 0.90 | ||||||
Earnings per share-diluted: | ||||||||||||||
As reported | $ | 0.30 | $ | 0.42 | $ | 0.88 | $ | 0.94 | ||||||
Pro forma | $ | 0.28 | $ | 0.40 | $ | 0.84 | $ | 0.90 | ||||||
(5) | The components of net periodic pension cost for Company-sponsored defined benefit plans are as follows: |
Six Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2004 |
2003 |
|||||||
Service cost | $ | 6,726 | $ | 5,761 | ||||
Interest cost | 12,306 | 11,898 | ||||||
Expected return on plan assets | (14,174 | ) | (14,363 | ) | ||||
Net amortization and deferral | 1,908 |
2,833 |
||||||
$ | 6,766 |
$ | 6,129 |
In the first quarter of 2004, the Company made a cash contribution of $15,000 to the defined benefit plan's trust fund. No additional contributions to the trust fund are anticipated for 2004. |
(6) | The Company has provided guarantees related to store leases for certain independent dealers opening Company-branded stores (e.g., Thomasville Home Furnishings Stores). The guarantees range from one to fifteen years and generally require the Company to make lease payments in the event of default by the dealer. In the event of default, the Company has the right to assign or assume the lease. The total future lease payments guaranteed at June 30, 2004 were $93,123. The Company believes the risk of significant loss from these lease guarantees is remote. |
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Furniture Brands International, Inc. (referred to herein as the "Company") is one of the largest home (residential) furniture manufacturers in the United States. The Company has four primary operating subsidiaries: Broyhill Furniture Industries, Inc.; Lane Furniture Industries, Inc.; Thomasville Furniture Industries, Inc., and HDM Furniture Industries, Inc. (which includes the operations of Henredon, Drexel Heritage and Maitland-Smith).
Comparison of Three Months and Six Months Ended June 30, 2004 and 2003
Selected financial information for the three months and six months ended June 30, 2004 and June 30, 2003 is presented below:
(Dollars in millions except per share data)
Three Months Ended |
June 30, 2004 |
June 30, 2003 |
% of | % of | |||||||||||||
Dollars |
Net Sales |
Dollars |
Net Sales |
|||||||||||
Net sales | $ | 575.7 | 100.0% | $ | 579.6 | 100.0% | ||||||||
Earnings from operations | 29.3 | 5.1% | 41.0 | 7.1% | ||||||||||
Interest expense | 4.0 | 0.7% | 4.8 | 0.8% | ||||||||||
Income tax expense | 9.2 | 1.6% | 13.6 | 2.3% | ||||||||||
Net earnings | 16.6 | 2.9% | 23.6 | 4.1% | ||||||||||
Net earnings per common share-diluted | 0.30 | -- | 0.42 | -- | ||||||||||
Gross profit (1) | $ | 152.0 | 26.4% | $ | 148.8 | 25.7% |
Six Months Ended |
June 30, 2004 |
June 30, 2003 |
% of | % of | |||||||||||||
Dollars |
Net Sales |
Dollars |
Net Sales |
|||||||||||
Net sales | $ | 1,234.2 | 100.0% | $ | 1,193.4 | 100.0% | ||||||||
Earnings from operations | 85.5 | 6.9% | 91.3 | 7.6% | ||||||||||
Interest expense | 8.9 | 0.7% | 9.9 | 0.8% | ||||||||||
Income tax expense | 28.0 | 2.3% | 30.5 | 2.6% | ||||||||||
Net earnings | 49.8 | 4.0% | 52.6 | 4.4% | ||||||||||
Net earnings per common share-diluted | 0.88 | -- | 0.94 | -- | ||||||||||
Gross profit (1) | $ | 329.8 | 26.7% | $ | 315.4 | 26.4% |
(1) | The Company believes that gross profit provides useful information regarding a companys financial performance. Gross profit has been calculated by subtracting cost of operations and the portion of depreciation associated with cost of goods sold from net sales. |
Three Months Ended | Six Months Ended | |||||||
June 30, |
June 30, |
2004 |
2003 |
2004 |
2003 |
|||||||||||
Net sales | $ | 575.7 | $ | 579.6 | $ | 1,234.2 | $ | 1,193.4 | ||||||
Cost of operations | 413.7 | 420.5 | 884.6 | 857.0 | ||||||||||
Depreciation (associated with | ||||||||||||||
cost of goods sold) | 10.0 |
10.3 |
19.8 |
21.0 |
||||||||||
Gross profit | $ | 152.0 |
$ | 148.8 |
$ | 329.8 |
$ | 315.4 |
||||||
Net sales for the three months ended June 30, 2004 were $575.7 million, compared to $579.6 million in the three months ended June 30, 2003, a decrease of $3.9 million or 0.7%. For the six months ended June 30, 2004, net sales increased $40.8 million or 3.4%, to $1,234.2 million from $1,193.4 million for the six months ended June 30, 2003. Beginning in late-April of the second quarter ended June 30, 2004, the same soft
business environment that has characterized the residential furniture industry since mid-2000 began to return. Business remained comparatively strong at the upper-end companies (Thomasville, Henredon, Drexel Heritage), but continuing weakness in the middle-price companies (Broyhill, Lane) brought overall sales down to nearly flat for the three months ended June 30, 2004 as compared to the prior year period.
Earnings from operations for the three months ended June 30, 2004 and June 30, 2003 were $29.3 million and $41.0 million, respectively. As a percentage of net sales, earnings from operations for the three months ended June 30, 2004 and June 30, 2003 were 5.1% and 7.1%, respectively. For the six months ended June 30, 2004 and June 30, 2003, earnings from operations were $85.5 million and $91.3 million, respectively. Earnings from operations for the six months ended June 30, 2004 and June 30, 2003 were 6.9% and 7.6% of net sales, respectively. Earnings from operations in the three months and six months ended June 30, 2004 were negatively impacted by $3.7 million and $5.3 million, respectively, in restructuring and asset impairment charges attributable to the Drexel Heritage plant closings announced in January 2004 as well as a charge of $8.3 million to reflect the loss of collectibility of the receivable due from Breuners Home Furnishings Corporation, a large customer of Broyhill and Lane, which filed for bankruptcy protection shortly after the second quarter ended. Restructuring charges of $2.6 million were also included in earnings from operations for the three months and six months ended June 30, 2003.
Interest expense totaled $4.0 million and $8.9 million for the three months and six months ended June 30, 2004, respectively, compared to $4.8 million and $9.9 million for the prior year comparable periods. The decrease in interest expense for the three months ended June 30, 2004 resulted from both lower long-term debt levels and lower interest rates. The decrease in interest expense for the six months ended June 30, 2004 resulted from lower long-term debt levels. The reduction in both periods interest expense was partially offset by the amortization of deferred financing fees related to the Companys refinancing of its revolving credit facility in December 2003.
The effective income tax rates were 35.6% and 36.5% for the three months ended June 30, 2004 and June 30, 2003, respectively, and 36.0% and 36.7% for the six months ended June 30, 2004 and June 30, 2003, respectively. The effective income tax rates for the three months and six months ended June 30, 2004 were favorably impacted by lower provisions for state and local income taxes compared to the prior year periods as well as by certain federal income tax credits available to the Company.
Net earnings per common share for basic and diluted were $0.30 and $0.30 for the three months ended June 30, 2004, respectively, compared with $0.42 and $0.42 for the same period last year, respectively. For the six months ended June 30, 2004 and June 30, 2003, net earnings per common share for basic and diluted were $0.89 and $0.88, respectively, and $0.95 and $0.94, respectively. Average common and common equivalent shares outstanding used in the calculation of net earnings per common share on a basic and diluted basis were 55,301,000 and 55,921,000, respectively, for the three months ended June 30, 2004, and 55,698,000 and 56,216,000, respectively, for the three months ended June 30, 2003. For the six months ended June 30, 2004 and June 30, 2003, average common and common equivalent shares outstanding used in the calculation of net earnings per common share on a basic and diluted basis were
55,752,000 and 56,501,000, respectively, and 55,676,000 and 56,108,000, respectively. The lower average common and common equivalent shares outstanding in 2004 versus 2003 results primarily from share repurchases made by the Company during the six months ended June 30, 2004.
FINANCIAL CONDITION
Working Capital
Cash and cash equivalents at June 30, 2004 amounted to $56.6 million, compared with $71.7 million at December 31, 2003. During the six months ended June 30, 2004, net cash provided by operating activities totaled $48.2 million, net cash used by investing activities totaled $9.7 million and net cash used by financing activities totaled $53.6 million.
Working capital was $710.9 million at June 30, 2004, compared with $703.2 million at December 31, 2003. The current ratio was 4.8-to-1 at June 30, 2004 and December 31, 2003.
Financing Arrangements
As of June 30, 2004, long-term debt consisted of the following in millions:
Revolving credit facility (unsecured) | $ | 300.0 | ||||||
Other | 2.4 |
|||||||
$ | 302.4 |
To meet short-term capital and other financial requirements, the Company maintains a $550.0 million revolving credit facility with a group of financial institutions. The revolving credit facility allows for the issuance of letters of credit and cash borrowings. Letter of credit outstandings are limited to no more than $150.0 million, with cash borrowings limited only by the facilitys maximum availability less letters of credit outstanding. On June 30, 2004, there were $300.0 million in cash borrowings and $22.3 million in letters of credit outstanding.
The facility requires the Company to meet certain financial covenants including a minimum consolidated net worth and maximum leverage ratio. As of June 30, 2004, the Company was in compliance with all financial covenants.
Cash borrowings under the revolving credit facility bear interest at a base rate or at an adjusted Eurodollar rate plus an applicable margin which varies, depending upon the type of loan the Company executes. The applicable margin over the base rate and Eurodollar rate is subject to adjustment based upon achieving certain credit ratings. At June 30, 2004, loans outstanding under the revolving credit facility consisted of $300.0 million based on the adjusted Eurodollar rate, which in conjunction with the interest rate swaps (used to hedge $300.0 million of the floating rate debt), have a weighted average interest rate of 4.24%.
The Company believes that cash generated from operations, together with its revolving credit facility, will be adequate to meet liquidity requirements for the foreseeable future.
Recently Issued Statements of Financial Accounting Standards
In December 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 132, Employers Disclosure about Pension and Other Postretirement
Benefits (an amendment of SFAS Nos. 87, 88 and 106). This statement revises employers disclosures about pension plans and other postretirement benefit plans. The statement is effective for financial statements with fiscal years ending after December 15, 2003; therefore, the required disclosures are included in the Notes to Consolidated Financial Statements.
Subsequent Events
On July 14, 2004, the Company announced that the Breuners Home Furnishings Corporation bankruptcy filing would result in a charge to earnings of $0.09 to $0.10 per diluted common share in the second quarter of 2004. The Company reported that it expected its Broyhill and Lane operations to be listed as creditors in the Breuners bankruptcy action with a combined accounts receivable of approximately $10 million. Consistent with this announcement, in the second quarter of 2004, the Company recorded a charge of $8.3 million or $0.09 per diluted common share to reflect the loss of collectibility. The Companys sales to Breuners in full-year 2003 were approximately $42 million, representing less than 2% of the Companys total sales.
OUTLOOK
Although orders in the first quarter of 2004 were up 8.4% over the first quarter of 2003, orders in the second quarter of 2004 were off 2.7% against the prior year. In addition, while Broyhill and Lane are moving forward to replace the Breuners volume, which was approximately $42 million in 2003, the Company has reduced its sales expectations for the third and fourth quarters to reflect the loss of some of this business.
The Company is currently projecting sales to be flat in the third quarter and diluted earnings per common share in the $0.34 to $0.38 range. The Company will provide earnings guidance on a quarter-by-quarter basis until better visibility is achieved with respect to the full year 2004.
FORWARD-LOOKING STATEMENTS
The Company herein has made forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include the Companys expected sales, earnings per share, profit margins, and cash flows, the effects of certain manufacturing realignments and other business strategies, the prospects for the overall business environment and other statements containing the words expects, anticipates,estimates, believes, and words of similar import. The Company cautions investors that any such forward-looking statements are not guarantees of future performance and that certain factors may cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to: changes in economic conditions; loss of market share due to competition; failure to anticipate or respond to changes in consumer taste and fashion trends; failure to achieve projected sales; business failures of large customers; distribution and manufacturing realignments and cost savings programs; increased reliance on offshore (import) sourcing of various products; fluctuations in the cost, availability and quality of raw materials; product liability uncertainty; and impairment of goodwill and other intangible assets. Other risk factors may be listed from time to time in the
Companys future public releases and SEC reports. Please refer to the Companys Annual Report on Form 10-K for a more detailed explanation of the Companys risk factors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates. The Companys exposure to interest rate risk consists of its floating rate revolving credit facility. This risk is managed using interest rate swaps to fix a portion of the Companys floating rate long-term debt. Currently, interest rate swaps fix the entire outstanding balance on the revolving credit facility; therefore, an increase in interest rates would have no impact on the Companys net earnings.
Item 4. Controls and Procedures
(a) | The Companys chief executive officer and chief financial officer have concluded that the Companys disclosure controls and procedures are effective based on their evaluation of these controls and procedures as of the end of the period covered by this report. |
(b) | No change in the Companys internal control over financial reporting has occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
PART II OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
Total | Approximate Dollar | |||||||||||||
Total | Number of Shares | Value of Shares | ||||||||||||
Number of | Average | Purchased as Part of | that May Yet Be | |||||||||||
Shares | Price Paid | Publicly Announced | Purchased Under the | |||||||||||
Period | Purchased |
per Share |
Plans or Programs |
Plans or Programs |
||||||||||
April 1- | ||||||||||||||
April 30 | - | - | - | $ | 86,710,781 | |||||||||
May 1- | ||||||||||||||
May 31 | 1,371,400 | $ | 27.13 | 1,371,400 | $ | 49,501,565 | ||||||||
June 1- | ||||||||||||||
June 30 | - |
- |
- |
$ | 49,501,565 | |||||||||
Total | 1,371,400 |
$ | 27.13 |
1,371,400 |
||||||||||
On October 24, 2002, the Company announced the authorization of a program to repurchase $100 million of its Common Stock over a period of 24 months. The authorization will expire on October 24, 2004.
On August 2, 2004, the Company announced that its Board of Directors authorized the repurchase of an additional $50 million of its Common Stock over a period of 12 months. This new authority is in addition to the existing authority to repurchase $100 million of its Common Stock.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on April 29, 2004. The directors listed in the Notice of Annual Meeting of Stockholders dated March 25, 2004 were elected for terms of one year ending 2005 with voting for each as follows: |
Director | For | Withheld | |||||
K. B. Bell | 49,722,015 | 1,692,857 | |||||
J. T. Foy | 50,252,237 | 1,162,635 | |||||
W. G. Holliman | 50,281,133 | 1,133,739 | |||||
J. R. Jordan, Jr. | 49,901,730 | 1,513,142 | |||||
D. E. Lasater | 50,144,811 | 1,270,061 | |||||
L. M. Liberman | 49,055,943 | 2,358,929 | |||||
R. B. Loynd | 49,935,355 | 1,479,517 | |||||
B. L. Martin | 49,288,880 | 2,125,992 | |||||
A. B. Patterson | 50,433,630 | 981,242 | |||||
A. E. Suter | 50,462,310 | 952,562 |
Item 6. Exhibits and Reports on Form 8-K
(a) | 31 | Certifications of W. G. Holliman, Chief Executive Officer of the Company and David P.Howard, Chief Financial Officer of the Company, Pursuant to Rule 13a-14(a)/15d-14(a),as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 | Certifications of W. G. Holliman, Chief Executive Officer of the Company and David P. Howard, Chief Financial Officer of the Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) | A Form 8-K was filed on May 3, 2004 announcing first quarter operating results and projections of second quarter earnings per share. A Form 8-K was filed on June 4, 2004 announcing projections of second quarter earnings per share. A Form 8-K was filed on July 14, 2004 announcing a charge to earnings as the result of the Breuners bankruptcy. A Form 8-K was filed on August 2, 2004 announcing second quarter and first half of 2004 operating results and projections for third quarter earnings per share and the authorization of additional common stock repurchases. |
SIGNATURE
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.
Furniture Brands International, Inc. | |||
(Registrant) |
By | /s/ Steven W. Alstadt |
||
Steven W. Alstadt | |||
Controller and | |||
Chief Accounting Officer |
Date: August 9, 2004