Furniture Brands International Reports Third Quarter Results

Furniture World Magazine

Furniture Brands International announced its financial results for the third quarter ended September 30, 2008. These results are from continuing operations and exclude the impact of the first quarter 2008 sale and operations of Hickory Business Furniture ("HBF''). The sale of this business was announced in the fourth quarter of 2007 and has been treated as a discontinued operation in both the 2007 and 2008 periods. Net sales for the 2008 third quarter were $413 million, compared with $501 million in the third quarter of 2007. Results from continuing operations were a loss of $0.86 per diluted share in the 2008 quarter compared to a loss of $0.31 per diluted share for the third quarter of 2007. Results from continuing operations for the 2008 quarter include $48.4 million of pretax charges and temporary costs, and $3 million of income tax charges, of which approximately $8 million were uses of cash and the remainder were non-cash charges. The charges and temporary costs reflect lease obligations for closed retail stores as well as subleases for dealers at risk of default, factory closures, factory downtime costs, increased accounts receivable reserves, inventory writedowns, fees related to implementation of a shared services organization, and severance costs. Most of these charges and costs are related to the effects of a weakening retail economy. Results from continuing operations for the 2007 quarter include $24 million in pre-tax charges and costs related to plant closures, debt refinancing, factory downtime, and intangible asset impairment. A table detailing these numbers is attached to this press release. Ralph P. Scozzafava, Chairman of the Board and Chief Executive Officer, commented: "By nearly every measure, the economic environment in which Furniture Brands operates has worsened in the past three months, and consumer confidence has been shaken by the unprecedented turmoil in the global financial markets.'' The company is revising its net sales forecast for fiscal 2008 slightly downward to a range of $1.70 billion to $1.75 billion. The company anticipates that additional pre-tax charges totaling between $56 million and $72 million relating to the weak economy and restructuring will be recorded during the fourth quarter of 2008. As in the third quarter of 2008, the majority of these charges will be of a non-cash nature. Accordingly, the company revises its estimate for fiscal 2008 reported results from continuing operations to be a loss of $2.25 to $2.45 per share. The company also anticipates realizing a 2008 effective tax rate on continuing operations of approximately 31 percent to 33 percent primarily due to the inability to recognize tax benefits related to a portion of 2008 tax losses and the impact of the tax asset impairment. These fourth quarter charge estimates do not include any potential writedowns in the value of intangible assets. The company does a valuation of intangible assets, including goodwill and trademarks, in the fourth quarter of every year and makes adjustments if necessary. The charges recorded during the third quarter are primarily related to three categories: Closed store expense reflects both $3.5 million in expenses incurred during the quarter for the rent payments and lease buyouts on closed stores, primarily Lane, and a non-cash ``mark to market'' lease charge of $6.4 million that reflects the difference between remaining lease obligations and current market rental rates for those properties. Furniture Brands is working to sublet these closed stores or buy out the remaining lease obligations. Accounts receivable charge represents an increase in the reserve for doubtful accounts in recognition of the weakening retail environment and related customer payment difficulties. During the third quarter, the company recorded $13.6 million of bad debt charges resulting in total reserves for accounts receivable of $49.1 million at September 30, 2008. Inventory charges are a non-cash reserve established in anticipation of the sale of slow-moving inventory for amounts that are less than the recorded value of the inventory. The cash impact of the remaining items detailed in the accompanying table is reflected in the company's current period reported financial results. "Furniture Brands is and will be taking direct steps to maintain the company's financial position during this very challenging period. The charges included in the third-quarter results are primarily non-cash and reflect actions that will improve future financial performance. The management team is continuing to focus on Furniture Brands' financial structure. We are working to ensure that the company will emerge from this period of economic instability as a stronger competitor," Mr. Scozzafava said. At September 30, 2008 the company had cash and equivalents totaling $110 million, long-term debt of $200 million, and credit facility availability of $28 million. Cash uses during the quarter included $1.8 million for the purchase of 12 Thomasville retail stores and associated inventory, $1.2 million for the first phase of the company's Indonesian casegoods manufacturing plant expansion, and $2.3 million for closed store leased buyouts. The company is currently forecasting year-end cash and equivalents to be in a range of $80 million to $95 million, with long-term debt anticipated to total approximately $200 million. The company believes that this level of liquidity will be sufficient to fund projected first-quarter 2009 cash outflows related to compensation and severance obligations as well as normal continuing operations. Quarterly Dividend Suspended The Board of Directors today elected to suspend the company's quarterly dividend until further notice. The company anticipates redirecting the approximately $8 million in annual dividend payments to reduce long-term debt and other corporate purposes. "In light of the challenging retail environment, the board of directors agreed that the company's shareholders are best served by a strategy of cash preservation and maximum financial flexibility,'' Mr. Scozzafava said. About Furniture Brands: Furniture Brands International (NYSE:FBN - News) is a vertically integrated operating company that is one of the nation's leading designers, manufacturers, and retailers of home furnishings. It markets through a wide range of retail channels, from mass merchant stores to single-brand and independent dealers to specialized interior designers. Furniture Brands serves its customers through some of the best known and most respected brands in the furniture industry, including Broyhill, Lane, Thomasville, Drexel Heritage, Henredon, Pearson, Hickory Chair, Laneventure, and Maitland-Smith.