Furniture Brands Reports Net Sales Decrease of 12.2%

Furniture World News

Furniture Brands International (NYSE:FBN - News) announced today its financial results for the second quarter and six months ended June 30, 2007. Operating Results Net sales for the second quarter of 2007 were $535.2 million compared to $601.3 million in the second quarter of 2006, a decrease of 11.0%. Net earnings for the second quarter of 2007 were $5.8 million, down from $17.0 million in the second quarter of last year. Diluted earnings per common share were $0.12 in the second quarter of 2007 as compared to $0.35 in the second quarter of last year. Reported financial results for the second quarters of 2007 and 2006 include several special items and restructuring charges. Excluding the effect of these items, diluted earnings per common share results were $0.09 for the 2007 quarter and $0.36 for the 2006 quarter. Net sales for the first half of 2007 were $1,109.0 million compared to $1,262.7 million in the first half of 2006, a decrease of 12.2%. Net earnings for the first half of 2007 were $8.7 million compared to $47.2 million in the first half of 2006. Diluted earnings per common share were $0.18 in the first half of 2007 compared to $0.96 in the first half of 2006. Excluding special items and restructuring charges, earnings per common share for the six months ended June 30, 2007 totaled $0.17 compared to $0.87 for the comparable 2006 period. A description and reconciliation of GAAP earnings to earnings after special items and restructuring charges for the three months and six months ended June 30, 2007 and 2006 are included later in this release. Management Comments W. G. (Mickey) Holliman, Chairman and Chief Executive Officer, commented: "Our second quarter top-line performance reflects the continued difficult operating environment in the furniture industry. Sluggish economic activity has dampened demand for discretionary spending by many consumers. We are meeting this situation with fresh product offerings as well as promotions to keep our family of brands in the consumer's eye. The earnings per share impact of this downward trend was modestly offset this quarter by a gain related to a treasury lock agreement as described below, and by the decreased provisions for management incentive compensation. ``During the quarter we also made substantial progress in creating a capital structure that better matches our long-term financial goals. We believe this asset-backed lending facility will provide the adequate liquidity to respond to market conditions and accommodate growth initiatives. We expect to have this new facility in place well before the August 14 target date.'' Mr. Holliman continued, ``After several months of careful study, our management team has now concluded its strategic review of our industry and how Furniture Brands can best deliver value to its shareholders. This broad-reaching review touches on every aspect of how we do business, from raw material supply chain to manufacturing to how we engage the customer. Ralph Scozzafava, Vice-Chairman and Chief Executive Officer Designate, is heading this effort and will present our team's plan to the board this week. As we share these strategies with our board and down through our management team and employees, we expect to provide updates to the investment community, culminating with a robust investor event in New York in the early fall. We plan to share more information on this process in the coming months.'' Outlook Mr. Holliman concluded, ``With respect to the third quarter, we expect net earnings per diluted common share to be in a range of a loss of $0.19 to $0.15. However, excluding the effect of $0.17 per share in make-whole charges in the quarter under the Note Purchase Agreement described below, and $0.04 per share in restructuring, asset impairment, and severance charges, we expect adjusted net earnings per diluted common share to be in a range of $0.02 to $0.06.'' Reconciliation of Non-GAAP Measurements to GAAP Results In this press release, our financial results are provided both in accordance with generally accepted accounting principles (GAAP), and using certain non-GAAP financial measures. In particular, we provide historic and estimated future net earnings per diluted common share excluding certain charges related to our debt refinancing and related to restructuring, asset impairment, and severance, which are non-GAAP financial measures. These results, which are consistent with our internal reporting, are included as a complement to results provided in accordance with GAAP because we believe these non-GAAP financial measures help indicate underlying trends in our business and provide useful information to both management and investors by excluding certain items that are not indicative of our core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. On June 29, 2007, we announced the signing of a Second Amendment to our existing Note Purchase Agreement. In exchange for temporary covenant relief under that agreement, and in anticipation of a refinancing of our long-term debt, we agreed to prepay in full no later than August 15, 2007 the outstanding principal amount of the 6.83% Senior Notes, plus the payment of a make-whole amount. As a result of this anticipated refinancing, we discontinued hedge accounting treatment on a treasury lock agreement and recorded a gain of $4.1 million ($0.05 per diluted common share) during the second quarter of 2007 in Other Income in our Consolidated Statements of Operations. During the quarter, we also recorded the amortization of the make-whole payment applicable to the second quarter of 2007, resulting in additional interest expense of $0.6 million ($0.01 per diluted common share). Also included in the 2007 second quarter net earnings were restructuring, asset impairment, and severance charges totaling $1.4 million, or $.02 per diluted common share. Included in the 2006 second quarter net earnings were restructuring, asset impairment, and severance charges totaling $0.8 million, or $0.01 per diluted common share. Included in net earnings for the first half of 2007 was a gain of $4.1 million resulting from the termination of hedge accounting due to the anticipated refinancing of the Senior Notes partially offset by recording a portion of the make-whole payment in the quarter as set forth above. Also included in the 2007 first half net earnings were restructuring, asset impairment, and severance charges totaling $2.6 million, or $0.04 per diluted common share. In addition, the first half of 2007 includes the effect of $1.9 million, or $0.02 per diluted common share, in increased interest expense due to the upfront recognition of the gain on the interest rate swaps at the end of the first quarter of 2006. Included in the 2006 first half net earnings was a gain of $8.5 million ($0.11 per diluted common share) from the termination of hedge accounting on an interest rate swap due to the refinancing of the revolving credit facility in the second quarter of 2006. Also included in the 2006 first half net earnings were restructuring, asset impairment, and severance charges totaling $1.6 million, or $0.02 per diluted common share. About Furniture Brands: Furniture Brands International is one of America's largest residential furniture companies. The company produces, sources, and markets its products under six of the best-known brand names in the industry -- Broyhill, Lane, Thomasville, Henredon, Drexel Heritage, and Maitland-Smith.