FURNITURE BRANDS INTERNATIONAL INC (FBN)
Quarterly Report (SEC form 10-Q)
Management's Discussion and Analysis of Results of Operations and Financial Condition
RESULTS OF OPERATIONS
Furniture Brands International, Inc. (the "Company") is the largest manufacturer of residential furniture in the United States. The Company has three primary operating subsidiaries: Broyhill Furniture Industries, Inc.; Lane Furniture Industries, Inc.; and Thomasville Furniture Industries, Inc.
Comparison of Three Months Ended March 31, 1998 and 1997
Selected financial information for the three months ended March 31, 1998 and 1997 is presented below:
($ in millions except per share data)
Three Months Ended
March 31, 1998 March 31, 1997
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% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
Net sales $505.3 100.0% $449.9 100.0%
Cost of oprations 364.1 72.1 326.2 72.5
Selling, general and
administrative expenses 81.5 16.1 73.5 16.3
Depreciation and amortization 14.8 2.9 14.6 3.3
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Earnings from operations 44.9 8.9 35.6 7.9
Interest expense 11.3 2.2 9.1 2.0
Other income, net 0.7 0.1 0.9 0.2
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Earnings before income tax
expense 34.3 6.8 27.4 6.1
Income tax expense 12.7 2.5 10.3 2.3
----- ---- ----- ----
Net earnings $ 21.6 4.3% $ 17.1 3.8%
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Gross profit (1) $130.8 25.9% $113.4 25.2%
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(1) The Company believes that gross profit provides useful information regarding a company's 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
March 31,
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1998 1997
------- -------
Net sales $505.3 $449.9
Cost of operations 364.1 326.2
Depreciation (associated with 10.4 10.3
cost of goods sold) ------ ------
Gross profit $130.8 $113.4
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Net sales for the three months ended March 31, 1998 were $505.3 million, compared to $449.9 million in the three months ended March 31, 1997, an increase of $55.4 million or 12.3%. The improved sales performance occurred at each operating company and ranged, in varying degrees, across all product lines.
Cost of operations for the three months ended March 31, 1998 was $364.1 million compared to $326.2 million for the comparable prior year period. Cost of operations as a percentage of net sales decreased from 72.5% for the three months ended March 31, 1997 to 72.1% for the three months ended March 31, 1998, as a result of improved manufacturing capacity utilization, offset partially by an increase in lumber and container prices.
Selling, general and administrative expenses for the three months ended March 31, 1998 were $81.5 million compared with $73.5 million in the prior year. As a percentage of net sales, selling, general and administrative expenses were 16.1% and 16.3% for the three months ended March 31, 1998 and 1997, respectively. The decrease reflects continued good control of selling, general and administrative expenses.
Interest expense totaled $11.3 million for the three months ended March 31, 1998 compared to $9.1 million in the prior year comparable period. The increase in interest expense in the three months ended March 31, 1998 resulted from higher long-term debt levels incurred from the Company's repurchase of approximately 10.8 million shares of its common stock at the end of June 1997.
The effective income tax rates were 37.0% and 37.6% for the three months ended March 31, 1998 and March 31, 1997, respectively. The effective tax rates for each period were adversely impacted by certain nondeductible expenses incurred and provisions for state and local taxes. The effective tax rate for the three months ended March 31, 1998 was favorably impacted by the reduced effect of the nondeductible expenses as a percentage of pretax earnings.
Net earnings per common share for basic and diluted were $0.41 and $0.40 for the three months ended March 31, 1998, respectively, compared with $0.28 and $0.27 for the same period last year, 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 52,119,000 and 53,862,000, respectively, for the three months ended March 31, 1998 and 61,448,000 and 63,716,000, respectively, for the three months ended March 31, 1997.
FINANCIAL CONDITION
Working Capital
Cash and cash equivalents at March 31, 1998 amounted to $17.1 million, compared with $12.3 million at December 31, 1997. During the three months ended March 31, 1998, net cash provided by operating activities totaled $22.1 million, net cash used by investing activities totaled $8.4 million and net cash used by financing activities totaled $8.9 million.
Working capital was $501.9 at March 31, 1998, compared with $482.3 million at December 31, 1997. The current ratio was 4.0 to 1 at March 31, 1998, compared to 4.5 to 1 at December 31, 1997.
Financing Arrangements
As of March 31, 1998, long-term debt consisted of the following, in millions:
Secured credit agreement:
Revolving credit facility $235.0
Term loan facility 200.0
Receivables securitization facility 210.0
Other 12.0
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$657.0
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To meet working capital and other financial requirements, the Company maintains a $475.0 million revolving credit facility as part of its Secured Credit Agreement with a group of financial institutions. The revolving credit facility allows for both issuance of letters of credit and cash borrowings. Letter of credit outstandings are limited to no more than $60.0 million. Cash borrowings are limited only by the facility's maximum availability less letters of credit outstanding. At March 31, 1998, there were $235.0 million of cash borrowings outstanding under the revolving credit facility and $35.8 million in letters of credit outstanding, leaving an excess of $204.2 million available under the revolving credit facility.
In addition to the Secured Credit Agreement, the Company also had $15.0 million of excess availability as of March 31, 1998 under its Receivables Securitization Facility.
The Company believes its Secured Credit Agreement and the Receivables Securitization Facility, together with cash generated from operations, will be adequate to meet liquidity requirements for the foreseeable future.
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