Teuer furniture a case solution

Teuer Furniture (B): Multiples Valuation CASE

You are an analyst reporting to Jennifer Jerabek, CFO of Teuer Furniture. As noted in the case, several Teuer’s investors have taken issue with the FCF DCF analysis done previously. They believe that DCF analysis is unreliable since it requires dozens or hundreds of assumptions about the future of the company. Jerbek (and you) have been instructed to prepare a valuation that does not depend on assumptions about future growth, profitability, capital investment or require discretion by the finance team. She has asked you to value the company using the market multiples approach. Your analysis should include a discussion about whether your analysis is free of any assumptions about the future of the company or based on any discretionary choices on your part. Detail your analysis in a one-page report.

the Kellogg School of Management at Northwestern University. This case was prepared by Professor Mitchell A. Petersen with the research assistance of Varun Bhatnagar, Beverly Clingan, Tiffany Li, Kara Moore, and Tanisha Patni. Teuer Furniture is a fictional company whose profile was created based on data from real industry leaders. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail custserv@hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise— without the permission of Kellogg Case Publishing.

MITCHELL A. PETERSEN KEL788

Teuer Furniture (B): Multiples Valuation

Teuer Furniture had regained its financial footing by the end of 2012. A number of long-term investors, including several of Teuer’s original non-management investors, now want to sell their shares. Jennifer Jerabek, the chief financial officer of Teuer, and her team put together an extensive valuation of the company based on a discounted cash flow (DCF) analysis. One criticism of the DCF valuation is that the resulting stock value depends upon the assumptions of the model. There are often dozens or hundreds of assumptions that go into a sophisticated DCF valuation model. When the model was presented to investors, a number of them disagreed with the results. Some investors considered the value too high and others considered the value too low. Jerabek was instructed to produce a valuation that did not depend upon assumptions about future growth, profitability, and capital investment needs or the discretion of the finance team. She was asked to value Teuer using a multiples approach.

Multiples Approach to Valuation

Multiples valuation is relatively straightforward as compared to a sophisticated DCF analysis. To value a firm or division using a multiples approach, one needs only two inputs: a set of comparable firms and a set of valuation metrics. For each comparable firm and valuation metric, the team calculates the ratio of the comparable firm’s market value to the valuation metric.1 Unlike DCF, for which Jerabek’s team was required to make a large number of assumptions, a multiples approach requires the team to make only one assumption—that the valuation ratio for the comparable firm(s) (which can be observed) is the same as the valuation ratio for Teuer Furniture (which cannot be observed).

A large number of possible valuation metrics can be derived from the income statement, balance sheet, and cash flow statement of a company. Valuation metrics can also be taken from

1 The numerator of the ratio (the value of the firm) is sometimes measured as the equity value and sometimes as the enterprise or asset value. The enterprise or asset value is the value of debt plus equity.

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This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

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non-financial sources.2 Even if the team focused only on profits, it could use net income, pre-tax profits, earnings before interest and taxes (EBIT), earnings before interest, taxes, amortization, and depreciation (EBITDA), or gross profit (revenue minus costs of goods sold). To limit the scope of the analysis, Jerabek decided to start with three valuation metrics: sales revenue, net income, and cash flow from assets (CFA).

Comparable Firm Selection

The next challenge Jerabek faced was finding a set of comparable firms. To help with the selection and data collection, she turned to one of her contacts at a boutique investment bank, Primus River Capital. Its mergers and acquisitions group provided a list of publicly traded firms whose primary industry classification was home furnishings or home furnishings retail.3 A number of firms classified as home furnishings were excluded because their product mix was very different from Teuer’s.4 This resulted in a list of nine firms. The income statements and balance sheets of the nine firms are contained in Exhibit 1, along with additional financial market data. The available data for Teuer Furniture is presented in the same format in Exhibit 2.

Although the nine firms provided by Teuer’s banker all have a presence in the home furnishings industry, they differ across a number of potentially important dimensions. A description of each firm’s business is contained in Exhibit 3. Some of the firms manufacture furniture, while others do not. Some have international operations—either sales or manufacturing—while others do not. Some of the firms have product lines that are more limited than Teuer’s, while others have product lines that are much broader.

Valuation of Teuer Furniture

With the data in hand, Jerabek needed to select from the nine candidates a set of firms that are comparable to Teuer Furniture, as well as select a valuation ratio. But on what dimensions should she compare the firms?

2 Within some industries, specific non-financial metrics are used. In the natural extraction industry, for example, proven or probable reserves are used as a valuation metric. In the social media industry, the number of visits to a webpage or the number of downloads of an app can be used. In the cable or newspaper industries, the number of subscribers can be used as a valuation metric. 3 Companies in the home furnishings retail industry sell household furniture, kitchenware, bathware, linens, and other consumer products for the home. These products are typically sold through specialty store chains, outlet stores, catalogs, and e-commerce websites. Companies that sell floor coverings (carpets and rugs) and window treatments (curtains and draperies) through retail channels are also included in this industry. 4 Some of the excluded firms include Bed Bath & Beyond (bed linens, basic housewares, and consumables), Flooring America (carpet, ceramic tile, hardwood, and vinyl floor coverings), Kirklands (framed art, wall décor, lamps, and decorative accessories), and Mattress Firm Holdings Corp. (mattresses and related products). Rent-A-Center Inc. was also excluded, as its business model and target consumer is distinct from Teuer’s (leasing household durable goods on a rent-to-own basis).

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

KEL788 TEUER FURNITURE (B)

KELLOGG SCHOOL OF MANAGEMENT 3

Exhibit 1: Comparable Firms’ Financials

PANEL A: BASSETT FURNITURE INDUSTRIES INC. (BSET)

INCOME STATEMENT 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Revenue 269.7 253.2 235.3 232.7

Cost of goods sold 128.4 125.6 122.6 129.9 Selling, general, and administrative 134.8 122.0 110.8 103.8 Depreciation 0.0 0.0 0.0 0.0 R&D 0.0 0.0 0.0 0.0 Other expenses (income) -5.2 -54.8 4.9 21.6 Interest expenses (net) -0.2 0.6 -0.8 2.0

Income before taxes 12.0 59.7 -2.2 -24.5 Taxes -14.7 4.4 -0.2 -1.8 Net income 26.7 55.3 -2.0 -22.7

Adjusted income (all equity firm) Earnings before interest and taxes 11.7 60.3 -3.0 -22.5 Adjusted taxes (all equity firm) -14.4 4.4 -0.3 -1.7

Net income (all equity firm) 26.1 55.9 -2.7 -20.9 BALANCE SHEET 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Assets

Cash and equivalents 45.6 69.6 11.1 23.2 Accounts receivable 15.8 14.8 31.6 34.6 Inventory 57.9 45.1 41.8 33.4 Other current assets 13.3 10.7 7.0 13.3

Total current assets 132.5 140.2 91.5 104.5 Property, plant, and equipment 56.6 49.9 46.3 50.6 Goodwill and other intangibles 0.0 0.0 15.1 14.9 Other long-term assets 38.0 33.0 44.5 46.1

Total long-term assets 94.7 83.0 105.8 111.7 Total assets 227.2 223.2 197.3 216.2

Liabilities Accounts payable 22.4 18.8 24.9 14.7 Accrued expenses 17.4 17.7 17.4 17.2 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.0 0.0 9.5 4.4 Other current liabilities 12.8 15.3 10.1 7.0

Total current liabilities 52.6 51.8 61.8 43.3 Long-term debt and capital leases 3.1 3.7 4.3 32.0 Other liabilities 14.3 15.3 24.9 30.7 Common equity 157.3 152.4 106.3 110.3

Total liabilities and shareholder’s equity 227.2 223.2 197.3 216.2 FINANCIAL DATA Cash flow from assets -2.2 Stock price 14.2 Common shares outstanding 10.9 Market value of equity 154.7 Enterprise value 112.2 Asset price/Cash flow assets NMF Asset price/Adjusted net income 4.3x Asset price/Sales 0.4x Equity price/Net income 5.8x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

TEUER FURNITURE (B) KEL788

4 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 1 (continued)

PANEL B: ETHAN ALLEN INTERIORS INC. (ETH)

INCOME STATEMENT 6/30/2012 6/30/2011 6/30/2010 6/30/2009 Revenue 729.4 679.0 590.1 674.3

Cost of goods sold 339.1 329.5 309.8 326.9 Selling, general, and administrative 322.0 296.7 262.6 394.5 Depreciation 18.6 20.8 29.4 25.6 R&D 0.0 0.0 0.0 0.0 Other expenses (income) 0.0 0.0 0.0 0.0 Interest expenses (net) 8.5 5.6 7.1 8.4

Income before taxes 41.2 26.4 -18.8 -81.2 Taxes -8.5 -2.9 25.5 -28.5 Net income 49.7 29.3 -44.3 -52.7

Adjusted income (all equity firm) Earnings before interest and taxes 49.7 31.9 -11.7 -72.8 Adjusted taxes (all equity firm) -10.2 -3.5 15.9 -25.5

Net income (all equity firm) 59.9 35.4 -27.7 -47.2 BALANCE SHEET 6/30/2012 6/30/2011 6/30/2010 6/30/2009 Assets

Cash and equivalents 88.7 91.4 84.9 53.0 Accounts receivable 14.9 15.0 17.1 13.1 Inventory 155.7 141.7 134.0 156.5 Other current assets 23.4 20.4 23.6 29.2

Total current assets 282.8 268.5 259.7 251.7 Property, plant, and equipment 295.7 294.9 305.7 333.6 Goodwill and other intangibles 45.1 45.1 45.1 45.1 Other long-term assets 21.2 19.8 21.2 16.1

Total long-term assets 362.0 359.8 372.1 394.8 Total assets 644.8 628.3 631.8 646.5

Liabilities Accounts payable 27.3 27.0 24.0 22.2 Accrued expenses 58.0 65.0 65.3 58.5 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.3 0.0 3.9 0.0 Other current liabilities 65.5 62.6 52.6 31.7

Total current liabilities 151.1 154.6 145.7 112.5 Long-term debt and capital leases 154.3 165.0 199.4 203.1 Other liabilities 17.8 27.0 28.2 25.0 Common equity 321.7 281.7 258.5 305.9

Total liabilities and shareholder’s equity 644.8 628.3 631.7 646.5 FINANCIAL DATA Cash flow from assets 27.7 Stock price 19.9 Common shares outstanding 28.8 Market value of equity 573.1 Enterprise value 638.9 Asset price/Cash flow assets 23.0x Asset price/Adjusted net income 10.7x Asset price/Sales 0.9x Equity price/Net income 11.5x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

KEL788 TEUER FURNITURE (B)

KELLOGG SCHOOL OF MANAGEMENT 5

Exhibit 1 (continued)

PANEL C: FURNITURE BRANDS INTERNATIONAL INC. (FBN)

INCOME STATEMENT 12/29/2012 12/31/2011 12/31/2010 12/31/2009 Revenue 1,072.3 1,107.7 1,159.9 1,224.4

Cost of goods sold 827.3 837.1 879.2 986.2 Selling, general, and administrative 252.8 270.9 285.2 322.8 Depreciation 18.9 21.9 23.9 20.7 R&D 0.0 0.0 0.0 0.0 Other expenses (income) 16.6 20.8 16.5 65.8 Interest expenses (net) 5.7 3.6 3.2 5.3

Income before taxes -49.0 -46.6 -47.9 -176.5 Taxes -1.8 -2.8 -8.9 -67.8 Net income -47.3 -43.8 -39.0 -108.7

Adjusted income (all equity firm) Earnings before interest and taxes -43.4 -43.0 -44.8 -171.1 Adjusted taxes (all equity firm) -1.6 -2.6 -8.3 -65.7

Net income (all equity firm) -41.8 -40.4 -36.4 -105.4 BALANCE SHEET 12/29/2012 12/31/2011 12/31/2010 12/31/2009 Assets

Cash and equivalents 11.9 25.4 52.0 83.9 Accounts receivable 125.7 108.0 114.5 184.5 Inventory 244.3 228.2 249.7 226.1 Other current assets 11.3 9.5 11.2 9.3

Total current assets 393.2 371.0 427.4 503.7 Property, plant, and equipment 103.4 115.8 124.9 134.4 Goodwill and other intangibles 76.1 77.5 86.5 87.6 Other long-term assets 45.7 50.2 37.6 32.4

Total long-term assets 225.2 243.5 249.0 254.4 Total assets 618.4 614.5 676.4 758.1

Liabilities Accounts payable 113.6 85.6 79.9 83.8 Accrued expenses 58.7 53.6 61.2 75.9 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.0 0.0 0.0 17.0 Other current liabilities 0.0 0.0 0.0 0.0

Total current liabilities 172.3 139.2 141.1 176.8 Long-term debt and capital leases 105.0 77.0 77.0 78.0 Other liabilities 286.3 266.1 198.8 240.6 Common equity 54.8 132.3 259.6 262.8

Total liabilities and shareholder’s equity 618.4 614.5 676.4 758.1 FINANCIAL DATA Cash flow from assets -5.8 Stock price 7.4 Common shares outstanding 8.0 Market value of equity 59.7 Enterprise value 152.8 Asset price/Cash flow assets NMF Asset price/Adjusted net income NMF Asset price/Sales 0.1x Equity price/Net income NMF

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

TEUER FURNITURE (B) KEL788

6 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 1 (continued)

PANEL D: HAVERTY FURNITURE COMPANIES INC. (HVT)

INCOME STATEMENT 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Revenue 670.4 621.4 620.3 588.3

Cost of goods sold 318.0 300.2 301.6 282.8 Selling, general, and administrative 309.6 297.8 295.4 292.2 Depreciation 19.4 18.2 16.9 19.3 R&D 0.0 0.0 0.0 0.0 Other expenses (income) -0.8 -0.2 -3.0 -1.4 Interest expenses (net) 0.6 0.7 0.8 0.8

Income before taxes 23.5 4.6 8.7 -5.4 Taxes 8.6 -10.9 0.2 -1.2 Net income 14.9 15.5 8.4 -4.2

Adjusted income (all equity firm) Earnings before interest and taxes 24.1 5.3 9.5 -4.6 Adjusted taxes (all equity firm) 8.8 -12.6 0.3 -1.0

Net income (all equity firm) 15.3 17.9 9.2 -3.6 BALANCE SHEET 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Assets

Cash and equivalents 53.6 49.6 58.1 44.5 Accounts receivable 9.7 11.5 13.8 15.3 Inventory 96.9 93.7 91.9 93.3 Other current assets 19.7 22.9 13.2 15.2

Total current assets 179.9 177.7 176.9 168.3 Property, plant, and equipment 193.1 179.3 175.5 176.4 Goodwill and other intangibles 0.0 0.0 0.0 0.0 Other long-term assets 29.1 28.1 17.7 16.2

Total long-term assets 222.2 207.4 193.2 192.6 Total assets 402.1 385.1 370.2 360.9

Liabilities Accounts payable 28.2 21.2 18.1 19.1 Accrued expenses 11.8 11.0 31.4 30.2 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.9 0.8 0.5 0.4 Other current liabilities 49.0 39.4 20.6 21.8

Total current liabilities 89.9 72.4 70.6 71.4 Long-term debt and capital leases 18.5 12.3 8.6 6.8 Other liabilities 34.3 37.8 37.9 38.1 Common equity 259.4 262.7 253.2 244.6

Total liabilities and shareholder’s equity 402.1 385.1 370.2 360.9 FINANCIAL DATA Cash flow from assets 16.2 Stock price 16.3 Common shares outstanding 22.3 Market value of equity 362.9 Enterprise value 328.7 Asset price/Cash flow assets 20.3x Asset price/Adjusted net income 21.5x Asset price/Sales 0.5x Equity price/Net income 24.3x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

KEL788 TEUER FURNITURE (B)

KELLOGG SCHOOL OF MANAGEMENT 7

Exhibit 1 (continued)

PANEL E: LA-Z-BOY INCORPORATED (LZB)

INCOME STATEMENT 4/28/2012 4/30/2011 4/24/2010 4/25/2009 Revenue 1,231.7 1,187.1 1,179.2 1,226.7

Cost of goods sold 851.8 832.8 804.5 887.9 Selling, general, and administrative 306.7 299.7 307.5 408.7 Depreciation 23.5 24.3 25.2 24.1 R&D 0.0 0.0 0.0 0.0 Other expenses (income) -18.6 2.1 -5.8 -2.6 Interest expenses (net) 1.4 2.3 3.0 5.6

Income before taxes 66.9 26.0 44.7 -97.0 Taxes -22.0 8.6 12.7 24.3 Net income 88.9 17.4 32.1 -121.3

Adjusted income (all equity firm) Earnings before interest and taxes 68.2 28.3 47.7 -91.4 Adjusted taxes (all equity firm) -22.5 9.4 13.5 22.9

Net income (all equity firm) 90.7 18.9 34.2 -114.4 BALANCE SHEET 4/28/2012 4/30/2011 4/24/2010 4/25/2009 Assets

Cash and equivalents 152.4 115.3 108.4 36.1 Accounts receivable 167.2 161.3 165.0 147.9 Inventory 143.8 138.4 132.5 140.2 Other current assets 36.6 17.2 21.2 23.7

Total current assets 500.0 432.2 427.1 347.8 Property, plant, and equipment 114.4 120.6 138.9 150.2 Goodwill and other intangibles 3.0 3.1 3.1 3.1 Other long-term assets 68.3 37.5 38.8 51.4

Total long-term assets 185.7 161.2 180.7 204.8 Total assets 685.7 593.5 607.8 552.5

Liabilities Accounts payable 56.6 49.5 54.7 41.6 Accrued expenses 44.9 37.4 51.7 75.7 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 1.8 5.1 1.1 8.7 Other current liabilities 46.4 40.0 39.8 0.0

Total current liabilities 149.8 132.1 147.3 126.0 Long-term debt and capital leases 7.9 29.9 46.9 52.1 Other liabilities 86.1 70.1 73.7 68.6 Common equity 441.9 361.3 339.8 305.7

Total liabilities and shareholder’s equity 685.7 593.4 607.8 552.5 FINANCIAL DATA Cash flow from assets 72.5 Stock price 15.3 Common shares outstanding 52.2 Market value of equity 801.4 Enterprise value 658.8 Asset price/Cash flow assets 9.1x Asset price/Adjusted net income 7.3x Asset price/Sales 0.5x Equity price/Net income 9.0x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

TEUER FURNITURE (B) KEL788

8 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 1 (continued)

PANEL F : RESTORATION HARDWARE HOLDINGS INC. (RH)

INCOME STATEMENT 2/2/2013 1/28/2012 1/29/2011 1/30/2010 Revenue 1,193.0 958.1 772.8 625.7

Cost of goods sold 756.6 601.7 499.0 423.1 Selling, general, and administrative 390.4 327.9 274.8 238.9 Depreciation 0.0 0.0 0.0 0.0 R&D 0.0 0.0 0.0 0.0 Other expenses (income) 115.1 1.6 2.1 -10.5 Interest expenses (net) 5.8 5.1 3.2 3.2

Income before taxes -74.8 21.7 -6.4 -29.0 Taxes -62.0 1.1 0.7 -0.4 Net income -12.8 20.6 -7.1 -28.6

Adjusted income (all equity firm) Earnings before interest and taxes -69.0 26.8 -3.2 -25.8 Adjusted taxes (all equity firm) -57.2 1.4 0.4 -0.4

Net income (all equity firm) -11.8 25.5 -3.6 -25.5 BALANCE SHEET 2/2/2013 1/28/2012 1/29/2011 1/30/2010 Assets

Cash and equivalents 8.4 8.5 13.4 13.2 Accounts receivable 17.0 11.8 4.5 4.5 Inventory 353.3 245.9 206.4 149.0 Other current assets 114.0 56.7 20.4 18.8

Total current assets 492.8 322.9 244.6 185.5 Property plant and equipment 111.4 83.6 76.5 62.2 Goodwill and other intangibles 172.7 175.1 178.5 182.3 Other long-term assets 12.7 5.3 2.5 1.5

Total long-term assets 296.9 263.9 257.4 246.0 Total assets 789.6 586.8 502.0 431.5

Liabilities Accounts payable 81.6 47.4 51.4 47.0 Accrued expenses 63.7 58.3 39.3 37.8 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 2.9 4.1 2.4 1.9 Other current liabilities 71.1 52.2 36.6 30.5

Total current liabilities 219.4 162.0 129.7 117.2 Long-term debt and capital leases 84.1 122.3 111.8 57.4 Other liabilities 34.5 52.1 44.6 35.8 Common equity 451.6 250.5 215.8 221.1

Total liabilities and shareholder’s equity 789.6 586.8 502.0 431.5 FINANCIAL DATA Cash flow from assets -173.8 Stock price 70.3 Common shares outstanding 38.9 Market value of equity 2,735.5 Enterprise value 2,814.2 Asset price/Cash flow assets NMF Asset price/Adjusted net income NMF Asset price/Sales 2.4x Equity price/Net income NMF

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

KEL788 TEUER FURNITURE (B)

KELLOGG SCHOOL OF MANAGEMENT 9

Exhibit 1 (continued)

PANEL G: STANLEY FURNITURE COMPANY (STLY)

INCOME STATEMENT 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Revenue 98.6 104.6 137.0 160.5

Cost of goods sold 85.9 92.2 153.1 158.7 Selling, general, and administrative 16.5 17.6 11.2 20.7 Depreciation 1.8 1.6 9.4 6.0 R&D 0.0 0.0 0.0 0.0 Other expenses (income) -39.0 -4.1 7.5 -9.5 Interest expenses (net) 2.3 2.3 3.5 3.7

Income before taxes 31.0 -5.0 -47.8 -19.1 Taxes 0.7 0.0 -4.0 -7.4 Net income 30.4 -5.0 -43.8 -11.7

Adjusted income (all equity firm) Earnings before interest and taxes 33.4 -2.7 -44.2 -15.4 Adjusted taxes (all equity firm) 0.7 0.0 -3.7 -5.9

Net income (all equity firm) 32.7 -2.7 -40.5 -9.5 BALANCE SHEET 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Assets

Cash and equivalents 35.9 15.7 25.5 41.8 Accounts receivable 10.0 10.3 13.8 22.2 Inventory 35.1 31.1 25.7 37.2 Other current assets 6.1 5.5 6.9 8.3

Total current assets 87.2 62.5 72.0 109.6 Property, plant, and equipment 19.9 17.6 16.0 31.4 Goodwill and other intangibles 0.0 0.0 0.0 9.1 Other long-term assets 3.7 0.5 0.4 0.5

Total long-term assets 23.6 18.1 16.4 40.9 Total assets 110.7 80.6 88.4 150.5

Liabilities Accounts payable 8.7 10.0 9.1 11.6 Accrued expenses 6.2 6.5 7.7 9.2 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.0 0.0 2.4 1.4 Other current liabilities 0.0 0.0 0.0 0.0

Total current liabilities 14.9 16.5 19.2 22.3 Long-term debt and capital leases 0.0 0.0 0.0 26.4 Other liabilities 8.6 7.1 7.4 8.9 Common equity 87.2 57.0 61.8 92.9

Total liabilities and shareholder’s equity 110.7 80.6 88.4 150.4 FINANCIAL DATA Cash flow from assets 22.7 Stock price 4.5 Common shares outstanding 14.6 Market value of equity 65.6 Enterprise value 29.6 Asset price/Cash flow assets 1.3x Asset price/Adjusted net income 0.9x Asset price/Sales 0.3x Equity price/Net income 2.2x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

TEUER FURNITURE (B) KEL788

10 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 1 (continued)

PANEL H: TEMPUR SEALY INTERNATIONAL INC. (TPX)

INCOME STATEMENT 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Revenue 1,402.9 1,417.9 1,105.4 831.2

Cost of goods sold 688.3 674.8 550.0 437.5 Selling, general, and administrative 408.7 341.7 258.1 208.6 Depreciation 42.0 51.0 44.0 40.2 R&D 15.6 9.9 7.4 0.0 Other expenses (income) 0.3 0.2 0.5 -0.4 Interest expenses (net) 18.8 11.9 14.5 17.3

Income before taxes 229.2 328.4 230.9 128.0 Taxes 122.4 108.8 73.7 43.0 Net income 106.8 219.6 157.2 85.0

Adjusted income (all equity firm) Earnings before interest and taxes 248.0 340.3 245.4 145.4 Adjusted taxes (all equity firm) 132.4 112.7 78.4 48.9

Net income (all equity firm) 115.6 227.6 167.0 96.5 BALANCE SHEET 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Assets

Cash and equivalents 554.3 111.4 53.6 14.0 Accounts receivable 129.8 142.4 115.6 105.6 Inventory 93.0 91.2 69.9 57.7 Other current assets 56.5 34.8 32.4 31.7

Total current assets 833.6 379.8 271.5 209.0 Property, plant, and equipment 186.0 160.5 159.8 172.5 Goodwill and other intangibles 279.2 279.8 281.2 258.1 Other long-term assets 26.7 18.1 3.5 3.8

Total long-term assets 491.9 458.4 444.5 434.4 Total assets 1,325.5 838.1 716.0 643.4

Liabilities Accounts payable 85.8 69.9 48.3 47.8 Accrued expenses 84.3 52.6 60.3 81.5 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.0 0.0 0.0 0.0 Other current liabilities 16.1 45.1 37.7 7.3

Total current liabilities 186.2 167.6 146.2 136.5 Long-term debt and capital leases 1,025.0 585.0 407.0 297.5 Other liabilities 53.6 54.8 36.7 37.1 Common equity 60.7 30.8 126.0 172.3

Total liabilities and shareholder’s equity 1,325.5 838.2 716.0 643.4 FINANCIAL DATA Cash flow from assets 88.5 Stock price 31.5 Common shares outstanding 59.7 Market value of equity 1,880.0 Enterprise value 2,350.7 Asset price/Cash flow assets 26.6x Asset price/Adjusted net income 20.3x Asset price/Sales 1.7x Equity price/Net income 17.6x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

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KELLOGG SCHOOL OF MANAGEMENT 11

Exhibit 1 (continued)

PANEL I : WILLIAMS-SONOMA INC. (WSM)

INCOME STATEMENT 2/3/2013 1/29/2012 1/30/2011 1/31/2010 Revenue 4,042.9 3,720.9 3,504.2 3,102.7

Cost of goods sold 2,450.4 2,261.0 2,130.3 1,999.5 Selling, general, and administrative 1,035.9 940.1 888.3 797.1 Depreciation 134.5 130.6 144.6 151.8 R&D 0.0 0.0 0.0 0.0 Other expenses (income) 13.0 7.5 17.5 32.7 Interest expenses (net) -0.8 -0.1 0.4 1.4

Income before taxes 410.0 381.8 323.1 120.3 Taxes 153.2 144.9 122.8 42.8 Net income 256.7 236.9 200.2 77.5

Adjusted income (all equity firm) Earnings before interest and taxes 409.2 381.7 323.4 121.7 Adjusted taxes (all equity firm) 152.9 144.9 123.0 43.3

Net income (all equity firm) 256.2 236.9 200.4 78.3 BALANCE SHEET 2/3/2013 1/29/2012 1/30/2011 1/31/2010 Assets

Cash and equivalents 424.6 502.8 628.4 513.9 Accounts receivable 63.0 46.0 41.6 44.2 Inventory 640.0 553.5 513.4 466.1 Other current assets 189.2 174.2 164.3 155.9

Total current assets 1,316.8 1,276.4 1,347.6 1,180.2 Property, plant, and equipment 812.0 734.7 730.6 829.0 Goodwill and other intangibles 0.0 0.0 0.0 0.0 Other long-term assets 58.9 49.8 53.6 69.9

Total long-term assets 870.9 784.5 784.2 899.0 Total assets 2,187.7 2,060.8 2,131.7 2,079.2

Liabilities Accounts payable 259.2 218.3 228.0 188.2 Accrued expenses 120.6 111.8 122.4 107.7 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 1.7 1.8 1.5 1.6 Other current liabilities 275.6 239.9 259.8 265.9

Total current liabilities 657.1 571.8 611.7 563.5 Long-term debt and capital leases 3.8 5.5 7.1 8.7 Other liabilities 217.7 228.3 254.1 295.4 Common equity 1,309.1 1,255.3 1,258.9 1,211.6

Total liabilities and shareholder’s equity 2,187.7 2,060.8 2,131.7 2,079.2 FINANCIAL DATA Cash flow from assets 126.0 Stock price 43.8 Common shares outstanding 97.7 Market value of equity 4,277.6 Enterprise value 3,858.6 Asset price/Cash flow assets 30.6x Asset price/Adjusted net income 15.1x Asset price/Sales 1.0x Equity price/Net income 16.7x

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

TEUER FURNITURE (B) KEL788

12 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 1 (continued)

Notes: The exhibit contains the income statements and balance sheets for a set of comparable firms suggested by Teuer’s banker. The data is taken from the firms’ annual reports and covers the period from 2009 to 2012. In addition to the standard income statement, the net income of the firm as if it had no debt is also calculated. The market value of equity is based on the stock price on the final day of the fiscal year. The enterprise value is calculated as the market value of equity plus the book value of debt minus cash. The book value of debt was used as an estimate of the market value of debt due to the difficulty of and discretion required in estimating the market value of debt as these are often untraded securities. Enterprise value is an estimate of the market value of the firm’s operating assets. All numbers are in $M except for stock price ($) and number of shares (M).

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

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Exhibit 2: Teuer Furniture Financials INCOME STATEMENT 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Revenue 148.2 134.1 111.5 90.7

Cost of goods sold 62.0 55.5 49.1 47.3 Selling, general, and administrative 41.3 36.7 32.5 29.6 Depreciation 1.5 1.8 2.0 2.2 R&D 0.0 0.0 0.0 0.0 Other expenses (income) 7.4 6.7 5.6 5.4 Interest expenses (net) 0.0 0.0 0.0 0.0

Income before taxes 36.1 33.4 22.2 6.2 Taxes 14.4 13.4 8.9 0.5 Net income 21.7 20.0 13.3 5.6

Adjusted income (all equity firm) Earnings before interest and taxes 36.1 33.4 22.2 6.2 Adjusted taxes (all equity firm) 14.4 13.4 8.9 0.5

Net income (all equity firm) 21.7 20.0 13.3 5.6 BALANCE SHEET 12/31/2012 12/31/2011 12/31/2010 12/31/2009 Assets

Cash and equivalents 0.0 0.0 0.0 0.0 Accounts receivable 48.2 42.4 36.6 29.1 Inventory 33.3 29.2 26.8 24.9 Other current assets 0.0 0.0 0.0 0.0

Total current assets 81.5 71.6 63.4 53.9 Property, plant, and equipment 3.9 3.1 3.8 5.1 Goodwill and other intangibles 0.0 0.0 0.0 0.0 Other long-term assets 0.0 0.0 0.0 0.0

Total long-term assets 3.9 3.1 3.8 5.1 Total assets 85.5 74.8 67.3 59.0

Liabilities Accounts payable 11.4 10.0 9.1 8.3 Accrued expenses 1.7 1.5 1.4 1.2 Notes payable 0.0 0.0 0.0 0.0 Current maturities of long-term debt 0.0 0.0 0.0 0.0 Other current liabilities 0.0 0.0 0.0 0.0

Total current liabilities 13.0 11.5 10.5 9.5 Long-term debt and capital leases 0.0 0.0 0.0 0.0 Other liabilities 0.0 0.0 0.0 0.0 Common equity 72.4 63.3 56.8 49.6

Total liabilities and shareholder’s equity 85.5 74.8 67.3 59.0 FINANCIAL DATA Cash flow from assets 12.5 Stock price Common shares outstanding 9.9 Market value of equity Enterprise value

Notes: The exhibit contains the income statement and balance sheet for Teuer Furniture (2009 to 2012). All numbers are in $M except for the number of shares (M).

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

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14 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 3: Comparable Firms’ Business Descriptions

BASSETT FURNITURE INDUSTRIES INC. (BSET)

Bassett Furniture Industries Inc. manufactures, imports, and retails home furnishings in the United States. The company operates in three segments: wholesale, retail, and investments/real estate. The wholesale segment designs, manufactures, sources, and distributes furniture. The retail segment operates both company-owned stores (retail outlets known as Bassett Home Furnishings) and licensee-owned stores. The firm also distributes its furniture through other furniture retailers, specialty stores, and mass merchants. The retail segment accounted for 48 percent of the firm’s sales in 2012. The investments and real estate segment consists of retail real estate leased, or previously leased, as licensee stores and equity investments in Zenith Freight Lines, LLC, which hauls freight and warehouses inventory for the firm. The company is based in Bassett, Virginia.

Primary industry: Home Furnishings

ETHAN ALLEN INTERIORS INC. (ETH)

Ethan Allen Interiors Inc. designs, manufactures, sources, sells, and distributes a range of home furnishings and accessories. The company operates in two segments: wholesale and retail. The company’s domestic manufacturing is included in the results of the wholesale segment. The firm markets its products under the Ethan Allen brand through its own retail network and independent retailers as well as online. Its products include case goods (e.g., beds, dressers, armoires, tables, chairs, buffets, entertainment units, home office furniture, and wooden accents), upholstery home furnishing items (e.g., sleepers, recliners, chairs, sofas, loveseats, cut fabrics, and leather), and home accessories (e.g., window treatments, wall décor, lighting, clocks, bedding, and bedspreads). The firm provides home decorating and design solutions through a network of retail design centers in the United States and internationally. The company is headquartered in Danbury, Connecticut.

Primary industry: Home Furnishings

FURNITURE BRANDS INTERNATIONAL INC. (FBN)

Furniture Brands International Inc. is engaged in designing, manufacturing, sourcing, and retailing home furnishings in the United States and internationally. The company markets products through its own Thomasville retail stores, independent interior designers, multi-line independent retailers, and mass merchant stores. The company’s brands include Thomasville, Broyhill, Lane, Drexel Heritage, Henredon, Pearson, Hickory Chair, Lane Venture, Maitland- Smith, and La Barge. Thomasville has both wood furniture and upholstered products in the mid- to upper-price ranges and also offers ready-to-assemble furniture under the Creative Interiors brand name. The company offers case goods, stationary upholstery products, motion upholstery products (e.g., recliners and sleeper sofas), and occasional furniture (e.g., wood, metal, and glass tables, accent pieces, and home entertainment centers). The company changed its name from Interco Inc. to Furniture Brands International Inc. in 1996. The firm is headquartered in St. Louis, Missouri.

Primary industry: Home Furnishings

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

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KELLOGG SCHOOL OF MANAGEMENT 15

Exhibit 3 (continued)

HAVERTY FURNITURE COMPANIES INC. (HVT)

Haverty Furniture Companies Inc. is a specialty retailer of residential furniture and accessories. All of its retail locations operate under the Haverty name, and the company does not franchise its stores. It also offers mattress products under the Sealy, Serta, and Tempur-Pedic names. In addition, the company provides financing through an internal revolving charge credit plan, as well as a third-party finance company. The company buys its merchandise from numerous foreign and domestic manufacturers and importers. Its case goods are generally imported from Asia. The firm is based in Atlanta, Georgia.

Primary industry: Home Furnishings Retail

LA-Z-BOY INCORPORATED (LZB)

La-Z-Boy Incorporated manufactures, markets, imports, distributes, and retails upholstery products, accessories, recliners, and case goods. It operates in three segments: upholstery, case goods, and retail. The upholstery segment manufactures and imports upholstered furniture (e.g., recliners, sofas, loveseats, chairs, sectionals, and sleeper sofas). This segment sells directly to La- Z-Boy Furniture Galleries stores, operators of Comfort Studios locations, dealers, and other independent retailers. The case goods segment imports, markets, manufactures, and distributes case goods furniture. This segment sells its products to dealers and other independent retailers. The retail segment sells upholstered furniture, case goods, and other products through La-Z-Boy Furniture Galleries and Comfort Studios. The company sells its products primarily in the United States and Canada. The company is based in Monroe, Michigan.

Primary industry: Home Furnishings Retail

RESTORATION HARDWARE HOLDINGS INC. (RH)

Restoration Hardware Holdings Inc. sells home furnishings to the retail market across a number of categories. Its product line includes furniture for the bedroom, dining room, home office, and media furniture for any room in the house. The company sells indoor and outdoor lighting products, textiles (e.g., bed linens, bath linens, drapery, rugs, and pillows), and bathware products (e.g., faucets and sinks). The company also offers decorative accessories, home accessories, wall art products, outdoor and garden products, and baby and child products that include furniture, bedding, window coverings, flooring, lighting, and décor. In addition, the company sells tableware products (e.g., dinnerware, serveware, glassware, flatware, and table linens). The company sells its products through its retail locations, catalogs, and websites (RestorationHardware.com and RHBabyandChild.com) in the United States and Canada. The company is headquartered in Corte Madera, California.

Primary industry: Home Furnishings Retail

STANLEY FURNITURE COMPANY (STLY)

Stanley Furniture Company designs, manufactures, and imports wood furniture for the residential market in the United States. It offers upscale home furnishings for the adult market, including dining, bedroom, home office, home entertainment, and accent items under the Stanley Furniture brand and for children’s furniture under the Young America brand. The company sells

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.

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16 KELLOGG SCHOOL OF MANAGEMENT

Exhibit 3 (continued)

its furniture primarily through independent sales representatives to independent furniture stores, interior designers, smaller specialty retailers, regional furniture chains, buying clubs, and e-tailers. The company is based in Stanleytown, Virginia.

Primary industry: Home Furnishings

TEMPUR SEALY INTERNATIONAL INC. (TPX)

Tempur Sealy International Inc. develops, manufactures, and markets mattresses, foundations, and pillows. Its brand portfolio includes Tempur, Tempur-Pedic, Sealy, Sealy Posturepedic, Optimum, and Stearns & Foster. It has three segments: Tempur North America, Tempur International, and Sealy. The Tempur North American operations consist of two segments: the U.S. manufacturing facilities and its North American distribution subsidiaries. The Tempur International segment consists of its manufacturing facility in Denmark, whose customers include all of its distribution subsidiaries and third-party distributors outside the North American operating segment. The Sealy segment consists of company-owned and -operated bedding and component manufacturing facilities located around the world, along with distribution subsidiaries and joint ventures. The company sells its products through furniture and bedding retailers, department stores, hospitals, nursing homes, healthcare professionals, and medical retailers, as well as through its call center operations, company-owned stores, third-party distributors, and the Internet. The company is headquartered in Lexington, Kentucky.

Primary industry: Home Furnishings

WILLIAMS-SONOMA INC. (WSM)

Williams-Sonoma Inc. operates as a multi-channel specialty retailer of home products. It operates in two segments: direct-to-customer and retail. Its Williams-Sonoma stores offer cooking, dining, and entertaining products, including cookware, tools, cutlery, tabletop and bar, outdoor, and cookbooks, as well as wedding registry. The direct-to-customer segment of the company’s business sells its products through its six e-commerce websites (Williams- Sonoma.com, PotteryBarn.com, PotteryBarnKids.com, PBteen.com, WestElm.com, and Rejuvenation.com) and seven direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm, and Rejuvenation). The retail segment of its business sells products through its five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, and Rejuvenation). The company operates in the United States and Canada, offers international shipping to customers worldwide, and franchises its brands in Bahrain, the Kingdom of Saudi Arabia, Kuwait, and the United Arab Emirates. The company is spending heavily to expand its retail and online presence. In 2012 it expanded its presence in the Middle East. Next year, it expects to enter the Australian market with its first company-owned stores and e-commerce sites outside of North America. The company is based in San Francisco, California.

Primary industry: Home Furnishings Retail

Source: Company descriptions are based on information from S&P Capital IQ, Google Finance, the firms’ webpages, and the firms’ financial disclosure. The company descriptions were assembled from the firm’s annual reports and 10-Ks.

For the exclusive use of J. Claudio, 2019.

This document is authorized for use only by Jose Claudio in FIN 370 - Financial Statement Analysis - Spring 2019 taught by JACK TRIFTS, Bryant University from Jan 2019 to May 2019.