Furniture Brands International announced its financial results for the third quarter and nine months ended September 30, 2007.
Net sales for the third quarter of 2007 were $516.3 million compared with $568.9 million in the third quarter of 2006, a decrease of 9.2%. The company incurred a net loss of $13.7 million, or $0.28 per diluted common share, compared with net earnings of $5.8 million, $0.12 per diluted common share, in the third quarter of last year.
Results for the third quarters of 2007 and 2006 include several special items ,including the previously-announced make-whole payment in 2007 and restructuring and asset impairment charges in both 2006 and 2007. Excluding the effect of these items, diluted earnings per common share were $0.02 for the 2007 quarter and $0.20 for the 2006 quarter.
W. G. (Mickey) Holliman, Chairman and Chief Executive Officer, commented: "Our financial results for the third quarter were as expected, as the home furnishings industry continues to show the effects of cautious consumer spending. As one of the nation's largest residential furniture manufacturers with a diverse portfolio of respected brands, we are well-positioned to weather these challenges going forward.''
Net sales for the first nine months of 2007 were $1,625.3 million compared with $1,831.6 million in the first nine months of 2006, a decrease of 11.3%. Net loss was $5.0 million compared with net earnings of $53.0 million in the first nine months of 2006. Diluted loss per common share was $0.10 compared with earnings per common share of $1.08 in the first nine months of 2006. Excluding special items and restructuring charges, diluted earnings per common share for the nine months declined to $0.19 from $1.07 the year before.
Mr. Holliman continued, "On a year-to-date basis, our operating cash flows have been solid at $103.4 million, consistent with our expectations. This cash will give us the flexibility to reduce our long-term debt before year-end and to invest in implementation of our new strategic plan. By leveraging our brand power, winning with customers, delivering operational excellence, and developing our people, Furniture Brands will position itself to again produce strong results for its shareholders''
A description and reconciliation of GAAP earnings to earnings after special items and restructuring charges for the three months and nine months are included later in this release.
Ralph P. Scozzafava, the company's Vice-Chairman of the Board and CEO-designate, said, "Last week, we publicly unveiled the four pillars of our strategic plan. That plan has a long-term focus with three distinct stages: In 2007 we have managed for cash through better working capital management and the sale of non-core assets; in 2008 we will focus on increasing profitability through improved supply chain activities and by consolidating corporate services; and in 2009 we will grow our business by leveraging the power of our brands and delivering more value to customers.
"We have already implemented some key elements of the strategic plan,'' Scozzafava added. ``For example, we recently announced our intent to sell HBF, our commercial furniture operation. The sale of this unit puts our focus solely on residential furnishings and it will generate net cash proceeds to invest in our other initiatives. Consistent with the 'Winning with Customers' pillar of our strategy, we are rationalizing our company-owned retail operations to maximize long-term profitability. We have completed a thorough analysis of all company-owned stores against a set of specific financial criteria, and those stores whose operations fail to meet our financial benchmarks are being closed.
"Based on our analysis, the anticipated retail store closings will result in a net earnings charge of between $0.18 and $0.22 per share, which we will book in the fourth quarter. As part of our strategic evaluation of our company, we have reviewed the book valuation of certain intangible assets, and we have taken a non-cash charge to earnings of $7 million against our total intangible assets of $352 million. We have booked that charge in the third quarter.''
Scozzafava concluded, "As we discussed at last weeks' investor event, the short-term expenses we incur in implementing our strategic plan are an investment in our increased profitability in 2008 and beyond. Furniture Brands has the right strategy and is building a strong team; with our new asset-backed lending facility in place and a solid cash position, we have all of the resources we need to implement it.''
At the company's recent investor event, management indicated that it has adopted a new policy regarding earnings guidance. In keeping with public company best practices, Furniture Brands will provide earnings guidance on an annual basis and will update or affirm the annual guidance at its regular quarterly conference calls. The company anticipates providing 2008 earnings guidance in late January.
Reconciliation of Non-GAAP Measurements to GAAP Results
Included in the 2007 third quarter net earnings were restructuring, asset impairment, and severance charges totaling $8.3 million, or $0.11 per diluted common share. Also included in the 2007 third quarter net earnings was $14.6 million or $0.19 per diluted common share attributable to the previously-announced make-whole payment and the write-off of deferred financing fees.
Included in the 2007 first nine months net earnings were restructuring, asset impairment, and severance charges totaling $10.9 million, or $0.14 per diluted common share. Also included in net earnings for the first nine months of 2007 was the effect of our debt refinancing of $11.1 million or $0.15 per diluted common share, which includes a charge attributable to the previously-announced make-whole payment and the write-off of deferred financing fees, partially offset by a gain resulting from the termination of hedge accounting.
Included in the 2006 third quarter net earnings were restructuring, asset impairment, severance charges, and increased litigation reserve totaling $6.0 million, or $0.08 per diluted common share.
Included in earnings for the first nine months of the 2006 was a gain of $8.5 million or $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 net earnings for the first nine months of 2006 were restructuring, asset impairment, severance charges, and increased litigation reserve totaling $7.5 million, or $0.10 per diluted common share.
A tabular reconciliation of non-GAAP to GAAP results is included in the appendices to this release.
Upcoming Investor Events
A conference call will be held to discuss the second quarter results at 7:30 a.m. (Central Time) on November 1. The callcan be accessed on the company's website at furniturebrands.com under "Investor Info''. Access to the call and the release will be archived for one year.
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. With annual sales in excess of $2 billion, it markets through a wide range of retail channels, from mass merchant stores to single-brand and independent dealersto specialized interior designers. Furniture Brands serves its customers through four distinct brand families - Broyhill, Lane, Thomasville and Drexel Heritage, and a Designer Brands group that includes, Henredon, Pearson, Hickory Chair, Laneventure, and Maitland-Smith.
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