Furniture Brands Posts 4th Quarter Loss

Furniture World Magazine

Furniture Brands International announced today its financial results for the fourth quarter ended December 31, 2008. Net sales from continuing operations for the 2008 fourth quarter were $403.4 million, compared with $504.8 million in the fourth quarter of 2007. Results from continuing operations were a loss of $7.00 per diluted share in the 2008 quarter compared to a loss of $0.86 per diluted share for the fourth quarter of 2007. Results from continuing operations for the 2008 quarter include two non-cash accounting adjustments for changes in the company's intangible asset and tax asset balances. The reduction in the company's intangible assets resulted in a pre-tax charge of $202.0 million. The reduction in the company's tax assets totaled $102.9 million for the quarter. The intangible and tax asset charges reflect the reduction in valuation calculations that incorporate the dramatic deterioration of near-term economic forecast data. The company's reported results also include $85.4 million in pre-tax charges and temporary costs. The cash impact of all charges in current and future periods totals approximately $20 million. Net sales from continuing operations for the fiscal year ended December 31, 2008 totaled $1.74 billion, compared to $2.08 billion for the fiscal year ended December 31, 2007. Results from continuing operations for the 2008 period were a loss of $8.28 per diluted share, compared with a loss of $1.06 per diluted share for fiscal 2007. The results from all periods are from continuing operations and exclude the impact of the first quarter 2008 sale and operations of Hickory Business Furniture. Excluding the intangible and tax asset valuation adjustments, the charges and temporary costs reflect severance charges associated with the company's reduction in its operating cost structure, "mark-to-market'' writedowns of 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, and inventory writedowns. 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 $39.6 million in pre-tax charges and costs related to increased accounts receivable reserves, plant closures, and lease obligations for closed retail stores. A table detailing selected items in the company's reported 2007 and 2008 financial results is attached to this press release. The charges recorded during the fourth quarter are primarily related to the following categories: Severance costs of $10 million were recorded during the fourth quarter, primarily in connection with the company's announcement on December 11 that it was reducing its domestic workforce by approximately 15%. Most of the cash impact of these charges was realized during January 2009. Closed store expense includes a non-cash "mark to market'' lease charge of $8.7 million that reflects the difference between remaining lease obligations and current market rental rates for those properties. The company anticipates that ongoing expense associated with closed stores will total approximately $6 million in 2009 with a full-year cash impact of approximately $11 million. While direct costs for the closed stores will be incurred, their leases will expire over time and the company will continue to minimize the impact through subleases and lease buyouts. Plant closure costs during the quarter of $16.5 million include a $15.2 million non-cash writedown of idled manufacturing and administrative properties that the company plans to sell. Current market appraisals of the properties held for sale total less than their respective book values, prompting the non-cash writedown of those properties to market value. Accounts receivable charge represents an increase in the reserve for doubtful accounts in recognition of the weakening retail environment. During the fourth quarter, the company recorded $10.5 million of charges resulting in total reserves for accounts receivable of $34.4 million at December 31, 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. During the fourth quarter, the company increased this reserve by $24.2 million. The company believes that the current level of inventory reserves is sufficient to accommodate the sale of this inventory. Ralph P. Scozzafava, Chairman of the Board and Chief Executive Officer, commented: "Furniture Brands is aggressively reshaping the company to deliver the products and value that consumers seek. We are doing the right things and taking the right actions in the midst of an unprecedented economic downturn. During 2008, these actions included a significant reduction in our workforce, aligning our manufacturing resources to maximize each brand's current and future opportunities, creating FBN Asia to get the most value from our contract manufacturers, implementing a shared services organization to deliver greater efficiency, and exiting a retail store strategy that was draining profitability. With many of our internal issues now behind us, future financial performance and reported results will better reflect the execution of the company's strategic plan and the value of our brands.'' Mr. Scozzafava continued, "While the global economy will continue to struggle in 2009, Furniture Brands will continue to invest in pre-market product testing, innovative product development, consumer insights, and more effective marketing so that our dealers and retail partners have the best opportunity to succeed in this difficult environment. "Furniture Brands has the financial strength to execute our strategic plan. At December 31, 2008 the company had cash of $107 million and long-term debt of $190 million for a net debt position of $83 million. This is a strong improvement from the $162 million in net debt at the end of 2007 and reflects our disciplined and effective working capital management,'' Mr. Scozzafava said. "Providing earnings guidance in this environment is extremely challenging, and many companies have elected to withhold guidance as a result. Given this economic uncertainty, we also will not provide sales and earnings guidance at this time except to say that we expect to generate positive cash flow for the year, exclusive of changes in debt balances,'' Mr. Scozzafava said. "Our management team took early and decisive actions to align our cost structure with a variety of economic scenarios, including a continuing deterioration in the economy, and has recently taken further actions to reduce our cost structure and preserve cash. We believe that Furniture Brands is now well positioned to continue our strategy of delivering the value of our brands to customers and consumers while maintaining a focus on near-term capital preservation and long-term shareholder value creation,'' Mr. Scozzafava concluded. 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.