EX-99.A 2 pressrel_earnings072607.htm EARNINGS PRESS RELEASE DATED 07/26/06 Earnings Press Release dated 07/26/06

Exhibit 99.a 
 
INFORMATION

FOR IMMEDIATE RELEASE



 

FURNITURE BRANDS INTERNATIONAL REPORTS
SALES AND EARNINGS FOR THE SECOND QUARTER OF 2006


St. Louis, Missouri, July 26, 2006 -- Furniture Brands International (NYSE:FBN) announced today its financial results for the second quarter of 2006.

Operating Results - Second Quarter

Net sales for the second quarter of 2006 were $601.3 million, compared with $593.8 million in the second quarter of 2005, an increase of 1.3%. Net earnings for the second quarter were $17.0 million, up from $9.6 million in the second quarter of last year. Net earnings per diluted common share were $0.35, as compared to $0.18 in the second quarter of last year ($0.16 pro forma for $1.1 million of net stock option expense).

Included in the 2006 second quarter net earnings were restructuring, asset impairment and severance charges totaling $0.5 million ($0.8 million before income tax benefits) or $0.01 per diluted common share. Also included in the 2006 second quarter net earnings was the effect of $0.02 in increased expense due to the upfront recognition of the gain on interest rate swaps at the end of the first quarter, as previously announced. The 2005 second quarter net earnings were negatively impacted by restructuring, asset impairment and severance charges totaling $7.9 million ($12.2 million before income tax benefits) or $0.15 per diluted common share.

Operating Results - First Half

Net sales for the first half of 2006 were $1,262.7 million, compared with $1,235.3 million in the first half of 2005, an increase of 2.2%. Net earnings were $47.2 million, compared with $34.4 million in the first half of 2005. Diluted net earnings per common share were $0.96 as compared to $0.65 in the first half of 2005 ($0.61 pro forma for $2.2 million of net stock option expense).

Included in the 2006 first half net earnings were restructuring, asset impairment and severance charges totaling $1.0 million ($1.6 million before income tax benefits) or $0.02 per diluted common share. Also included in the 2006 first half net earnings was
 
 
 
 
$5.4 million ($0.11 per diluted common share) from the recognition of an accounting gain on interest rate swaps as a result of the refinancing of the company’s revolving credit facility, which occurred early in the second quarter. Offsetting this gain was the effect of $0.02 in increased interest expense due to the upfront recognition of the gain on the interest rate swaps. Included in the 2005 first half net earnings were restructuring, asset impairment and severance charges of $10.5 million ($16.2 million before income tax benefits) or $0.19 per common share.
 
Management Comments

W. G. (Mickey) Holliman, Chairman and Chief Executive Officer, commented: “As the quarter progressed we witnessed an increasingly challenging retail environment. Despite this, we delivered a positive year-over-year sales comparison and a meaningful earnings improvement over the prior year.”

Mr. Holliman continued, “Our net sales and net earnings were also up for the first half compared to the prior year. Earnings per share (excluding restructuring charges, severance, and the impact of the termination of hedge accounting) were 89 cents for the first half of the year. This compares to first half 2005 adjusted net earnings per share of 80 cents. I believe this is the most meaningful year-over-year comparison. We continue to make steady, measurable improvements to the company’s performance.

“We also continue to drive change throughout the entire company to gain the benefits afforded us by our strong brands, the leverage of our size, and our talented and unified leadership team. We will continue to focus on building our brands, optimizing our logistics and supply chain processes, and other strategic initiatives to drive both growth and margin expansion throughout the company.”

Mr. Holliman added, “We continue to repurchase shares of our common stock using available free cash flow. During the second quarter we repurchased 0.7 million shares, bringing the total for the first half of 2006 to 1.7 million shares at a total cost of $40 million.”

Outlook

Mr. Holliman concluded, “With respect to the third quarter, we currently expect net sales to be up in the low single digits versus the third quarter of last year and net earnings per diluted common share to be in the $0.18 to $0.22 range. This includes the effect of $0.07 in previously disclosed restructuring, asset impairment and severance charges. This also includes the effect of $0.03 in increased interest expense due to the upfront recognition of the gain on the interest rate swaps, also previously disclosed. As is our practice, we will provide an update on our third quarter expectations in early September.”

A conference call will be held to discuss the second quarter results at 7:30 a.m. (Central Time) on July 27, 2006. The call can be listened to on the company’s
website - www.furniturebrands.com.

Furniture Brands International is one of America’s largest residential furniture companies. The company produces, sources and markets its products under six of the
 
 
2
 
 
 
best-known brand names in the industry - Broyhill, Lane, Thomasville, Henredon, Drexel Heritage and Maitland-Smith.
 
Statements in this release that are not strictly historical may be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties, and Furniture Brands undertakes no obligation to update any such statement to reflect later developments. These include economic conditions, competitive factors, raw material pricing and restructuring efforts, among others, as set forth in the Company's most recent Form 10-K filed with the SEC.
 
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 which are non-GAAP financial measures. These results 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.
 
 


3

FURNITURE BRANDS INTERNATIONAL
CONSOLIDATED OPERATING RESULTS
(Dollars in thousands except per share)
(Unaudited)

 
  
Three Months Ended 
Six Months Ended
 
    
June 30, 
    
June 30,
    
June 30,
    
June 30,
  
     
2006
    
2005
    
2006
    
2005
  
                           
Net sales
  
$
601,275
  
$
593,753
  
$
1,262,720
  
$
1,235,318
  
Cost of sales
    
465,120
    
460,457
    
972,626
    
952,085
  
Gross profit
    
136,155
    
133,296
    
290,094
    
283,233
  
Selling, general and administrative expenses
    
106,020
    
116,670
    
222,584
    
228,086
  
Earnings from operations
    
30,135
    
16,626
    
67,510
    
55,147
  
Interest expense
    
4,727
    
2,846
    
7,688
    
5,948
  
Other income, net
    
2,040
    
644
    
12,578
    
2,534
  
Earnings before income tax expense
    
27,448
    
14,424
    
72,400
    
51,733
  
Income tax expense
    
10,470
    
4,833
    
25,200
    
17,358
  
Net earnings
  
$
16,978
  
$
9,591
  
$
47,200
  
$
34,375
  
                           
Net earnings per common share (diluted)
  
$
0.35
  
$
0.18
  
$
0.96
  
$
0.65
  
                           
Average diluted common shares
                          
outstanding (in thousands)
    
48,853
    
52,822
    
49,186
    
53,152
  

Included in the above Consolidated Statements of Operations are charges for stock option compensation (beginning January 1, 2006), gain on termination of cash flow hedges, restructuring and severance. The following reconciliation of net earnings shows the breakdown of these charges and their impact on operations. We believe this reconciliation provides a meaningful comparison of our ongoing operations.

   
Three Months Ended
  
Six Months Ended
  
 
    
June 30, 
    
June 30,
    
June 30,
    
June 30,
  
     
2006
    
2005
    
2006
    
2005
  
                           
Net earnings
  
$
16,978
  
$
9,591
  
$
47,200
  
$
34,375
  
Stock option compensation, net
    
-
   
(1,121
)
  
-
   
(2,220
)
Net earnings - pro forma
    
16,978
    
8,470
    
47,200
    
32,155
  
                           
Adjustments:
                          
Restructuring charges (1)
                          
Cost of sales
    
1,084
    
1,653
    
1,514
    
3,033
  
Selling, general, administrative expenses
    
(300
)
  
9,641
    
44
    
11,009
  
Severance (executive)
    
-
   
1,011
    
-
   
2,111
  
Swap impact (2)
    
-
   
-
   
(8,503
)
  
-
 
Adjustments - total
    
784
    
12,305
    
(6,945
)
  
16,153
  
Income tax benefit
    
274
    
4,307
    
(2,431
)
  
5,654
  
Adjustments - net
    
510
    
7,998
    
(4,514
)
  
10,499
  
                           
Adjusted - net earnings
 
$
17,488
  
$
16,468
  
$
42,686
  
$
42,654
  
                           
Adjusted - earnings per share - diluted
  
$
0.36
  
$
0.31
  
$
0.87
  
$
0.80
  

(1)   Restructuring charges include asset impairment charges, severance and other closing costs associated with the previously announced plant shutdowns.
 
(2)   Excludes impact of $0.02 per share for the second quarter and first half of 2006 related to the increased interest expense due to the termination of hedge accounting on an interest rate swap, offset by additional gain on the swaps recorded in the second quarter.

4


FURNITURE BRANDS INTERNATIONAL
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)




 
    
 June 30, 
    
December 31,
  
     
2006
    
2005
  
Assets
              
               
Current assets:
            
Cash and cash equivalents
  
$
58,978
  
$
114,322
  
Receivables, net
   
371,531
    
349,202
  
Inventories
   
488,760
    
432,814
  
Prepaid expenses and other current assets
    
36,680
    
35,330
  
Total current assets
   
955,949
    
931,668
  
Property, plant and equipment, net
    
238,490
    
250,817
  
Intangible assets
    
352,178
    
352,178
  
Other assets
    
43,007
    
47,561
  
   
$
1,589,624
  
$
1,582,224
  
               
Liabilities and Shareholders’ Equity
              
               
Current liabilities:
              
Accounts payable
  
$
110,369
  
$
101,860
  
Accrued expenses and other current liabilities
    
100,470
    
111,625
  
Total current liabilities
    
210,839
    
213,485
  
Long-term debt
   
300,800
    
301,600
  
Other long-term liabilities
    
176,487
    
163,187
  
               
Shareholders’ equity
   
901,498
    
903,952
  
   
$
1,589,624
  
$
1,582,224
  


5

FURNITURE BRANDS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

 
  
Three Months Ended 
Six Months Ended
 
    
June 30, 
    
June 30,
    
June 30,
    
June 30,
  
     
2006
    
2005
    
2006
    
2005
  
Cash flows from operating activities:
                          
Net earnings
 
$
16,978
  
$
9,591
  
$
47,200
  
$
34,375
  
Adjustments to reconcile net earnings to net cash
                          
provided by operating activities:
                          
Depreciation and amortization
    
9,304
    
11,773
    
19,397
    
23,576
  
Compensation expense related to stock option
                          
grants and restricted stock awards
    
1,531
    
24
    
3,154
    
111
  
Provision (benefit) for deferred income taxes
    
(3,043
)
  
(521
)
  
(6,382
)
  
(2,726
)
Other, net
    
(826
)
  
9,612
    
(5,525
)
  
11,029
  
Changes in operating assets and liabilities:
                          
Accounts receivable
    
21,685
    
38,595
    
(22,329
)
  
17,744
  
Inventories
    
(49,448
)
  
(10,396
)
  
(55,946
)
  
4,681
  
Prepaid expenses and other assets
    
3,100
    
(2,648
)
  
2,701
    
(11,822
)
Accounts payable and other accrued expenses
    
(13,048
)
  
(11,217
)
  
4,095
    
(2,019
)
Other long-term liabilities
    
4,819
    
3,767
    
8,878
    
9,324
  
Net cash provided (used) by operating activities
    
(8,948
)
  
48,580
    
(4,757
)
  
84,273
  
                           
Cash flows from investing activities:
                          
Proceeds from the disposal of assets
    
1,313
    
1,173
    
4,496
    
3,312
  
Additions to property, plant and equipment
    
(9,108
)
  
(7,566
)
  
(14,464
)
  
(15,507
)
Net cash used by investing activities
    
(7,795
)
  
(6,393
)
  
(9,968
)
  
(12,195
)
                           
Cash flows from financing activities:
                          
Proceeds from the termination of swaps
    
8,623
    
-
   
8,623
    
-
 
Payments for debt issuance costs
   
(1,185
)
  
-
   
(1,185
)
  
-
 
Additions to long-term debt
    
450,000
    
-
   
450,000
    
-
 
Payments of long-term debt
    
(450,800
)
  
(800
)
  
(450,800
)
  
(800
)
Proceeds from the exercise of stock options
    
1,326
    
3,170
    
8,095
    
3,742
  
Tax benefit from the exercise of stock options
    
123
    
-
   
527
    
-
 
Payments of cash dividends
    
(7,845
)
  
(7,906
)
  
(15,804
)
  
(15,892
)
Payments for the purchase of treasury stock
    
(15,075
)
  
(19,933
)
  
(40,075
)
  
(24,933
)
Net cash used by financing activities
    
(14,833
)
  
(25,469
)
  
(40,619
)
  
(37,883
)
                           
Net increase (decrease) in cash and cash equivalents
    
(31,576
)
  
16,718
    
(55,344
)
  
34,195
  
Cash and cash equivalents at beginning of period
    
90,554
    
68,725
    
114,322
    
51,248
  
Cash and cash equivalents at end of period
  
$
58,978
  
$
85,443
  
$
58,978
  
$
85,443
  
                           
Supplemental Disclosure:
                          
Cash payments for income taxes, net
  
$
24,306
  
$
16,950
  
$
42,339
  
$
32,450
  
                           
Cash payments for interest expense
  
$
2,718
  
$
2,887
  
$
4,397
  
$
6,040