SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1996 or
-----------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT
OF 1934 (No fee required)
For the transition period from to .
--------------- -----------------
Commission file number I-91
----
Furniture Brands International, Inc.
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0337683
-------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314/863-1100
------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock - $1.00 Stated Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
--------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, <PAGE>
and (2) has been subject to such filing requirements for the past 90
days. Yes x No
------- -------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K [X]
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 28, 1997, was
approximately $561,692,582.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. YES X NO
----- ------
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
61,466,066 shares as of February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 29, 1997............... Part III<PAGE>
PART I
------
Item 1. Business
----------------
(c) Narrative Description of Business
Furniture Brands International, Inc., the largest manufacturer of
residential furniture in the United States, markets its products
through its three operating subsidiaries: Broyhill Furniture
Industries, Inc.; The Lane Company, Incorporated; and Thomasville
Furniture Industries, Inc.
PRODUCTS
--------
The Company manufactures and distributes (i) case goods, consisting of
bedroom, dining room and living room furniture, (ii) occasional
furniture, consisting of wood tables and accent items and freestanding
home entertainment centers and home office items, (iii) stationary
upholstery products, consisting of sofas, loveseats, sectionals and
chairs and (iv) recliners, motion furniture and sleep sofas. The
Company's brand name positioning by price and product category are
shown below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
UPHOLSTERY
-------------------------
MOTION/
PRICING CATEGORY CASE GOODS OCCASIONAL STATIONARY RECLINER
---------------- ---------- ---------- ---------- ----------
PREMIUM Thomasville Thomasville Thomasville
Lane Lane Lane
BEST Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
Broyhill
BETTER Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
GOOD Broyhill Broyhill Broyhill Lane
PROMOTIONAL Founders
RTA CreativeInteriors
</TABLE>
BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium price bedroom, dining room,
upholstered and occasional furniture aimed at middle-income consumers. <PAGE>
Broyhill's wood furniture offerings consist primarily of bedroom,
dining room and living room furniture, occasional tables, accent items
and free-standing home entertainment centers. Upholstered products
include sofas, sleep sofas, loveseats, sectionals, chairs, and fully
reclining furniture all offered in a variety of fabrics and leathers.
Broyhill's residential furniture divisions produce a wide range of
furnishings in colonial, country, traditional and contemporary styles.
The widely recognized Broyhill trademarks include Broyhill, Broyhill
Premier and Highland House. The flagship Broyhill product line
concentrates on bedroom, dining room, upholstered and occasional
furniture designed for the "good" and "better" price categories. The
Broyhill Premier product line enjoys an excellent reputation for
classically styled, complete furniture collections in the "better"
price category. Highland House also manufactures upholstered products
in the "better" and "best" price category.
THE LANE COMPANY
Lane manufactures and markets a broad range of high quality furniture
targeting the "better," "best" and "premium" price categories. Lane
targets niche markets with its seven operating divisions, which
participate in such segments of the residential furniture market as
19th century reproductions, motion furniture, wicker and rattan, cedar
chests and finely tailored upholstered furniture.
Action Industries, a subsidiary of Lane, manufactures and markets
reclining chairs and motion furniture in the "good," "better" and
"best" price categories under the Lane brand name. Motion furniture
consists of sofas and loveseats with recliner-style moving parts and
comfort features, wall saver recliners, pad-over chaise recliners, hi-
leg recliners, sleep sofas and motion sectionals. Lane's Royal
Development Company designs and manufactures the mechanisms used in
Action Industries' reclining furniture products.
The Lane division of Lane manufactures and sells cedar chests,
occasional living room tables, bedroom and dining room furniture,
wall systems, desks, console tables and mirrors and other occasional
wood pieces. The Lane division furniture is sold in the "better" and
"best" price categories.
The Hickory Chair division manufactures and markets traditional styles
of upholstered furniture, dining room chairs and occasional tables in
the "best" and "premium" price categories. The Hickory Chair division
has been crafting fine reproductions of 18th century furniture for
over 80 years. For example, Hickory Chair offers the James River
collection which features reproductions of fine furnishings from
Virginia plantations, and more recently the Mount Vernon collection,
which features reproductions from George Washington's home.
The Pearson division has been manufacturing and selling contemporary
and traditional styles of finely tailored upholstered furniture
including sofas, loveseats, chairs and ottomans for over 50 years.
Pearson manufactures the Viceroy collection, which features fine
furnishings from the award winning designer Victoria Moreland. Pearson
furniture sells in the "premium" price category and is distributed to
high-end furniture stores and interior designers.
The Venture Furniture division manufactures and markets moderately
priced wicker, rattan and bamboo upholstered furniture, tables,
occasional wood pieces and other home furnishing accessories. The
division manufactures a line of outdoor and patio furniture featuring
fast drying upholstered cushions under the name WeatherMaster, which
has developed significant consumer acceptance.
The Lane Upholstery division includes two product lines, one of which
is composed of contemporary and modern upholstered furniture and metal
and glass occasional and dining tables, and the other of which is
composed of traditional and contemporary upholstered furniture,
primarily sofas, loveseats, chairs and ottomans.
Hickory Business Furniture manufactures and sells a line of office
furniture, including chairs, tables, conference tables, desks and
credenzas, in the upper-medium price range.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville manufactures and markets wood furniture, upholstered
products and RTA/promotional furniture. Thomasville markets its
products primarily under the Thomasville brand name. Thomasville
offers an assortment of upholstery under one brand name that targets
the "best" and "premium" price categories. Upholstery is primarily
marketed in three major styles: Traditional, American
Traditional/Country and Casual Contemporary. Upholstery style is
determined by both frame style and fabric or leather selection.
Thomasville's frame assortment allows the consumer to select from over
90 different styles within the general style categories, and as much
as 45% of the Thomasville fabric offering changes in a 12 month
period, insuring that the latest styles are available.
Thomasville's Founders division offers assembled bedroom sets,
bookcases and home entertainment centers as well as RTA (ready-to-
assemble) furniture consisting of home entertainment centers, audio
cabinets, television/VCR carts, room dividers, bookcases, bedroom and
kitchen/utility furniture, microwave carts, computer desks and storage
armoires. These lines are produced in highly automated facilities.
Thomasville's Founders division markets products under the
CreativeInteriors (RTA)and Founders (assembled)brand names to a
variety of retailers for sale to consumer end-users and certain
contract customers.
DISTRIBUTION
------------
The Company's strategy of targeting diverse distribution channels such
as furniture centers, independent dealers, national and local chain
stores, department stores, specialty stores and decorator showrooms is
supported by dedicated sales forces covering each of these<PAGE>
distribution channels. The Company continues to explore opportunities
to expand international sales and to distribute through
non-traditional channels such as electronic retailers, wholesale
clubs, catalog retailers and television home shopping.
The Company's breadth of product and national scope of distribution
enable it to service effectively national retailers such as J.C.
Penney, Sears and Heilig-Meyers and key regional retailers such as
Haverty's, Breuner's Home Furnishings Corp. and Roberds. The
consolidation of the retail residential furniture industry has made
access to distribution channels an important competitive advantage for
manufacturers. The Company has developed dedicated distribution
channels by expanding its gallery program and the network of
independently-owned dedicated retail locations, such as Thomasville
Home Furnishings stores. The Company distributes its products through
a diverse network of independently-owned retail locations, which
includes approximately 80 free-standing stores, more than 860
galleries and more than 420 furniture centers.
Broyhill, Lane and Thomasville have all developed gallery programs
with dedicated dealers displaying furniture in complete room
ensembles. These retailers employ a consistent showcase gallery
concept wherein products are displayed in complete and fully
accessorized room settings instead of as individual pieces. This
presentation format encourages consumers to purchase an entire room of
furniture instead of individual pieces from different manufacturers.
The Company offers substantial services to retailers to support their
marketing efforts, including coordinated national advertising,
merchandising and display programs and extensive dealer training.
The Thomasville Home Furnishings stores are dealer-owned free-standing
retail locations that exclusively feature Thomasville furniture. The
Company believes distributing its products through dedicated
free-standing stores strengthens brand awareness, provides
well-informed and focused sales personnel and encourages the purchase
of multiple items per visit. Management is currently evaluating
similar opportunities to jointly market Broyhill, Lane and Thomasville
products in dealer-owned retail stores.
Showrooms for the national furniture market are located in High Point,
North Carolina and for regional markets in Dallas, Texas; Atlanta,
Georgia; Chicago, Illinois; and San Francisco, California.
BROYHILL FURNITURE INDUSTRIES
One of Broyhill's principal distribution channels is the Broyhill
Showcase Gallery Program. This program, started in 1983, involves more
than 335 domestic and international participating dealer locations.
Each dealer in the Broyhill Showcase Gallery Program owns the gallery
and the Broyhill furniture inventory. The program incorporates a core
merchandise program, advertising material support, in-store
merchandising events and educational opportunities for the retail
store sales and management personnel. The average Broyhill Showcase
Gallery consists of 7,500 square feet of dedicated display space. <PAGE>
Furniture is displayed in complete and fully accessorized room
settings instead of as individual pieces.
For the retailer that is currently not a participant in the gallery
program, Broyhill offers the Independent Dealer Program. This concept,
initiated in 1987, is designed to strengthen Broyhill's relationship
with these retailers by assisting them in overcoming some of the
significant difficulties in running an independent furniture business.
Participating retailers in the Independent Dealer Program commit to a
minimum pre-selected lineup of Broyhill merchandise and, in return,
receive a detailed, step-by-step, year-round advertising and
merchandising plan. The program includes three major sales events per
year, monthly promotional themes and professionally prepared
advertising and promotional materials at nominal cost in order to help
increase consumer recognition on the local level. As part of the
Independent Dealer Program, Broyhill offers the Broyhill Furniture
Center Program to approximately 420 retailers that have committed at
least 2,000 square feet exclusively to Broyhill products arranged in
gallery-type room settings. This program includes all of the benefits
of the Independent Dealer Program, plus additional marketing, design
and advertising assistance. The Company seeks to develop these
relationships so that some of these retailers may become participants
in the Broyhill Showcase Gallery Program.
THE LANE COMPANY
Lane distributes its products nationally through a well established
network of approximately 16,000 retail locations. A diverse
distribution network is utilized in keeping with Lane's strategy of
supplying customers with highly specialized products in selected niche
markets. This distribution network primarily consists of independent
furniture stores, regional chains such as Haverty's and Art Van, and
department store companies such as J.C. Penney, Sears, May Department
Stores, Federated Department Stores and Dillard Department Stores.
Lane has an established specialty gallery program with more than 285
participating dealers. This includes over 180 dealer-owned Comfort
Showcase Galleries established by Action Industries beginning in
October 1995. The Action Industries galleries average approximately
3,500 square feet of retail space specifically dedicated to the
display, promotion and sale of Action Industries' products. Lane's
other gallery programs call for the display of Lane case goods and
upholstered furniture in settings that range from less than 3,000 to
approximately 5,000 square feet.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at more than 630 independently-owned
retail locations, including more than 245 Thomasville Galleries,
approximately 80 Thomasville Home Furnishings stores and more than 300
authorized dealers. The Thomasville Gallery concept was initiated in
1983. Thomasville Galleries have an average 7,500 square feet of
retail space specifically dedicated to the display, promotion and sale
of Thomasville products. The first Thomasville Home Furnishings store<PAGE>
opened in 1988. The typical Thomasville Home Furnishings store is a
15,000 square foot independently-owned store offering a broad range of
Thomasville products, presented in a home-like setting by specially
trained salespersons.
Thomasville's Founders division sells promotional and RTA furniture to
a variety of retailers for sale to consumer end-users and certain
contract customers. Promotional furniture is sold to retail chains
such as Wal-Mart and Levitz, as well as independent furniture stores.
Promotional furniture is also sold in the hospitality and health care
markets of Thomasville's contract business. RTA customers include
national chains such as Wal-Mart and Target, catalog showrooms,
discount mass merchandisers, warehouse clubs and home furnishings
retailers.
MARKETING AND ADVERTISING
-------------------------
Advertising is used to increase consumer awareness of the Company's
brand names and is targeted to specific customer segments through
leading shelter magazines and popular magazines such as Sports
Illustrated, People and Reader's Digest. Each operating company uses
focused advertising in major markets to create buying urgency around
specific sale and location information, enabling retailers to be
listed jointly in advertisements for maximum advertising efficiency
and shared costs. The Company seeks to increase consumer buying and
strengthen relationships with retailers through cooperative
advertising and selective promotional programs. The Company focuses
its marketing efforts on prime potential customers utilizing
information from databases and from callers to each operating
company's toll-free telephone number. Each of the operating companies
also advertises selectively on television in conjunction with dealers,
and Action Industries and Thomasville also use television advertising
independently.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong
consumer awareness into increased sales. Broyhill's current marketing
strategy features a national print advertising program in addition to
traditional promotional programs such as furniture "giveaways" on
television game shows and dealer-based promotions such as product
mailings and brochures. The national print advertising program, which
consists of multi-page layouts, is designed to appeal to the
consumer's desire for decorating assistance and increased confidence
in making the decision to purchase a big ticket product such as
furniture. These advertisements are run in publications such as Good
Housekeeping and Better Homes and Gardens which appeal to Broyhill's
customer base. Game show promotions, a long-standing Broyhill
tradition, include popular programs such as Wheel of Fortune and The
Price is Right. An extensive public relations campaign also exposes
Broyhill products in leading magazine and newspaper editorial
features.<PAGE>
THE LANE COMPANY
Lane became a well-known brand name through Lane's initial use in the
1920s of creative advertising to promote its cedar chests. Since then,
Lane has continued to use advertising programs to generate consumer
awareness of the Lane brand name. Through Lane's in-house advertising
agency, recent programs have been developed for print campaigns in
national publications such as Country Home, Country Living, House
Beautiful and Architectural Digest. Action Industries is engaged in
selective national and regional television advertising.
The Lane Keepsake program enables the 1,100 participating dealers to
establish early personal contact with a large number of women who are
about to enter the bridal market as potential buyers of home
furnishings. Information regarding a graduation gift of a miniature
Lane cedar chest, available at the local participating furniture
store, is sent to the parents of graduating high school women. This
Keepsake program is believed to be instrumental in building consumer
recognition and promoting the Lane brand name.
Lane markets its products through the use of well-known designers and
affiliation with institutions. For example, Lane has teamed up with
widely recognized designers such as Raymond Waite, Mark Hampton,
Dakota Jackson, Blake Tovin and Sandra Nunnerley as well as design
institutions such as the American Museum of Folk Art in New York, to
design and market furniture collections.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville's current advertising campaign, appearing in household
magazines and periodic television commercials, emphasizes Thomasville
fashion and quality leadership through the use of dramatic photographs
featuring individual, high quality wood and upholstery pieces.
Thomasville ads appear in up-front positions in national household
magazines, such as Better Homes and Gardens, Good Housekeeping and
House Beautiful.
To help retailers sell its products through to consumers, Thomasville
offers a full twelve month schedule of promotional support which
includes promotional concepts, selected product discounts, cooperative
advertising funds for stores that sell only Thomasville products, and
a complete advertising package with color newspaper layouts plus radio
and television commercials dealers can use as supplied. Four times
each year, Thomasville runs national sale events to coincide with
major industry sale periods. These may include national television
support on multiple cable TV networks, national print ads or
Thomasville-designed newspaper inserts for dealer use.
MANUFACTURING
-------------
Broyhill operates 18 finished case goods and upholstery production and
warehouse facilities totalling over 5.0 million square feet of<PAGE>
manufacturing and warehouse space. All finished goods plants are
located in North Carolina. Broyhill pioneered the use of mass
production techniques in the furniture industry and by utilizing
longer production runs achieves economies of scale. In 1996, Broyhill
began full production in a state-of-the-art particleboard
manufacturing facility that provides a captive, cost-effective source
of high quality particleboard, a primary material used in the
Company's products. In 1996, Broyhill added a new upholstery
manufacturing facility with approximately $25.0 million of annual
production capacity.
Lane operates 15 finished case goods and upholstery production and
warehouse facilities in Virginia, North Carolina and Mississippi.
Since the late 1980s, significant capital expenditures have been made
to acquire technologically advanced manufacturing equipment which has
increased factory productivity. In 1993, Lane's Action Industries
subsidiary completed a new 396,000 square foot plant, located in
Mississippi, which manufactures motion furniture as well as a new
sleep sofa product line. This facility added approximately $100
million of annual production capacity. The Lane division recently
installed a state-of-the-art flat-line finishing system that produces
quality high sheen and enhanced grain finishes.
Thomasville manufactures or assembles its products at 17 finished case
goods and upholstery production and warehouse facilities located in
North Carolina, Virginia, and Tennessee, close to sources of raw
materials and skilled craftsmen. Each plant is specialized,
manufacturing limited product categories, allowing longer, more
efficient production runs and economies of scale.
The manufacturing process for Thomasville's Founders division is
highly automated. Large fiberboard and particleboard sheets are
machine-finished in long production runs, then stored and held for
assembly using highly automated assembly lines. Completed goods are
stored in an automated warehouse to provide quicker delivery to
customers. All plant operations use automated manufacturing processes
and inventory management systems. Ninety percent of the Founders
division products are shipped within 14 days of production.
RAW MATERIALS AND SUPPLIERS
---------------------------
The raw materials used by the Company in manufacturing its products
are lumber, veneers, plywood, fiberboard, particleboard, paper,
hardware, adhesives, finishing materials, glass, mirrored glass,
fabrics, leathers and upholstered filling material (such as synthetic
fibers, foam padding and polyurethane cushioning). The various types
of wood used in the Company's products include cherry, oak, maple,
pine and pecan, which are purchased domestically, and mahogany, which
is purchased abroad. Fabrics, leathers and other raw materials are
purchased both domestically and abroad. Management believes that its
supply sources for those materials are adequate.
The Company has no long-term supply contracts and has experienced no
significant problems in supplying its operations. Although the Company
has strategically selected suppliers of raw materials, the Company
believes that there are a number of other sources available,
contributing to its ability to obtain competitive pricing for raw
materials. Raw materials prices fluctuate over time depending upon
factors such as supply, demand and weather. Increases in prices may
have a short-term impact on the Company's margins for its products.
The majority of supplies for RTA and promotional products are
purchased domestically, although paper and certain hardware is
purchased abroad. Management believes, however, that its proximity to
and relationships with suppliers are advantageous for the sourcing of
such materials. In addition, by combining the purchase of various raw
materials (such as foam, cartons, springs and fabric) and services,
Broyhill, Lane, and Thomasville have been able to realize cost
savings.
ENVIRONMENTAL MATTERS
---------------------
The Company is subject to a wide-range of federal, state and local
laws and regulations relating to protection of the environment, worker
health and safety and the emission, discharge, storage, treatment and
disposal of hazardous materials. These laws include the Clean Air Act
of 1970, as amended, the Resource Conservation and Recovery Act, the
Federal Water Pollution Control Act and the Comprehensive
Environmental, Response, Compensation and Liability Act ("Superfund").
Certain of the Company's operations use glues and coating materials
that contain chemicals that are considered hazardous under various
environmental laws. Accordingly, management closely monitors the
Company's environmental performance at all of its facilities.
Management believes that the Company is in substantial compliance with
all environmental laws. Under the provisions of the Clean Air Act
Amendments of 1990 (the "CAA"), in December 1995, the Environmental
Protection Agency (the "EPA") promulgated air emission standards for
the wood furniture industry. These regulations, known as National
Emission Standards for Hazardous Air Pollutants ("NESHAPs"), govern
the levels of emission of certain designated chemicals into the air
and will require that the Company reduce emissions of certain volatile
organic compounds ("VOCs") by November 1997. Management is
investigating and evaluating techniques to meet these standards at all
facilities to which the NESHAPs standards will apply. While the
Company may be required to make capital investments at some of its
facilities to ensure compliance, the Company believes that it will
meet all applicable requirements in a timely fashion and that the
amount of money required to meet the NESHAP requirements will not
materially affect its financial condition or its results of
operations.
The Company has been identified as a potentially responsible party
("PRP") at a number of superfund sites. The Company believes that its
liability with respect to most of the sites is de minimis, and the
Company is entitled to indemnification by others with respect to
liability at certain sites. Management believes that any liability as<PAGE>
a PRP with regard to the superfund sites will not have a material
adverse effect on the financial condition or results of operations of
the Company.
COMPETITION
-----------
The furniture manufacturing industry is highly competitive. The
Company's products compete with products made by a number of furniture
manufacturers, including Lifestyle Furnishings International Ltd.,
La-Z-Boy Incorporated, Ladd Furniture, Inc., Bassett Furniture
Industries, Inc., and Ethan Allen Interiors, Inc. as well as
approximately 600 smaller producers. The elements of competition
include pricing, styling, quality and marketing.
EMPLOYEES
---------
As of December 31, 1996, the Company employed approximately 20,800
people. None of the Company's employees is represented by a union.
BACKLOG
-------
The combined backlog of the Company's operating companies as of
December 31, 1996 aggregated approximately $206 million, compared to
approximately $194 million as of December 31, 1995.
Item 2. Properties
-------------------
The Company owns or leases the following principal plants, offices and
warehouses:
<TABLE>
<CAPTION>
<S> <C> <S> <C> <S>
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
-------- -------- -------- --------- ------
Furniture
Brands St. Louis, MO Headquarters 26,800 Leased
Broyhill Lenoir, NC Headquarters 136,000 Leased
Broyhill Lenoir, NC Plant/Warehouse 312,632 Owned
Broyhill Newton, NC Plant/Warehouse 382,626 Owned
Broyhill Lenoir, NC Plant/Warehouse 628,000 Owned
Broyhill Rutherfordton, NC Plant/Warehouse 575,656 Owned
Broyhill Lenoir, NC Plant/Warehouse 419,000 Owned
Broyhill Lenoir, NC Plant/Warehouse 381,820 Owned
Broyhill Conover, NC Plant/Warehouse 316,542 Owned
Broyhill Lenoir, NC Plant/Warehouse 516,439 Owned
Broyhill Lenoir, NC Plant/Warehouse 256,318 Owned
Broyhill Lenoir, NC Plant 56,250 Leased
Broyhill Lenoir, NC Plant/Warehouse 252,380 Owned
Broyhill Taylorsville, NC Plant/Warehouse 212,754 Owned
Broyhill Lenoir, NC Plant 124,700 Leased
Broyhill Hickory, NC Plant/Warehouse 215,500 Leased
Broyhill Marion, NC Plant 22,712 Owned
Broyhill Lenoir, NC Warehouse 96,000 Owned
Broyhill Lenoir, NC Warehouse 252,250 Leased
Broyhill Lenoir, NC Warehouse 55,800 Leased
Lane Altavista, VA Plant/Warehouse 1,091,600 Owned
Lane Altavista, VA Headquarters 62,000 Owned
Lane Conover, NC Plant/Warehouse 212,000 Owned
Lane Conover, NC Plant/Warehouse 348,180 Owned
Lane Conover, NC Plant 195,130 Owned
Lane Hickory, NC Plant/Warehouse 641,214 Owned
Lane Hickory, NC Plant/Warehouse 169,902 Owned
Lane High Point, NC Plant 187,162 Owned
Lane High Point, NC Plant/Warehouse 156,000 Owned
Lane Pontotoc, MS Plant/Warehouse 352,740 Owned
Lane Rocky Mount, VA Plant/Warehouse 598,962 Owned
Lane Verona, MS Plant/Warehouse 395,050 Owned
Lane Saltillo, MS Plant/Warehouse 567,500 Owned
Lane Tupelo, MS Plant/Warehouse 396,175 Owned
Lane Rocky Mount, VA Plant 50,300 Owned
Lane Smyrna, TN Plant 28,300 Owned
Thomasville Thomasville, NC Headquarters/ 256,000 Owned
Showroom
Thomasville Thomasville, NC Plant/Warehouse 412,000 Owned
Thomasville Thomasville, NC Plant 240,000 Owned
Thomasville Thomasville, NC Plant 325,000 Owned
Thomasville Thomasville, NC Plant 309,850 Owned
Thomasville Lenoir, NC Plant/Warehouse 828,000 Owned
Thomasville Winston-Salem, NC Plant/Warehouse 706,000 Owned
Thomasville West Jefferson, NC Plant/Warehouse 223,545 Owned
Thomasville Brookneal, VA Plant 195,260 Owned
Thomasville Johnson City, TN Plant/Warehouse 284,120 Owned
Thomasville Statesville, NC Plant 158,600 Owned
Thomasville Troutman, NC Plant 238,200 Owned
Thomasville Conover, NC Plant 123,200 Owned
Thomasville Hickory, NC Plant 58,700 Owned
Thomasville Hickory, NC Plant 98,700 Owned
Thomasville Thomasville, NC Warehouse 731,000 Owned
Thomasville Appomattox, VA Plant/Warehouse 804,000 Owned
Thomasville Carysbrook, VA Plant 189,000 Owned
------------------------
</TABLE>
Substantially all of the owned properties listed above are encumbered
by a first priority lien and mortgage pursuant to a secured credit
agreement. In addition, the Tupelo, Mississippi facility is encumbered
by a mortgage and first lien securing industrial revenue bonds.
The Company believes its properties are generally well maintained,
suitable for its present operations and adequate for current
production requirements. Productive capacity and extent of
utilization of the Company's facilities are difficult to quantify
with certainty because in any one facility maximum capacity and
utilization varies periodically depending upon the product that is<PAGE>
being manufactured, the degree of automation and the utilization of
the labor force in the facility. In this context, the Company
estimates that overall its production facilities were effectively
utilized during 1996 at moderate to high levels of productive capacity
and believes that in general its facilities have the capacity, if
necessary, to expand production to meet anticipated product
requirements.
Item 3. Legal Proceedings
--------------------------
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In
the opinion of management, the ultimate liability, if any, of the
Company from all such proceedings will not have a material adverse
effect upon the consolidated financial position or results of
operations of the Company and its subsidiaries.
The Company is also subject to regulation regarding environmental
matters, and is a party to certain actions related thereto. For
information regarding environmental matters, see "Item 1. Business --
Environmental Matters."
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.<PAGE>
PART II
------
Item 5. Market for The Registrant's Common Equity and Related
--------------------------------------------------------------
Stockholder Matters
-------------------
As of February 28, 1997, there were approximately 3,000 holders of
record of Common Stock.
Shares of the Company's Common Stock are traded on the New York Stock
Exchange. The reported high and low sale prices for the Company's
Common Stock on the New York Stock Exchange is included in Note 16 to
the consolidated financial statements of the Company.
The Company has not paid cash dividends on its Common Stock during the
two years ended December 31, 1995 and December 31, 1996.
A discussion of restrictions on the Company's ability to pay cash
dividends is included in Note 9 to the consolidated financial
statements of the Company.<PAGE>
Item 6. Selected Financial Data
-------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIVE YEAR CONSOLIDATED FINANCIAL REVIEW
----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per Year Ended December 31, Five Months Ended(1)
share data ------------------------------------------------- --------------------------------
Dec. 31, / Aug. 2,
1996 1995 1994 1993 1992 / 1992
--------------------------------------------------------------------------------------------------------/--------------
Summary of Operations: /
Net sales $1,696,795 $1,073,889 $1,072,696 $980,532 $394,873 / $ 356,705
Gross profit 431,473 291,237 298,712 275,323 108,858 / 96,849
Interest expense 45,217 33,845 37,886 38,621 16,358 / 29,689
Earnings before income tax /
expense (benefit), discontinued /
operations, extraordinary item /
and cumulative effect of /
accounting change 88,292 57,038 48,841 37,266 18,045 / 247,716
Income tax expense (benefit) 34,070 22,815 20,908 15,924 6,807 / (1,206)
Net earnings from continuing /
operations 54,222 34,223(2) 27,933 21,342 11,238 / 248,922
Discontinued operations - - 10,339 24,026 10,088 / (136,347)
Extraordinary item (7,417) (5,815) - - - / 1,075,466
Cumulative effect of accounting /
change - - - - - / (1,719)
Net earnings $ 46,805 $ 28,408 $ 38,272 $ 45,368 $ 21,326 / $1,186,322
/
Per share of common stock - /
fully diluted: /
Net earnings from /
continuing operations $ 0.86 $ 0.65(2)$ 0.54 $ 0.41 $ 0.23 / $ 6.42
Discontinued operations - - 0.20 0.47 0.20 / (3.52)
Extraordinary item (0.12) (0.11) - - - / 27.72
Cumulative effect of accounting /
change - - - - - / (0.04)
Net earnings $ 0.74 $ 0.54 $ 0.74 $ 0.88 $ 0.43 / $ 30.58
Weighted average common and common /
equivalent shares outstanding - /
fully diluted (in thousands) 62,871 52,317 51,506 51,397 50,000 / 38,796
/
Other Information (continuing /
operations): /
Working capital $ 462,661 $ 455,036 $ 308,323 $271,588 $261,967 / $ 261,357
Property, plant and equipment, net 301,962 306,406 181,393 191,581 186,046 / 189,039
Capital expenditures 40,344 35,616 21,108 30,197 8,850 / 7,041
Total assets 1,269,204 1,291,739 881,735 858,163 870,115 / 893,012
Long-term debt 572,600 705,040 409,679 403,255 407,898 / 443,165
Shareholders' equity $ 419,657 $ 301,156 $275,394 $338,557 $293,114 / $ 275,400
--------------------------------------------------------------------------------------------------------/--------------
(1) Effective December 31, 1992, the Company changed its fiscal year to end on
December 31. The Company's adoption of fresh-start reporting required
reporting calendar 1992 results in two 22 week periods.
(2) Net earnings from continuing operations before gain on insurance
settlement, net of income tax expense, and net earnings per common share
from continuing operations before gain on insurance settlement, net of
income tax expense, were $29,463 and $0.56, respectively.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-------------------------------------------------------------------
and Results of Operations
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
-------
The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the
consolidated financial statements and related notes included elsewhere
in this document. In addition, management believes that the following
factors have had a significant effect on its recent financial
statements.
Acquisition of Thomasville. During the year ended December 31,
1995, the Company had two primary operating subsidiaries, Broyhill and
Lane. On December 29, 1995, the Company acquired Thomasville. The
transaction was accounted for as a purchase and, since the acquisition
occurred as of the last business day of 1995, was reflected in the
Company's consolidated balance sheet as of December 31, 1995. The
Company's results of operations for 1995 do not include any of the
operations of Thomasville. The cash portion of the acquisition of
Thomasville was originally financed through funds obtained by
borrowing under the Company's Secured Credit Agreement and the
Receivables Securitization Facility. On March 1, 1996, the Company
completed a public offering of 10,000,000 shares of common stock,
generating net cash proceeds of approximately $81.3 million, which
were used to repay a portion of this debt.
1994 Spin-Off Transactions. In order to focus on its core
furniture operations, the Company completed a spin-off of its footwear
subsidiaries in 1994. On November 17, 1994, the Company
simultaneously refinanced the majority of its outstanding indebtedness
and distributed to its shareholders all of the stock of its former
footwear subsidiaries, Converse Inc. and The Florsheim Shoe Company.
Upon completion of this restructuring, the Company retained no
ownership interest in or management control of the footwear
businesses. Accordingly, the financial results of the footwear
businesses have been reflected as discontinued operations for all
applicable periods.
1992 Asset Revaluation (Fresh-Start Reporting). Included in the
Company's statements of operations are depreciation and amortization
charges related to adjustments of assets and liabilities to fair value
made in 1992. These adjustments are a result of the Company's 1992
reorganization and the adoption of AICPA SOP 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code"
(commonly referred to as "fresh-start" reporting) and are not the
result of historical capital expenditures.<PAGE>
Results of Operations
As an aid to understanding the Company's results of operations on
a comparative basis, the following table has been prepared to set
forth certain statements of operations and other data for 1996, 1995
and 1994. The results for 1995 and 1994 do not include any of the
operations of Thomasville.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
----------------- ---------------- ---------------
% of Net % of Net % of Net
Dollars Sales Dollars Sales Dollars Sales
----------------------------------------------------------------------------
Net sales $1,696.8 100.0% $1,073.9 100.0% $1,072.7 100.0%
Cost of operations 1,228.4 72.4 760.4 70.8 752.5 70.2
Selling, general and
administrative
expenses 283.4 16.7 198.3 18.5 199.3 18.6
Depreciation and
amortization 54.1 3.2 36.1 3.3 35.8 3.3
----------------------------------------------------------------------------
Earnings from
operations 130.9 7.7 79.1 7.4 85.1 7.9
Interest expense 45.2 2.7 33.9 3.2 37.9 3.5
Other income, net:
Gain on insurance
settlement - - 7.9 0.7 - -
Other 2.6 0.2 3.9 0.4 1.6 0.1
----------------------------------------------------------------------------
Earnings before income tax
expense, discontinued
operations and
extraordinary item 88.3 5.2 57.0 5.3 48.8 4.5
Income tax expense 34.1 2.0 22.8 2.1 20.9 1.9
----------------------------------------------------------------------------
Net earnings from
continuing
operations $ 54.2 3.2% $ 34.2 3.2% $ 27.9 2.6%
============================================================================
Gross profit(1) $ 431.5 25.4% $ 291.2 27.1% $ 298.7 27.8%
</TABLE>
(1) The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit has been
calculated by subtracting cost of operations and the portion of
depreciation associated with cost of goods sold from net sales.
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
Net sales $1,696.8 $1,073.9 $1,072.7
Cost of operations 1,228.4 760.4 752.5
Depreciation (associated with
cost of goods sold) 36.9 22.3 21.5
----------------------------------------------------------------------------
Gross profit $ 431.5 $ 291.2 $ 298.7
============================================================================
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales for 1996 increased to $1.7 billion from $1.07 billion
in 1995. The improved sales performance resulted primarily from the
acquisition of Thomasville. Had Thomasville been acquired at the
beginning of 1995, net sales for 1996 would have increased 4.5% over
pro forma net sales for 1995. The increase in net sales was achieved
through continued introductions of new products and emphasis on the
Company's brand names.
Cost of operations for 1996 was $1,228.4 million, compared to
$760.4 million for 1995. The large increase was the result of the
Company's acquisition of Thomasville. Cost of operations as a
percentage of net sales increased from 70.8% for 1995 to 72.4% for
1996. This increase was due to the acquisition of Thomasville which
had higher cost of operations as a percentage of net sales than the
Company's other operating subsidiaries. Had Thomasville been included
on a pro forma basis for 1995, cost of operations as a percentage of
net sales would have been 73.3%.
Selling, general and administrative expenses increased to $283.4
million for 1996 from $198.3 million in 1995. The large increase was
a result of the Company's acquisition of Thomasville. As a percentage
of net sales, selling, general and administrative expenses were 16.7%
for 1996 compared to 18.5% for 1995, reflecting the Company's
acquisition of Thomasville.
Depreciation and amortization for 1996 was $54.1 million,
compared to $36.1 million in 1995. The large increase was a result of
the Company's acquisition of Thomasville. The amount of depreciation
and amortization attributable to the "fresh-start" reporting was $16.3
million and $15.9 million for 1996 and 1995, respectively.
Interest expense for 1996 totaled $45.2 million, compared to
$33.9 million for 1995. The increase in interest expense reflects
additional debt incurred for the acquisition of Thomasville.
Other income, net for 1996 totaled $2.6 million compared to $3.9
million for 1995. For 1996, other income consisted of interest on
short-term investments of $1.2 million and other miscellaneous income
and expense items totaling $1.4 million.
For 1996, the Company provided for income taxes totaling $34.1
million on earnings before income tax expense and extraordinary item,
producing an effective tax rate of 38.6%, compared to an effective tax<PAGE>
rate for 1995 of 40.0%. The effective tax rates for such periods were
adversely impacted by certain nondeductible expenses incurred and
provisions for state and local income taxes.
Net earnings per common share from continuing operations on a
fully diluted basis were $0.86 and $0.65 for 1996 and 1995,
respectively. Net earnings per common share from continuing
operations before gain on insurance settlement, net of income tax
expense, on a fully diluted basis was $0.56 for 1995.
Weighted average shares outstanding used in the calculation of
net earnings per common share on a primary and fully diluted basis
were 61,946,000 and 62,871,000 in 1996, respectively, and 50,639,000
and 52,317,000 in 1995, respectively.
Gross profit for 1996 was $431.5 million, representing an
increase of 48.2% over the gross profit of $291.2 million for 1995.
The increase resulted primarily from the acquisition of Thomasville.
The decrease in gross profit margin to 25.4% for 1996 from 27.1% in
1995 was due to the acquisition of Thomasville, which had lower gross
profit margins than the Company's other operating subsidiaries. Had
Thomasville been included on a pro forma basis in 1995, gross profit
margin would have been 24.6%.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for 1995 were $1.07 billion, approximately unchanged
from 1994. During 1995, residential furniture manufacturers' results
were adversely affected by industry-wide price discounting and
promotional activity in response to weaker demand for durable goods.
The Company was able to maintain comparable net sales despite these
conditions through new product introductions at Broyhill and Lane and
continued advertising support of its brand names.
Cost of operations for 1995 was $760.4 million, compared to
$752.5 million for 1994, an increase of 1.0%. The increase in cost of
operations as a percentage of net sales, from 70.2% in 1994 to 70.8%
in 1995, was primarily the result of unfavorable overhead absorption
rates reflecting the Company's effort to maintain manufacturing
utilization rates at levels necessary to balance inventory with
incoming orders.
Selling, general and administrative expenses decreased to $198.3
million in 1995 from $199.3 million in 1994, a reduction of 0.5%. In
1995, such expenses included a $2.7 million non-cash expense related
to stock options. As a percentage of net sales, selling, general and
administrative expenses were 18.5% in 1995 compared to 18.6% in 1994,
reflecting the Company's successful implementation of its ongoing cost
reduction programs.
Depreciation and amortization for 1995 was $36.1 million,
compared to $35.8 million in 1994, an increase of 0.9%. The amount of
depreciation and amortization attributable to the "fresh-start"
reporting was $15.9 million and $16.9 million in 1995 and 1994,
respectively.
Interest expense for 1995 totaled $33.9 million and reflects
twelve months of interest expense on the Company's debt structure,
which was substantially refinanced as of December 29, 1995. Interest
expense for 1995 was not comparable to interest expense for 1994 as a
result of the previous refinancing of substantially all of the
Company's debt in November 1994.
Other income, net for 1995 totaled $11.8 million, compared to
$1.6 million in 1994. For 1995, other income, consisted of a gain on
insurance settlement of $7.9 million pertaining to the November 1994
destruction of a particleboard plant, interest income on short-term
investments of $2.4 million and other miscellaneous income and expense
items totaling $1.5 million.
For 1995, the Company provided for income taxes totaling $22.8
million on earnings before income tax expense, discontinued operations
and extraordinary item, producing an effective tax rate of 40.0%,
compared to an effective tax rate for 1994 of 42.8%. The effective
tax rates for such years were adversely impacted by certain
nondeductible expenses incurred and provisions for state and local
income taxes. The effective income tax rate for 1995 was favorably
impacted by special state income tax incentives granted in connection
with the issuance of certain industrial revenue bonds on behalf of one
of the Company's subsidiaries.
Net earnings per common share from continuing operations on a
fully diluted basis were $0.65 and $0.54 for 1995 and 1994,
respectively. Net earnings per common share from continuing
operations before gain on insurance settlement, net of income tax
expense on a fully diluted basis were $0.56 and $0.54 for 1995 and
1994, respectively. Weighted average shares outstanding used in the
calculation of net earnings per common share on a primary and fully
diluted basis were 50,639,000 and 52,317,000 in 1995, respectively,
and 51,495,000 and 51,506,000 in 1994, respectively.
Gross profit for 1995 was $291.2 million, compared to $298.7
million for 1994, a decrease of 2.5%. Gross profit as a percentage of
net sales declined from 27.8% in 1994 to 27.1% in 1995, primarily as a
result of lower factory utilization rates at certain of the Company's
manufacturing facilities, reflecting the Company's effort to balance
inventories with incoming orders.
Financial Condition and Liquidity
Liquidity
--------
Cash and cash equivalents at December 31, 1996 totaled $19.4
million, compared to $26.4 million at December 31, 1995. For 1996,
net cash provided by operating activities totaled $115.4 million. Net
cash used by investing activities totaled $37.5 million. Net cash
used in financing activities totaled $84.9 million, including the net<PAGE>
repayment of $150.3 million of long-term debt, the receipt of $81.3
million of net proceeds from the sale of common stock pursuant to the
March 1, 1996 equity offering, the receipt of $9.2 million from the
exercise of warrants and stock options to purchase shares of common
stock, $20.0 million for the repurchase of warrants and $4.5 million
in debt issuance costs associated with the September 6, 1996
refinancing of the secured credit agreement.
Working capital was $462.7 million at December 31, 1996, compared
to $455.0 million at December 31, 1995. The current ratio was 4.2 to
1 at December 31, 1996, compared to 4.4 to 1 at December 31, 1995.
The modest increase in working capital between years is primarily the
result of the Company's focus on efficient management of individual
working capital components.
At December 31, 1996, long-term debt, including current
maturities, totaled $572.6 million, compared to $723.7 million at
December 31, 1995. This reduction of indebtedness was funded by $81.3
million from the March 1, 1996 equity offering, with the remainder
funded by cash flow from operations and warrant exercise proceeds.
The Company's debt-to-capitalization ratio was 57.7% at December 31,
1996, compared to 70.6% at December 31, 1995.
Financing Arrangements
----------------------
On September 6, 1996, the Company refinanced its Secured Credit
Agreement. The Secured Credit Agreement is a $475.0 million reducing
revolving credit facility. The Secured Credit Agreement allows for
issuance of letters of credit and cash borrowings. Letters of credit
are limited to no more than $60.0 million. Cash borrowings are
limited to the facility's maximum availability less letters of credit
outstanding. (See Note 8 of the Notes to Consolidated Financial
Statements for additional information.) At December 31, 1996, there
were $359.0 million of cash borrowings outstanding under the Secured
Credit Agreement and $28.8 million in letters of credit outstanding,
leaving an excess of $87.2 million available under the Secured Credit
Agreement.
The Receivables Securitization Facility is a $225.0 million
facility pursuant to which the Company sells interests in the trade
receivables of its operating companies to a third party financial
institution. The Company accounts for the Receivables Securitization
Facility as long-term debt. The Company's cost of borrowing is based
on a commercial paper index rate plus a program fee. At December 31,
1996, the Company had approximately $10.0 million of excess
availability under its Receivables Securitization Facility.
In February 1996, in order to reduce the impact of changes in
interest rates on its floating rate long-term debt, the Company
entered into three year interest rate swap agreements having a total
notional amount of $300.0 million. The swap agreements effectively
convert a portion of the Company's floating rate long-term debt to a
fixed rate. The Company pays the counterparties a fixed rate of 5.14%
per annum and receives payment based upon the floating three month
Eurodollar rate.
The Company believes its Secured Credit Agreement and the
Receivables Securitization Facility, together with cash generated from
operations, will be adequate to meet liquidity requirements for the
foreseeable future.<PAGE>
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
(Dollars in thousands) December 31, December 31,
1996 1995
-------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 19,365 $ 26,412
Receivables, less allowances of $19,124
($20,724 at December 31, 1995) (Note 8) 283,417 276,116
Inventories (Note 6) 281,107 269,677
Prepaid expenses and other current assets 23,378 17,888
------------------------------------------------------------------------------
Total current assets 607,267 590,093
Property, plant and equipment:
Land 16,292 16,635
Buildings and improvements 172,783 166,214
Machinery and equipment 236,654 206,580
------------------------------------------------------------------------------
425,729 389,429
Less accumulated depreciation 123,767 83,023
------------------------------------------------------------------------------
Net property, plant and equipment 301,962 306,406
Intangible assets (Note 7) 344,101 370,307
Other assets 15,874 24,933
------------------------------------------------------------------------------
$1,269,204 $1,291,739
==============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt (Note 8) $ - $ 18,639
Accounts payable 61,095 53,093
Accrued employee compensation 29,864 29,020
Accrued interest expense 6,579 1,304
Other accrued expenses 47,068 33,001
------------------------------------------------------------------------------
Total current liabilities 144,606 135,057
Long-term debt, less current maturities (Note 8) 572,600 705,040
Other long-term liabilities 132,341 150,486
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares,
no par value - issued, none - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 61,432,181 and
50,120,079 shares at December 31, 1996 and
1995 (Note 9) 61,432 50,120
Paid-in capital 278,554 218,156
Retained earnings 79,671 32,880
------------------------------------------------------------------------------
Total shareholders' equity 419,657 301,156
------------------------------------------------------------------------------
$1,269,204 $1,291,739
===============================================================================
See accompanying notes to consolidated financial statements.<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Year Ended December 31,
1996 1995 1994
-------------------------------------------------------------------------------
Net sales $1,696,795 $1,073,889 $1,072,696
Costs and expenses:
Cost of operations 1,228,355 760,393 752,528
Selling, general and administrative
expenses 283,432 198,321 199,333
Depreciation and amortization
(includes $16,285, $15,922 and $16,900
related to fair value adjustments) 54,082 36,104 35,776
-------------------------------------------------------------------------------
Earnings from operations 130,926 79,071 85,059
Interest expense 45,217 33,845 37,886
Other income, net:
Gain on insurance settlement (Note 14) - 7,882 -
Other 2,583 3,930 1,668
Earnings before income tax expense,
discontinued operations and
extraordinary item 88,292 57,038 48,841
Income tax expense (Note 10) 34,070 22,815 20,908
Net earnings from continuing operations 54,222 34,223 27,933
Discontinued operations (Note 4):
Earnings from operations, net of taxes - - 25,443
Loss on distribution, net of taxes - - (15,104)
-------------------------------------------------------------------------------
Net earnings before extraordinary item 54,222 34,223 38,272
Extraordinary item - early extinguishment
of debt, net of tax benefit (Note 5) (7,417) (5,815) -
-------------------------------------------------------------------------------
Net earnings $ 46,805 $ 28,408 $ 38,272
===============================================================================
Net earnings per common share - primary (Note 3):
Net earnings from continuing operations$ 0.88 $ 0.67 $ 0.54
Discontinued operations - - 0.20
Extraordinary item - early
extinguishment of debt (0.12) (0.11) -
-------------------------------------------------------------------------------
Net earnings per common share - primary $ 0.76 $ 0.56 $ 0.74
===============================================================================
Net earnings per common share - fully diluted (Note 3):
Net earnings from continuing operations$ 0.86 $ 0.65 $ 0.54
Discontinued operations - - 0.20
Extraordinary item - early
extinguishment of debt (0.12) (0.11) -
-------------------------------------------------------------------------------
Net earnings per common share -
fully diluted $ 0.74 $ 0.54 $ 0.74
===============================================================================
See accompanying notes to consolidated financial statements.<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31,
1996 1995 1994
-------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net earnings $ 46,805 $ 28,408 $ 38,272
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net loss on early extinguishment of debt 7,417 5,815 -
Net earnings from discontinued operations - - (10,339)
Depreciation of property, plant and
equipment 42,022 26,371 25,675
Amortization of intangible and
other assets 12,060 9,733 10,101
Noncash interest expense 2,042 2,150 196
(Increase) decrease in receivables (7,301) 165 (27,979)
(Increase) decrease in inventories (11,430) 3,340 (20,553)
Decrease in prepaid expenses and
intangible and other assets 13,695 1,179 2,648
Increase (decrease) in accounts payable,
accrued interest expense and other
accrued expenses 33,710 14,794 (1,233)
Increase (decrease) in net deferred tax
liabilities (7,972) (211) 7,904
Increase (decrease) in other long-term
liabilities (15,628) 246 (2,676)
-----------------------------------------------------------------------------
Net cash provided by continuing
operations 115,420 91,990 22,016
Net cash used by discontinued operations - - (16,695)
------------------------------------------------------------------------------
Net cash provided by operating activities 115,420 91,990 5,321
-------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of business (Note 2) - (335,438) -
Proceeds from the disposal of assets 2,766 519 5,621
Additions to property, plant
and equipment (40,344) (35,616) (21,108)
--------------------------------------------------------------------------------
Net cash used by investing activities (37,578) (370,535) (15,487)
--------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Payments for debt issuance costs (4,467) (14,026) (11,455)
Additions to long-term debt 380,000 576,000 423,000
Payments of long-term debt (530,279) (286,574) (404,741)
Proceeds from the sale of common stock 81,292 - -
Proceeds from the issuance of common
stock 9,290 201 698
Payments for the repurchase of
common stock warrants (19,961) (2,789) -
Payments for common stock offering expenses
of selling shareholders (764) - -
-------------------------------------------------------------------------------
Net cash provided (used) by financing
activities (84,889) 272,812 7,502
Net decrease in cash and cash equivalents (7,047) (5,733) (2,664)
Cash and cash equivalents at
beginning of period 26,412 32,145 34,809
-------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 19,365 $ 26,412 $ 32,145
===============================================================================
Supplemental Disclosure:
Cash payments for income taxes, net $ 33,126 $ 14,386 $ 37,127
===============================================================================
Cash payments for interest $ 37,960 $ 32,010 $ 39,345
===============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
(Dollars in thousands) Common Paid-In Retained
Stock Capital Earnings Total
-------------------------------------------------------------------------------
Balance December 31, 1993 $50,004 $226,391 $62,162 $338,557
Net earnings 38,272 38,272
Common stock activity:
Stock option exercises (Note 9) 71 615 686
Warrant exercises - 983 shares 1 11 12
Foreign currency translations 2,659 2,659
Distribution of discontinued
operations to shareholders (6,229) (98,563) (104,792)
-------------------------------------------------------------------------------
Balance December 31, 1994 50,076 220,788 4,530 275,394
Net earnings 28,408 28,408
Common stock activity:
Stock option exercises (Note 9) 43 153 196
Warrant exercises - 564 shares 1 4 5
Warrant purchases - 1,489,422 shares (2,789) (2,789)
Foreign currency translations (58) (58)
------------------------------------------------------------------------------
Balance December 31, 1995 50,120 218,156 32,880 301,156
Net earnings 46,805 46,805
Common stock activity:
Sale of common stock -
10,000,000 shares 10,000 71,292 81,292
Stock option grants and exercises
(Note 9) 85 2,309 2,394
Warrant exercises - 1,227,052 shares 1,227 7,522 8,749
Warrant purchases - 3,578,399 shares (19,961) (19,961)
Common stock offering expenses of
selling shareholders (764) (764)
Foreign currency translations (14) (14)
-------------------------------------------------------------------------------
Balance December 31, 1996 $61,432 $278,54 $79,671 $419,657
===============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. The Company
Furniture Brands International, Inc. (referred to herein as the
"Company") is a major manufacturer of residential furniture. During
the year ended December 31, 1996, the Company had three primary
operating subsidiaries: Broyhill Furniture Industries, Inc.; The Lane
Company, Incorporated; and Thomasville Furniture Industries, Inc.
Substantially all of the Company's sales are made to unaffiliated
furniture retailers. The Company has a diversified customer base with
no one customer accounting for 10% or more of consolidated net sales
and no particular concentration of credit risk in one economic
section. Foreign operations and net sales are not material.
2. Acquisition of Business
On December 29, 1995, the Company acquired all of the outstanding
stock of Thomasville Furniture Industries, Inc. The purchase price
totaled $331,200 plus the assumption of $8,000 of long-term debt. The
purchase price, including capitalized expenses which approximated
$4,200, was paid in cash. The transaction was accounted for as a
purchase and, since the acquisition occurred as of the last business
day of 1995, was reflected in the Company's consolidated balance sheet
as of December 31, 1995. The Company's results of operations for 1995
do not include any of the operations of Thomasville. The total
acquisition cost exceeded the estimated fair value of the net assets
acquired by $93,110 with such amount being recorded as an intangible
asset. The determination of the final fair values of assets and
liabilities resulted in adjustments consisting of changes from
initially recorded values as of December 31, 1995 resulting in
decreases in receivables, inventories, excess of cost over net assets
acquired and other noncurrent liabilities of $3,350, $2,236, $12,654
and $16,641, respectively. Adjustments to other balance sheet
accounts were individually immaterial.
The following unaudited summary, prepared on a pro forma basis,
combines the consolidated results of operations of the Company for
1995 and 1994 with those of Thomasville as if the transaction had
occurred at the beginning of each year presented.
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
Year Ended December 31,
1995 1994
-------------------------------------------------------------------------------
Net sales $1,624,116 $1,599,339
Net earnings from continuing operations 37,422 30,963
Net earnings 31,607 41,302
Net earnings per common share - fully diluted:
Continuing operations 0.72 0.60
Total 0.61 0.80 <PAGE>
</TABLE>
The pro forma data has been adjusted, net of income taxes, to
reflect interest expense and the amortization of the excess of cost
over net assets acquired. Such pro forma amounts are not necessarily
indicative of what the actual consolidated results of operations might
have been if the acquisition had been effective at the beginning of
each year presented.
3. Significant Accounting Policies
The significant accounting policies of the Company are set forth
below.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all its subsidiaries. All material intercompany
transactions are eliminated in consolidation. The Company's fiscal
year ends on December 31. The operating companies included in the
consolidated financial statements report their results of operations
as of the Saturday closest to December 31. Accordingly, the results
of operations will periodically include a 53 week fiscal year. The
years 1996, 1995 and 1994 all represent 52 week fiscal years.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents. Short-term
investments are recorded at amortized cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repairs and
maintenance are expensed as incurred. When properties are disposed
of, the related cost and accumulated depreciation or amortization are
removed from the accounts, and gains or losses on the dispositions are
reflected in results of operations. For financial reporting purposes,
the Company utilizes both accelerated and straight-line methods of
computing depreciation and amortization. Such expense is computed<PAGE>
based on the estimated useful lives of the respective assets, which
generally range from 3 to 45 years for buildings and improvements and
from 3 to 12 years for machinery and equipment.
Intangible Assets
The excess of cost over net assets acquired in connection with
the acquisition of Thomasville totaled $93,110. The determination of
the final fair values of assets and liabilities resulted in
adjustments consisting of changes from initially recorded values as of
December 31, 1995 resulting in decreases in receivables, inventories,
excess of cost over net assets acquired and other noncurrent
liabilities of $3,350, $2,236, $12,654 and $16,641, respectively.
Adjustments to other balance sheet accounts were individually
immaterial. This intangible asset is being amortized on a straight-
line basis over a 40 year period.
The Company emerged from Chapter 11 reorganization effective with
the beginning of business on August 3, 1992. In accordance with
generally accepted accounting principles, the Company was required to
adopt "fresh-start" reporting which included adjusting all assets and
liabilities to their fair values as of the effective date. The
ongoing impact of the adoption of fresh-start reporting is reflected
in the financial statements for all years presented.
As a result of adopting fresh-start reporting, the Company
recorded reorganization value in excess of amounts allocable to
identifiable assets of approximately $146,000. This intangible asset
is being amortized on a straight-line basis over a 20 year period.
Also in connection with the adoption of fresh-start reporting,
the Company recorded approximately $156,800 in fair value of
trademarks and trade names based upon an independent appraisal. Such
trademarks and trade names are being amortized on a straight-line
basis over a 40 year period.
Interest Rate Swap Agreements
Interest rate swap agreements are used by the Company to fix the
interest rate on a portion of its floating rate long-term debt.
Amounts to be paid or received under the interest rate swap agreements
are recognized in income as adjustments to interest expense. The fair
value of the interest rate swap agreements is not recognized in the
consolidated financial statements since they are accounted for as
hedges.
Income Tax Expense
Income tax expense is based on results of operations before
discontinued operations and extraordinary items. Deferred tax assets
and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are<PAGE>
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment
date.
Extraordinary Item
In conjunction with the September 6, 1996 refinancing of the
Secured Credit Agreement, the deferred financing fees and expenses
pertaining to the refinanced credit facility were charged to results
of operations, as an extraordinary item.
In conjunction with the December 29, 1995 acquisition of
Thomasville, the Company refinanced its Secured Credit Agreement and
amended its Receivables Securitization Facility. As a result thereof,
the Company charged to results of operations, as an extraordinary
item, the deferred financing fees and expenses pertaining to such
credit facilities.
Net Earnings Per Common Share
Net earnings per common share is based on the weighted average
number of shares of common stock and common stock equivalents
outstanding during the year. The stock options and warrants
outstanding (Note 9) are considered common stock equivalents.
Weighted average shares used in the calculation of primary and fully
diluted net earnings per common share for 1996 were 61,946,000 and
62,871,000, respectively.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require,
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
Reclassification
Certain 1995 and 1994 amounts have been reclassified to conform
to the 1996 presentation.
4. Discontinued Operations
On November 17, 1994, the Company distributed the common stock of
each of The Florsheim Shoe Company and Converse Inc. (which, in
aggregate, represented the Company's footwear segment) to its
shareholders. In accordance with generally accepted accounting
principles, the financial results for the footwear segment are
reported as "Discontinued Operations," and the Company's financial
results of prior periods were restated. Condensed results of the
discontinued operations were as follows:
---------------------------------------------------------------------
Eleven Months
Ended
November 17,
1994
---------------------------------------------------------------------
Net sales $663,637
=====================================================================
Earnings before income tax expense $ 40,047
Income tax expense 14,604
---------------------------------------------------------------------
Net earnings $ 25,443
=====================================================================
Loss on distribution, net of taxes of $4,564 $(15,104)
=====================================================================
The loss on distribution reflects expenses related to: the
distribution of the common stock of The Florsheim Shoe Company and
Converse Inc. to the Company's shareholders, including certain
expenses associated with establishing the capital structure of each
company; compensation expense accrued as a result of adjustments
required to be made to exercisable employee stock options; interest
expense on certain long-term debt defeased, net of estimated interest
income to be received from the trustees; and applicable income taxes.
Prior to the distribution of the common stock of The Florsheim
Shoe Company to its shareholders, the Company had guaranteed certain
of Florsheim's retail store operating leases. At December 31, 1996,
the Company had guarantees outstanding on 85 retail store leases with
a contingent liability totaling approximately $29,700. The Florsheim
Shoe Company has agreed to indemnify the Company against any losses
incurred as a result of the lease guarantees.
5. Extraordinary Item - Early Extinguishment of Debt
In conjunction with the September 6, 1996 refinancing of the
Secured Credit Agreement, the Company charged to results of operations
$7,417, net of tax benefit of $4,469, representing the deferred
financing fees and expenses pertaining to the refinanced facility.
The charge was recorded as an extraordinary item.
In conjunction with the December 29, 1995 acquisition of
Thomasville, the Company refinanced its Secured Credit Agreement and
amended its Receivables Securitization Facility. As a result thereof,
the Company charged to results of operations $5,815, net of tax
benefit of $3,478, representing the deferred financing fees and
expenses pertaining to such credit facilities. The charge was
recorded as an extraordinary item.<PAGE>
6. Inventories
Inventories are summarized as follows:
---------------------------------------------------------------------
December 31, December 31,
1996 1995
---------------------------------------------------------------------
Finished products $127,292 $114,857
Work-in-process 51,587 51,259
Raw materials 102,228 103,561
---------------------------------------------------------------------
$281,107 $269,677
=====================================================================
7. Intangible Assets
Intangible assets include the following:
---------------------------------------------------------------------
December 31, December 31,
1996 1995
---------------------------------------------------------------------
Intangible Assets, at cost
Reorganization value in excess
of amounts allocable to
identifiable assets $146,063 $146,063
Trademarks and trade names 156,828 156,828
Excess of cost over net
assets acquired 93,110 105,764
---------------------------------------------------------------------
396,001 408,655
Less accumulated amortization 51,900 38,348
---------------------------------------------------------------------
$344,101 $370,307
=====================================================================
8. Long-Term Debt
Long-term debt consists of the following:
---------------------------------------------------------------------
December 31, December 31,
1996 1995
---------------------------------------------------------------------
Secured credit agreement $359,000 $521,000
Receivables securitization facility 200,000 185,000
Other 13,600 17,679
---------------------------------------------------------------------
572,600 723,679
Less current maturities - 18,639
---------------------------------------------------------------------
$572,600 $705,040
=====================================================================<PAGE>
The following discussion summarizes certain provisions of the
long-term debt.
Secured Credit Agreement
On September 6, 1996, the Company refinanced its Secured Credit
Agreement. The new Secured Credit Agreement is a five year reducing
revolving credit facility with an initial commitment totaling
$475,000. The Secured Credit Agreement allows for issuance of letters
of credit and cash borrowings. Letter of credit outstandings are
limited to no more than $60,000, with cash borrowings limited only by
the facility's maximum availability less letters of credit
outstanding.
Under the letter of credit facility, a fee of 0.875% per annum
(subject to reduction based upon the Company achieving certain
leverage ratios) is assessed for the account of the lenders ratably.
A further fee of 0.125% is assessed on stand-by letters of credit
representing a facing fee. A customary administrative charge for
processing letters of credit is also payable to the relevant issuing
bank. Letter of credit fees are payable quarterly in arrears.
Cash borrowings under the Secured Credit Agreement bear interest
at a base rate or at an adjusted Eurodollar rate plus an applicable
margin which varies, depending upon the type of loan the Company
executes. The applicable margin over the base rate and the Eurodollar
rate is subject to adjustment based upon achieving certain leverage
ratios. At December 31, 1996, all loans outstanding under the Secured
Credit Agreement were based on the Eurodollar rate.
At December 31, 1996, there were $359,000 of cash borrowings and
$28,767 in letters of credit outstanding under the Secured Credit
Agreement, leaving an excess of $87,233 available under the facility.
The common stock of the Company's principal subsidiaries,
substantially all of the Company's cash, working capital (other than
trade receivables) and property, plant and equipment, have been
pledged or mortgaged as security for the Secured Credit Agreement.
The Secured Credit Agreement contains a number of restrictive
covenants and events of default, including covenants limiting capital
expenditures and incurrence of debt, and requires the Company to
achieve certain financial ratios, some of which become more
restrictive over time.
The Secured Credit Agreement has no mandatory principal payments;
however, the commitment is reduced to $400,000 on September 30, 1999
and $300,000 on September 29, 2000, with the remaining commitment
maturing on September 15, 2001. In addition, the facility requires
principal payments from a portion of the net proceeds realized from
(i) the sale, conveyance or other disposition of collateral securing
the debt, or (ii) the sale by the Company for its own account of
additional subordinated debt and/or shares of its preferred and/or
common stock.<PAGE>
Receivables Securitization Facility
The Receivables Securitization Facility is an obligation of the
Company which matures on December 29, 2000 and is secured by
substantially all of the Company's trade receivables. The facility
operates through use of a special purpose subsidiary (Interco
Receivables Corp.) which "buys" trade receivables from the operating
companies and "sells" interests in same to a third party financial
institution, which uses the interests as collateral for borrowings in
the commercial paper market to fund the purchases. The Company
accounts for this facility as long-term debt.
The Company pays a commercial paper index rate on all funds
received (outstanding) on the facility. In addition, a program fee of
0.55% per annum on the entire $225,000 facility is payable on a
monthly basis. The balance outstanding at December 31, 1996 was
$200,000. The Company may increase or decrease its use of the
facility on a monthly basis subject to the availability of sufficient
trade receivables and the facility's maximum amount ($225,000). As of
December 31, 1996, the Company had $9,989 in excess availability under
the facility.
Other
Other long-term debt consists of various industrial revenue bonds
with interest rates ranging from approximately 4.0% to 9.0%.
Mandatory principal payments are required through 2004.
Interest Rate Swap Agreements
In February 1996, the Company entered into interest rate swap
agreements with two financial institutions to reduce the impact of
changes in interest rates on its floating rate long-term debt. The
two agreements, which mature in three years, have a total notional
principal amount of $300,000. The swap agreements effectively convert
a portion of the Company's floating rate long-term debt to a fixed
rate. The Company pays the counterparties a fixed rate of 5.14% per
annum and receives payments based upon the floating three month
Eurodollar rate. The Company is exposed to credit loss in the event
of nonperformance by the counter-parties; however, the Company does
not anticipate nonperformance by the counter-parties.
Other Information
Maturities of long-term debt are $0, $0, $0, $288,567 and
$272,033 for years 1997 through 2001, respectively.<PAGE>
9. Common Stock
The Company's restated certificate of incorporation includes
authorization to issue up to 100.0 million shares of common stock with
a $1.00 per share stated value. As of December 31, 1996, 61,432,181
shares of common stock were issued and outstanding. It is not
presently anticipated that dividends will be paid on common stock in
the foreseeable future and certain of the debt instruments to which
the Company is a party restrict the payment of dividends.
Shares of common stock were reserved for the following purposes
at December 31, 1996:
---------------------------------------------------------------------
NUMBER
OF SHARES
---------------------------------------------------------------------
Common stock options:
Granted 3,859,476
Available for grant 184,724
Common stock warrants 2,042,631
---------------------------------------------------------------------
6,086,831
=====================================================================
Under the Company's 1992 Stock Option Plan, certain key employees
may be granted nonqualified options, incentive options or combinations
thereof. Nonqualified and incentive options may be granted to expire
up to ten years after the date of grant. Options granted become
exercisable at varying dates depending upon the achievement of certain
performance targets and/or the passage of certain time periods.
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). Under SFAS No. 123, companies can either measure the
compensation cost of equity instruments issued under employee
compensation plans using a fair value based method, or can continue to
recognize compensation cost under the provisions of Accounting
Principles Board Opinion No. 25 ("Opinion No. 25") with pro forma
disclosures of net income and earnings per share as if the fair value
method has been applied. The Company adopted SFAS No. 123 as of
January 1, 1996 and has elected to, as permitted under the statement,
continue recognition of compensation costs under the provisions of
Opinion No. 25 with appropriate disclosure, if material. The effect
on net earnings for the years ended December 31, 1996 and 1995 is not
material and, accordingly, no disclosure has been made. Further,
based on current and anticipated use of stock options for the
foreseeable future, it is not envisioned the impact of the
pronouncement would be material in subsequent periods.
The 1992 Stock Option Plan authorizes grants of options to
purchase common shares at less than fair market value on the date of
grant. During 1996, option grants totaling 217,978 common shares were<PAGE>
made by the Company at less than market value. These options were
issued to Thomasville employees as compensation for forfeited deferred
compensation plans due to the acquisition; therefore, the cost of
issuing the options at less than market value was included in
determining the excess of cost over net assets acquired.
Changes in options granted and outstanding are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
Average Average Average
Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ -------
Beginning of period 2,498,000 $ 4.75 2,643,000 $ 4.64 2,915,000 $ 7.39
Granted 1,620,926 9.14 125,000 6.42 917,000 7.85
Exercised (85,050) 3.99 (43,000) 3.38 (71,250) 7.00
Cancelled (174,400) 4.29 (227,000) 4.68 (1,117,750) 7.82
--------- ------- --------- ------- ---------- -------
End of period 3,859,476 $ 6.63 2,498,000 $ 4.75 2,643,000 $ 4.64
========= ======= ========= ======= ========== =======
Exercisable at
end of period 1,473,600 1,346,750 954,750
========= ========= =========
</TABLE>
As a result of the November 17, 1994 distribution of the common
stock of The Florsheim Shoe Company and Converse Inc. to the Company's
shareholders, options granted to the employees of those operating
companies were cancelled. In addition, the exercise prices of the
remaining options were adjusted to reflect the distribution in
accordance with the antidilution provisions of the 1992 Stock Option
Plan.
As of December 31, 1996, the Company had outstanding
approximately 2.0 million warrants to purchase common stock. Each
warrant entitles the holder thereof to purchase one share of common
stock at $7.13 per share (as adjusted for the November 17, 1994
distribution to shareholders of the Company's former footwear
segment). The warrants, which expire on August 3, 1999, include a
five year call protection which expires on August 3, 1997. The
warrants trade on the over-the-counter market.
10. Income Taxes
Income tax expense was comprised of the following:
----------------------------------------------------------------------
Year Ended December 31,
1996 1995 1994
----------------------------------------------------------------------
Current:
Federal $40,870 $20,499 $10,095
State and local 4,014 2,527 2,909
----------------------------------------------------------------------
44,884 23,026 13,004
Deferred (10,814) (211) 7,904
----------------------------------------------------------------------
$34,070 $22,815 $20,908
======================================================================
The following table reconciles the differences between the Federal
corporate statutory rate and the Company's effective income tax rate:
---------------------------------------------------------------------
Year Ended December 31,
1996 1995 1994
---------------------------------------------------------------------
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of Federal tax benefit 2.3 2.6 2.9
Amortization of excess
reorganization value 2.9 4.5 5.2
Other (1.6) (2.1) (0.3)
---------------------------------------------------------------------
Effective income tax rate 38.6% 40.0% 42.8%
=====================================================================
The sources of the tax effects for temporary differences that give
rise to the deferred tax assets and liabilities were as follows:
---------------------------------------------------------------------
December 31, December 31,
1996 1995
---------------------------------------------------------------------
Deferred tax assets:
Employee postretirement benefits
other than pensions $ 3,318 $ 10,954
Expense accruals 14,251 9,267
Valuation reserves 6,514 5,147
Inventory costs capitalized 2,550 1,785
Other 1,063 919
---------------------------------------------------------------------
Total gross deferred tax assets 27,696 28,072
Valuation allowance - -
---------------------------------------------------------------------
Total net deferred tax assets 27,696 28,072
Deferred tax liabilities:
Fair value adjustments (77,645) (84,263)
Employee pension plans (697) (1,990)
Depreciation (7,158) (9,029)
Other (9,784) (8,350)
---------------------------------------------------------------------
Total deferred tax liabilities (95,284) (103,632)
---------------------------------------------------------------------
Net deferred tax liabilities $(67,588) $(75,560)
=====================================================================<PAGE>
The net deferred tax liabilities are included in the consolidated
balance sheet as follows:
---------------------------------------------------------------------
December 31, December 31,
1996 1995
---------------------------------------------------------------------
Prepaid expenses and other current assets $ 19,783 $ 14,328
Other long-term liabilities (87,371) (89,888)
---------------------------------------------------------------------
$(67,588) $(75,560)
=====================================================================
11. Employee Benefits
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 1996,
1995 and 1994 was $9,450, $7,070 and $6,303, respectively.
Company-Sponsored Defined Benefit Plans
Annual cost for defined benefit plans is determined using the
projected unit credit actuarial method. Prior service cost is
amortized on a straight-line basis over the average remaining service
period of employees expected to receive benefits.
It is the Company's practice to fund pension costs to the extent
that such costs are tax deductible and in accordance with ERISA. The
assets of the various plans include corporate equities, government
securities, corporate debt securities and insurance contracts. The
table below summarizes the funded status of the Company-sponsored
defined benefit plans.
---------------------------------------------------------------------
December 31, December 31,
1996 1995
---------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $230,456 $217,879
=======================
Accumulated benefit obligation $237,512 $222,256
=======================
Projected benefit obligation $262,667 $254,815
Plan assets at fair value 279,054 252,810
---------------------------------------------------------------------
Plan assets in excess of (less than) projected
benefit obligation 16,387 (2,005)
Unrecognized net (gain)/loss (13,975) 5,211
Unrecognized prior service cost 1,021 1,267
---------------------------------------------------------------------
Prepaid pension cost $ 3,433 $ 4,473
=====================================================================<PAGE>
Net periodic pension cost for 1996, 1995 and 1994 includes the
following components:
---------------------------------------------------------------------
Year Ended December 31,
1996 1995 1994
---------------------------------------------------------------------
Service cost-benefits earned
during the period $ 6,792 $ 3,544 $ 4,758
Interest cost on the projected
benefit obligation 18,102 17,005 13,682
Actual return on plan assets (41,006) (49,272) (159)
Net amortization and deferral 20,366 31,566 (16,297)
---------------------------------------------------------------------
Net periodic pension cost $ 4,254 $ 2,843 $ 1,984
=====================================================================
Employees are covered primarily by noncontributory plans, funded
by Company contributions to trust funds, which are held for the sole
benefit of employees. Monthly retirement benefits are based upon
service and pay with employees becoming vested upon completion of five
years of service.
The expected long-term rate of return on plan assets was 8.5% in
1996, 8.5% in 1995 and 8.0% - 9.5% in 1994. Measurement of the
projected benefit obligation was based upon a weighted average
discount rate of 7.25%, 7.25% and 8.0% and a long-term rate of
compensation increase of 4.5%, 4.5% and 4.5% for 1996, 1995 and 1994,
respectively.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes
contributions to a defined contribution plan and sponsors employee
savings plans. The cost of these plans is included in the total cost
for all plans reflected above.
In 1996, Thomasville discontinued postretirement medical benefits
for future retirees. The accrued postretirement benefit obligation as
of December 31, 1995 of $31,906 was primarily due to the acquisition
of Thomasville; therefore, the elimination of the benefit was recorded
as an adjustment to excess of cost over net assets acquired.
12. Lease Commitments
Certain of the Company's real properties and equipment are
operated under lease agreements expiring at various dates through the
year 2005. Leases covering equipment generally require, in addition
to stated minimums, contingent rentals based on usage. Generally, the
leases provide for renewal for various periods at stipulated rates.<PAGE>
Rental expense under operating leases was as follows:
---------------------------------------------------------------------
Year Ended December 31,
1996 1995 1994
---------------------------------------------------------------------
Basic rentals $13,470 $11,516 $11,553
Contingent rentals 1,364 779 385
---------------------------------------------------------------------
14,834 12,295 11,938
Less: sublease rentals 76 54 54
---------------------------------------------------------------------
$14,758 $12,241 $11,884
=====================================================================
Future minimum lease payments under operating leases, reduced by
minimum rentals from subleases of $491 at December 31, 1996, aggregate
$39,691. Annual minimum payments under operating leases are $12,370,
$10,351, $7,817, $5,087 and $2,327 for 1997 through 2001,
respectively.
13. Fair Value of Financial Instruments
The Company considers the carrying amounts of cash and cash
equivalents, receivables and accounts payable to approximate fair
value because of the short maturity of these financial instruments.
Amounts outstanding under the Secured Credit Agreement and
Receivables Securitization Facility are also considered to be carried
on the financial statements at their estimated fair values because
they were entered into recently and both accrue interest at rates
which generally fluctuate with interest rate trends.
Amounts outstanding under other long-term debt are considered
special purpose financing as an incentive to acquire specific real
estate. Accordingly, the Company believes the carrying amounts
approximate fair value given the circumstances under which such
financings were acquired.
The fair value of the interest rate swap agreements at December
31, 1996 is approximately $5.0 million. The fair value of the
interest rate swap agreements is based upon market quotes from the
counterparties.
14. Gain on Insurance Settlement
On November 20, 1994, an explosion and fire destroyed a
particleboard plant owned and operated by the Company. During 1995,
the Company rebuilt the plant with proceeds received from the
insurance settlement. As a result thereof, a gain on insurance
settlement, totaling $7,882, was recorded during the fourth quarter of
1995. The gain includes all costs associated with the claim with no
further expenses or liability anticipated.<PAGE>
15. Litigation
The Company is or may become a defendant in a number of pending
or threatened legal proceedings in the ordinary course of business.
In the opinion of manage-ment, the ultimate liability, if any, of the
Company from all such proceedings will not have a material adverse
effect upon the consolidated financial position or results of
operations of the Company and its subsidiaries.
16. Quarterly Financial Information (Unaudited)
Following is a summary of unaudited quarterly information:
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------
Year ended December 31, 1996:
Net sales $434,185 $417,921 $ 420,742 $ 423,947
Gross profit 110,627 107,067 108,446 105,333
Net earnings:
Continuing operations 17,429 14,325 11,621 10,847
Extraordinary item - (7,417) - -
Total $ 17,429 $ 6,908 $ 11,621 $ 10,847
Net earnings per common share -
primary:
Continuing operations $ 0.27 $ 0.22 $ 0.18 $ 0.19
Extraordinary item - (0.11) - -
Total $ 0.27 $ 0.11 $ 0.18 $ 0.19
Net earnings per common share -
fully diluted:
Continuing operations $ 0.27 $ 0.22 $ 0.18 $ 0.19
Extraordinary item - (0.11) - -
Total $ 0.27 $ 0.11 $ 0.18 $ 0.19
Common stock price range
(High-Low) $147/8-12 $145/8-10 $121/8-91/8 $101/8-83/8
===============================================================================
Year ended December 31, 1995:
Net sales $279,023 $258,626 $ 250,336 $ 285,904
Gross profit 76,932 70,557 67,399 76,349
Net earnings:
Continuing operations 14,797 6,196 5,487 7,743
Extraordinary item (5,815) - - -
Total $ 8,982 $ 6,196 $ 5,487 $ 7,743
Net earnings per common share -
primary:
Continuing operations $ 0.29 $ 0.12 $ 0.11 $ 0.15
Extraordinary item (0.11) - - -
Total $ 0.18 $ 0.12 $ 0.11 $ 0.15
Net earnings per common share -
fully diluted:
Continuing operations $ 0.27 $ 0.12 $ 0.11 $ 0.15
Extraordinary item (0.11) - - -
Total $ 0.16 $ 0.12 $ 0.11 $ 0.15
Common stock price range
(High-Low) $ 91/8-7 $81/8-53/4 $ 67/8-53/4 $ 71/8-61/8
===============================================================================
</TABLE>
The Company has not paid cash dividends on its common stock
during the two years ended December 31, 1996. The closing market
price of the Company's common stock on December 31, 1996 was $14.00
per share.
Item 9. Changes in and Disagreements With Accountants on Accounting
--------------------------------------------------------------------
and Financial Disclosure
------------------------
Not applicable.<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
The section entitled "Nominees" of the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on April 29, 1997 is
incorporated herein by reference.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <S> <C> <C>
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Wilbert G. Holliman 59 President of the Subsidiary-
Action Industries, Inc. 1989
Chief Executive Officer of
the Subsidiary - Action
Industries, Inc. 1994
Director X 1996
President X 1996
Chief Executive Officer X 1996
*Richard B. Loynd 69 Chairman of the Board of the
Former Subsidiary - Converse Inc. 1982
Vice-President 1987
Director X 1987
President 1989
Chief Operating Officer 1989
Chief Executive Officer 1989
Chairman of the Board X 1990
John T. Foy 49 President and Chief Executive
Officer of the Subsidiary -
Action Industries, Inc. X 1996
Brent B. Kincaid 65 President and Chief Executive
Officer of the Subsidiary -
Broyhill Furniture Industries,
Inc. X 1992
Frederick B. Starr 64 President and Chief Executive
Officer of the Subsidiary -
Thomasville Furniture
Industries,Inc. X 1982
K. Scott Tyler, Jr. 57 President of the Subsidiary -
The Lane Company, Incorporated X 1989
Chief Executive Officer of the
Subsidiary - The Lane Company,
Incorporated X 1991
David P. Howard 46 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Treasurer X 1996
Lynn Chipperfield 45 General Counsel X 1993
Vice-President and Secretary X 1996
Steven W. Alstadt 42 Controller X 1994
Chief Accounting Officer X 1994
The following officer retired on January 30, 1996
Duane A. Patterson 64 Secretary 1973
Director 1991
Vice-President 1992
--------------------------------------
* Member of the Executive Committee
</TABLE>
There are no family relationships between any of the executive
officers of the Registrant.
The executive officers are elected at the organizational meeting of
the Board of Directors which follows the annual meeting of
stockholders and serve for one year and until their successors are
elected and qualified.
Each of the executive officers has held the same position or other
positions with the same employer during the past five years.
Item 11. Executive Compensation
--------------------------------
The sections entitled "Executive Compensation", "Executive
Compensation and Stock Option Committee Report on Executive
Compensation", "Compensation Committee Interlocks and Insider
Participation", "Stock Options", "Retirement Plans", "Incentive
Agreements" and "Performance Graph" of the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on April 29, 1997,
are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
--------------------------------------------------------------
Management
----------
The section entitled "Security Ownership" of the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on
April 29, 1997, is incorporated herein by reference.<PAGE>
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------
The section entitled "Certain Business Relationships" of the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders on April 29, 1997, is incorporated herein by reference.<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
----------------------------------------------------------------------
8-K
---
(a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheets, December 31, 1996 and 1995.
Consolidated statements of operations for each of the years
in the three-year period ended December 31, 1996.
Consolidated statement of cash flows for each of the years
in the three-year period ended December 31, 1996.
Consolidated statement of shareholders' equity for each of
the years in the three-year period ended December 31, 1996.
Notes to consolidated financial statements.
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required information is
presented in the consolidated financial statements or related notes or
are not applicable.
3. Exhibits:
3(a) Restated Certificate of Incorporation of the Company,
as amended. (Incorporated by reference to Exhibit
3(a) to Furniture Brands International, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
3(b) By-Laws of the Company revised and amended to April
23, 1996. (Incorporated by reference to Exhibit 3(b)
to Furniture Brands International, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996.)
4(a) Credit Agreement, dated as of November 17, 1994, as
amended and restated as of December 29, 1995, and
further amended and restated as of September 6, 1996,
among the Company, Broyhill Furniture Industries,
Inc., The Lane Company, Incorporated, Thomasville
Furniture Industries, Inc., Various Banks, Credit
Lyonnais New York Branch, as Documentation Agent,
Nationsbank, N.A., as Syndication Agent and Bankers
Trust Company, as Administration Agent. (Incorporated
by reference to Exhibit 4(a) to Furniture Brands
International, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.)
4(b) Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995 among The Lane Company,
Incorporated, Action Industries, Inc., Broyhill
Furniture Industries, Inc. and Thomasville Furniture
Industries as Sellers and Interco Receivables Corp.
as Purchaser. (Incorporated by reference to Exhibit
4(b) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the period ended December 31,
1995.)
4(c) Amendment No. 1, dated as of June 27, 1996, to the
Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995, among The Lane Company,
Incorporated, Action Industries, Inc., Broyhill
Furniture Industries, Inc. and Thomasville Furniture
Industries, Inc. as Sellers and Interco Receivables
Corp. as Purchaser. (Incorporated by reference to
Exhibit 4(b) to Furniture Brands International Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
4(d) Amendment No. 2, dated as of September 6, 1996, to
the Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995, and further amended as of June 27,
1996, among The Lane Company, Incorporated, Action
Industries, Inc., Broyhill Furniture Industries, Inc.
and Thomasville Furniture Industries, Inc. as Sellers
and Interco Receivables Corp. as Purchaser.
(Incorporated by reference to Exhibit 4(c) to
Furniture Brands International Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996.)
4(e) Receivables Purchase Agreement, dated as of November
15, 1994, as amended and restated as of December 29,
1995, among Interco Receivables Corp. as the Seller
and Atlantic Asset Securitization Corp. as an
Investor and Credit Lyonnais New York Branch as the
Agent. (Incorporated by reference to Exhibit 99(b) to
Furniture Brands International, Inc.'s Current Report
on Form 8-K, dated January 12, 1996.)
4(f) Amendment No. 1, dated as of June 27, 1996, to the
Receivables Purchase Agreement, dated as of November
15, 1994, as amended and restated as of December 29,
1995, among Interco Receivables Corp. as Seller,
Atlantic Asset Securitization Corp., as Issuer, and
Credit Lyonnais New York Branch, as Agent for the
Investors. (Incorporated by reference to Exhibit
4(d) to Furniture Brands International Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
4(g) Amendment No. 2, dated as of September 6, 1996, to
the Receivables Purchase Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995, and further amended as of June
27, 1996, among Interco Receivables Corp. as Seller,
Atlantic Asset Securitization Corp. as Issuer, and
Credit Lyonnais New York Branch, as Agent for the
Investors. (Incorporated by reference to Exhibit
4(e) to Furniture Brands International Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
4(h) Warrant Agreement, dated as of August 3, 1992,
between the Company and Society National Bank, as
Warrant Agent. (Incorporated by reference to Exhibit
4.5 to Furniture Brands International, Inc.'s
Current Report on Form 8-K, dated August 18, 1992.)
4(i) Agreement to furnish upon request of the Commission
copies of other instruments defining the rights of
holders of long-term debt of the Company and its
subsidiaries which debt does not exceed 10% of the
total assets of the Company and its subsidiaries on
a consolidated basis. (Incorporated by reference to
Exhibit 4(c) to Furniture Brands International,
Inc.'s Annual Report on Form 10-K for the year ended
February 28, 1981.)
10(a) Furniture Brands International, Inc.'s 1992 Stock
Option Plan, as amended. (Incorporated by reference
to Exhibit 4(c) to Furniture Brands International,
Inc.'s Post-Effective Amendment No. 1 to S-3
Registration Statement, No. 33-65714.)
10(b) Form of Indemnification Agreement between the
Company and Richard B. Loynd, Donald E. Lasater and
Lee M. Liberman. (Incorporated by reference to
Exhibit 10(h) to Furniture Brands International,
Inc.'s Annual Report on Form 10-K for the year ended
February 29, 1988.)<PAGE>
10(c) Consulting Agreement, dated as of September 23,
1992, between the Company and Apollo Advisors, L.P.
as amended on February 20, 1995. (Incorporated by
reference to Exhibit 10(c) to Furniture Brands
International, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1995.)
10(d) Registration Rights Agreement, dated as of August 3,
1992, between the Company and Apollo Interco
Partners, L.P. (Incorporated by reference to Exhibit
10(g) to Furniture Brands International, Inc.'s
Annual Report on Form 10-K for the year ended
December 31, 1992.)
10(e) Written description of bonus plan for management
personnel of the Lane Company, Incorporated.
(Incorporated by reference to Exhibit 10(e) to
Furniture Brands International, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1995.)
10(f) Retirement Plan for directors. (Incorporated by
reference to Exhibit 10(g) to Furniture Brands
International, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1994.)
10(g) Furniture Brands International, Inc. Executive
Incentive Plan.
10(h) Broyhill Furniture Industries, Inc. Executive
Incentive Plan. (Incorporated by reference to
Exhibit 10(i) to Furniture Brands International,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1994.)
10(j) Thomasville Furniture Industries, Inc. Executive
Incentive Plan
10(k) Employment Agreement, dated as of August 1, 1996,
between Action Industries, Inc. and Wilbert G.
Holliman. (Incorporated by reference to Exhibit
10(a) to Furniture Brands International Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
10(l) Written description of employment agreement between
the Company and Wilbert G. Holliman. (Incorporated
by reference to Exhibit 10(b) to Furniture Brands
International Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.)
10(m) Employment Agreement, dated as of August 1, 1996,
between the Company and Lynn Chipperfield.
(Incorporated by reference to Exhibit 10(c) to
Furniture Brands International Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996.)
10(n) Employment Agreement, dated as of August 1, 1996,
between the Company and David P. Howard.
(Incorporated by reference to Exhibit 10(d) to
Furniture Brands International Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996.)
10(o) Employment Agreement, dated as of August 1, 1996,
between Broyhill Furniture Industries, Inc. and
Brent B. Kincaid. (Incorporated by reference to
Exhibit 10(e) to Furniture Brands International
Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.)
10(p) Employment Agreement, dated as of August 1, 1996,
between Thomasville Furniture Industries, Inc. and
Frederick B. Starr. (Incorporated by reference to
Exhibit 10(f) to Furniture Brands International
Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.)
10(q) Employment Agreement, dated as of August 1, 1996,
between The Lane Company, Incorporated and K. Scott
Tyler, Jr. (Incorporated by reference to Exhibit
10(g) to Furniture Brands International Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
11 Statement regarding computation of per share
earnings.
21 List of Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99(a) Distribution and Services Agreement, dated November
17, 1994, between the Company and Converse Inc.
(Incorporated by reference to Exhibit 99(a) to
Furniture Brands International, Inc.'s Annual Report
on Form 8-K, dated December 2, 1994.)
99(b) Tax Sharing Agreement, dated November 17, 1994,
between the Company and Converse Inc. (Incorporated
by reference to Exhibit 99(b) to Furniture Brands
International, Inc.'s Annual Report on Form 8-K,
dated December 2, 1994.)
99(c) Distribution and Services Agreement, dated November
17, 1994, among the Company, The Florsheim Shoe
Company and certain of its subsidiaries.
(Incorporated by reference to Exhibit 99(c) to
Furniture Brands International, Inc.'s Annual Report
on Form 8-K, dated December 2, 1994.)
99(d) INTERCO/Florsheim Tax Sharing Agreement, dated
November 17, 1994, among the Company, The Florsheim
Shoe Company and certain of its subsidiaries.
(Incorporated by reference to Exhibit 99(d) to
Furniture Brands International, Inc.'s Annual Report
on Form 8-K, dated December 2, 1994.)
99(e) Amendment to Tax Sharing agreement, dated as of
February 21, 1996, between the Company and Converse,
Inc. (Incorporated by reference to Exhibit 99(e) to
Furniture Brands International, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996.)
(b) Reports on Form 8-K.
A Form 8-K was filed on October 18, 1996 containing the
Company's Press Release of the same date reporting the
Company's third quarter results.
SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM 10-K
WILL BE SUPPLIED ANY OR ALL SUCH EXHIBITS AT A CHARGE OF
TEN CENTS PER PAGE.<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Page
No.
----
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 18
Consolidated Statements of Operations for each of the years
in the three-year period ended December 31, 1996 19
Consolidated Statement of Cash Flows for each of the years
in the three-year period ended December 31, 1996 20
Consolidated Statement of Shareholders' Equity for each of
the years in the three-year period ended December 31, 1996 21
Notes to Consolidated Financial Statements 22
Financial Statement Schedule 39
Independent Auditors' Report 41
Consolidated Financial Statement Schedules:
Schedule
--------
Valuation and qualifying accounts II 40<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
<S> <C> <C> <C> <C> <C> <C> <C>
-----------
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in Thousands)
----------------------------------------------------------------------
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and from Acquired End of
Description of Period Expenses Reserves Company Period
----------- ---------- ---------- ---------- -------- ----------
Year Ended December 31, 1996
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $17,961 $ 6,179 $(10,436) (a) $ 3,350 (d) $17,054
Allowance for cash discounts/
chargebacks 2,763 689 (1,382) (c) - 2,070
------- ------- --------- ------- -------
$20,724 $ 6,868 $(11,818) $ 3,350 $19,124
======= ======= ========= ======= =======
Year Ended December 31, 1995
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 4,814 $ 1,672 $ (1,475) (a) $12,950 $17,961
Allowance for cash discounts/
chargebacks 248 271 (278) (b) 2,522 2,763
------- ------- -------- ------- -------
$ 5,062 $ 1,943 $ (1,753) $15,472 $20,724
======= ======= ======== ======= =======
Year Ended December 31, 1994
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 3,847 $ 3,372 $ (2,405) (a) $ - $ 4,814
Allowance for cash discounts 213 306 (271) (b) - 248
------- ------- -------- ------- -------
$ 4,060 $ 3,678 $ (2,676) $ - $ 5,062
======= ======= ======== ======= =======
(a) Uncollectible accounts written off, net of recoveries.
(b) Cash discounts taken by customers.
(c) Cash discounts taken by customers and claims allowed to customers.
(d) Subsequent purchase accounting adjustment for acquired company.
See accompanying independent auditors' report.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Furniture Brands International, Inc.:
We have audited the consolidated financial statements of
Furniture Brands International, Inc. and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement
schedule as listed in the accompany index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Furniture Brands International, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
St. Louis, Missouri
January 28, 1997<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Furniture Brands International, Inc.
------------------------------------
(Registrant)
By Wilbert G. Holliman
----------------------
Wilbert G. Holliman
President and Chief
Executive Officer
Date: March 25, 1997
Pursuant to the requirement of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on March 25,
1997.
Signature Title
--------- -----
Wilbert G. Holliman President and Director
----------------------- (Principal Executive Office)
(Wilbert G. Holliman)
Donald E. Lasater Director
-----------------------
(Donald E. Lasater)
Lee M. Liberman Director
-----------------------
(Lee M. Liberman)
Leon D. Black Director
-----------------------
(Leon D. Black)
Richard B. Loynd Director
-----------------------
(Richard B. Loynd)
Joshua J. Harris Director
-----------------------
(Joshua J. Harris)<PAGE>
Michael S. Gross Director
-----------------------
(Michael S. Gross)
John J. Hannan Director
-----------------------
(John J. Hannan)
Bruce A. Karsh Director
-----------------------
(Bruce A. Karsh)
John H. Kissick Director
-----------------------
(John H. Kissick)
Marc J. Rowan Director
-----------------------
(Marc J. Rowan)
John J. Ryan, III Director
-----------------------
(John J. Ryan, III)
Michael D. Weiner Director
-----------------------
(Michael D. Weiner)
David P. Howard Vice President and Treasurer
----------------------- (Principal Financial Officer)
(David P. Howard)
Steven W. Alstadt Controller
----------------------- (Principal Accounting Officer)
(Steven W. Alstadt)<PAGE>
Exhibit 10(g)
FURNITURE BRANDS
EXECUTIVE INCENTIVE PLAN
February 1995
Amended March 1, 1996
Amended September 26, 1996
Amended February 24, 1997<PAGE>
TABLE OF CONTENTS
-----------------
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . 1
OBJECTIVES OF PLAN. . . . . . . . . . . . . . . . . . . . . 1
Objectives . . . . . . . . . . . . . . . . . . . . . . . 1
Award Achievement. . . . . . . . . . . . . . . . . . . . 1
PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 2
Eligibility. . . . . . . . . . . . . . . . . . . . . . . 2
Participation. . . . . . . . . . . . . . . . . . . . . . 2
Non-Eligibility. . . . . . . . . . . . . . . . . . . . . 3
Plan Year. . . . . . . . . . . . . . . . . . . . . . . . 3
HOW THE PLAN WORKS. . . . . . . . . . . . . . . . . . . . . 3
0Plan Factors. . . . . . . . . . . . . . . . . . . . . . 3
Setting Furniture Brands Goals . . . . . . . . . . . . . 3
Notification of Participation. . . . . . . . . . . . . . 3
MECHANICS OF DETERMINING AWARDS . . . . . . . . . . . . . . 4
Definitions of Terms . . . . . . . . . . . . . . . . . . 4
Mechanics of Determining Awards. . . . . . . . . . . . . 4
DISCRETIONARY AWARDS PROGRAM. . . . . . . . . . . . . . . . 5
CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . 6
PAYMENT OF AWARDS . . . . . . . . . . . . . . . . . . . . . 6
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 6
MANNER OF EXERCISE OF COMMITTEE AUTHORITY. . . . . . . . . 6
CERTAIN PERFORMANCE BASED AWARDS . . . . . . . . . . . . . 6
NO CONTRACT OF EMPLOYMENT. . . . . . . . . . . . . . . . . 6
ASSIGNMENTS AND TRANSFERS. . . . . . . . . . . . . . . . . 6
GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . 6
AMENDMENT AND TERMINATION OF PLAN AND AWARDS . . . . . . . 6
EFFECTIVE DATE OF THE PLAN. . . . . . . . . . . . . . . . . 7<PAGE>
FURNITURE BRANDS
CORPORATE
EXECUTIVE INCENTIVE PLAN
------------------------
1. INTRODUCTION
------------
This Executive Incentive Plan (the "Plan") has been designed for
those management persons at the corporate offices of Furniture Brands
International, Inc. ("FBI") who directly and substantially influence
achievement of certain corporate goals. The Plan provides monetary
awards for the achievement of those goals. In select cases, the Plan
provides for additional special discretionary awards.
FBI believes that the total annual income of key employees should
be influenced by their individual and collective effort, and that
rewards should directly relate to the achievement of planned,
meaningful results. The Plan is in addition to and assumes the
existence of a base salary which is competitive, equitable, and
subject to periodic performance-related adjustments.
The overall administration and control of the Plan, including
final determination of annual bonus awards to each participant, is the
responsibility of the Executive Compensation and Stock Option
Committee of the FBI Board of Directors (the "Committee"). The
Committee (or a subcommittee thereof which has been designated by the
Committee to administer the Plan) shall consist solely of three or
more members of the FBI Board of Directors who are "outside directors"
as defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder. Members of the
Committee are not eligible to participate in the Plan.
2. OBJECTIVES OF PLAN
------------------
A. Objectives. The Plan has been created with several
objectives in mind:
(1) to emphasize achievement of planned strategic
objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives
through meaningful compensation opportunities.<PAGE>
B. Award Achievement. To achieve these objectives, the Plan
is designed to:
(1) provide for monetary awards of significant value
related directly to measurable FBI results;
(2) motivate participating individuals to achieve results
beyond the routine of position responsibilities; and
(3) be appropriate for both the level of responsibility
and total compensation for the position.
Total compensation, resulting from the combination of base
salary and monetary awards under the Plan, is designed to
be competitive with total compensation for similar
positions in American industry.
3. PARTICIPATION
-------------
A. Eligibility. Only management persons whose performance
directly and substantially influences the annual results
of FBI will be considered for participation in the Plan.
Ordinarily the extent of such influence will be
reflected in the Bonus Percentage (as herein defined).
B. Participation
-------------
(1) At the start of each Plan Year (as herein defined)
FBI management will submit a list of proposed
participants and Bonus Percentages for review and
approval by the Committee. The Committee may in
its discretion change the participants and Bonus
Percentages, provided, however, that the Committee
shall, within the first 90 days of each Plan Year,
set forth in writing, a final approved list of
participants and Bonus Percentages for such Plan
Year. Such final list of participants and Bonus
Percentages may not thereafter be modified except
as provided in this Plan. With respect to persons
who have been determined to be "covered employees"
within the meaning of Code Section 162(m)(3) for
such Plan Year (a "Covered Employee"), additional
participation in the Plan during a Plan Year shall
be permitted only in the event of an unusual
circumstance, such as a new hire. Executive
officers of the Company may be participants in the
Plan to the extent approved by the Committee.
(2) To earn an award, an individual must be designated
a participant for the Plan Year and must
participate effectively for a minimum of eight full
months of the Plan Year.<PAGE>
(3) A participant who has lost time due to illness, or
dies, retires or becomes totally disabled during
the Plan Year, will be considered for an award
under the Plan provided that his/her influence on
goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
---------------
(1) Any individual whose employment is terminated at
any time during the Plan Year by reason of
voluntary or encouraged resignation, or who is
discharged, will not receive an award.
(2) Any individual who has been demoted at any time
during the Plan Year to a position not included in
the Plan will not receive an award.
D. Plan Year. The Plan Year will correspond with the FBI
fiscal year.
4. HOW THE PLAN WORKS
------------------
A. Plan Factors. There are two factors which will be
measured in order to determine an award: opportunity
and FBI performance.
(1) Opportunity is the potential impact that a
participant may have on the achievement of goals.
This is expressed by the Bonus Percentage.
(2) FBI Performance is the result of achievement. This
is measured by the percentage of attainment of
FBI's goals.
B. Setting FBI Goals. At or prior to the beginning of each
Plan Year, FBI management will recommend to the
Committee for approval, one or more objective measurable
performance goals for FBI (the "Goals") for such year,
and the weighting to be assigned to each Goal. The
Goals will be based upon one or more of the following
criteria: sales; earnings; earnings per share; pre-tax
earnings; net profits; return on equity; cash flow; debt
reduction; asset management; stock price; market share;
costs; or selling, general and administrative ("SG&A")
expenses. The Goals will be realistic, yet rigorous.
They will be attainable, but attainment will require
above average performance. The Committee may, in its
discretion, approve management's recommendations or
change the Goals and/or weightings, provided, however,
that the Company shall, within the first 90 days of the
year (or, in the case of a new hire added to the Plan<PAGE>
during the year, before 25% of such individual's
services for the Company for the year has elapsed), set
forth in writing the final approved Goals, the Minimum
Percentages (as herein defined) for such year and the
weighting to be assigned to such Goals.
C. Notification of Participation. Each participant's
target Bonus Percentage will be communicated each Plan
Year by delivery of the Participation Form.
5. MECHANICS OF DETERMINING AWARDS
-------------------------------
A. Definitions of Terms
--------------------
(1) Bonus Percentage. The Bonus Percentage will be
expressed as a percentage (not less than 10% and
not more than 50%) of the participant's base
salary. That percentage will be higher for a
position with significantly greater
responsibilities, thus recognizing the direct
relationship between position responsibility and
influence on FBI results. Participants who are
promoted during a Plan Year to a position with a
higher Bonus Percentage will receive a prorated
award based on the percentage of the Plan Year
spent in each position.
(2) Aggregate Target Amount. The Aggregate Target
Amount will be expressed as a dollar amount,
calculated by multiplying the participant's base
annual salary rate, as in effect on March 1 of the
Plan Year, which has been established at or before
the time of the setting of the Aggregate Target
Amount, by the Bonus Percentage. The result will
be the total award to which the participant will be
entitled if FBI achieves 100% of all Goals for that
Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted
Target Amount will be calculated by multiplying the
Aggregate Target Amount by the weighted percentage
applicable to the Goal. The result for each Goal
will be the portion of the total award to which the
participant will be entitled if FBI achieves 100%
of that Goal for that Plan Year. The sum of the
Weighted Target Amounts will equal the Aggregate
Target Amount.
B. Mechanics of Determining Awards.
--------------------------------
(1) FBI Performance. FBI's performancegainst the Goals
will be measured by the percentage of achievement
of each Goal. FBI's performance with respect to
each Goal will be based upon audited results.
(2) Achievement of Target. The Plan is designed to
provide the participant with 100% of his/her
Weighted Target Amount with respect to each Goal if
FBI achieves 100% satisfaction of that Goal.
(3) Minimum FBI Performance. Each Plan Year the
Committee will establish a minimum percentage (the
"Minimum Percentage") with respect to each Goal.
Achievement below the Minimum Percentage will
result in no award with respect to that Goal.
Under certain circumstances, the Committee may
establish Goals the achievement of which
contemplate reducing rather than increasing an
amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage
which will be applied to the Weighted Target Amount
for such Goal will be inversely proportional to the
performance against the Goal. For example, if a
Goal is a year-end debt amount and the actual year
-end debt is 105% of the Goal, the percentage of
Weighted Target Amount to be paid with respect to
that Goal would be 95%. In these circumstances,
the Minimum Percentage will be expressed in terms
of a figure greater than 100%.
(4) Calculation of Award. The percentage of FBI's
achievement of each Goal will be applied to the
Weighted Target Amount for that Goal to determine
the amount of the award payable with respect to
that Goal. Awards will be calculated separately
for each Goal, but will be aggregated and paid as
one award check.
(5) Discretion to Increase Award. The Committee shall,
under no circumstances, increase an award granted
under this Section 5 except to the extent permitted
under Treasury Regulation Section 1.162-
27(e)(2)(iii).
6. DISCRETIONARY AWARDS PROGRAM.
-----------------------------
(1) To recognize special needs, a discretionary awards
program is part of this Plan. Its objective is to
recognize the performance of FBI through a more
qualitative evaluation, rather than a quantitative
evaluation. This could occur, for example, if FBI
does not achieve one or more Goals due to business
or economic reasons beyond its control but, given<PAGE>
these adverse circumstances, nonetheless performed
well. Under such circumstances, a special award
may be granted at the discretion of the Committee.
(2) To the extent all or any portion of an award is not
immediately deductible as compensation expense by
FBI for federal income tax purposes, payment of
such award or portion thereof, as the case may be,
will be deferred until following termination of
employment of the participant or until such earlier
date as the Committee shall, in its discretion,
determine, either at the time of deferral or
thereafter, whereupon such award or any portion
thereof, as the case may be, less appropriate
withholdings, will be paid by check provided that
the same shall then have become immediately
deductible as compensation expense by FBI for
federal income tax purposes. Simple interest shall
be paid annually on the deferred compensation at
FBI's effective borrowing rate.
(3) Nothing contained in this Section 6 shall be deemed
to permit or provide for discretionary increases in
awards payable to Covered Employees under Section 5
hereof.
7. CERTIFICATION. Before any payments are made under this Plan,
the Committee must certify in writing that the Goals justifying the
payment of an award have been met.
8. PAYMENT OF AWARDS. Except as provided in Section 6 hereof,
awards, to the extent immediately deductible as compensation expense
by FBI for federal income tax purposes, less appropriate withholdings,
will be paid by check as soon as practical after the audited close of
a fiscal year.
9. ADMINISTRATION. Subject to the limitations as herein set
forth, the Committee is authorized and empowered to administer the
Plan; interpret the Plan; establish, modify and grant waivers of award
restrictions; prescribe, amend and rescind rules relating to the Plan;
and determine the rights and obligations of participants under the
Plan. All decisions of the Committee shall be final and binding upon
all parties including the Company, its stockholders, and its
participants.
10. MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The express grant
of any specific power to the Committee and the taking of any action by
the Committee, shall not be construed, as limiting any power or
authority of the Committee. All designations of participation, bonus
percentages, goals, minimum percentages, aggregate amounts, and
certifications of performance shall be in writing. A writing signed
by all members of the Committee shall constitute the act of the
Committee without the necessity, in such event, to hold a meeting.
The Committee may delegate the authority, subject to such terms as the<PAGE>
Committee shall determine, to perform administrative functions
(excluding those described in the second sentence of this Section 10)
under the Plan.
11. CERTAIN PERFORMANCE BASED AWARD. Any awards under Section 5
hereof are intended to be "qualified performance-based compensation"
within the meaning of Section 162(m) of the Code and shall be paid
solely on account of the attainment of one or more preestablished,
objective performance goals within the meaning of Section 162(m). If
any provision of this Plan does not comply with the requirements of
Section 162(m) of the Code as then applicable to any employee, such
provision shall be construed or deemed amended to the extent necessary
to conform to such requirements with respect to such employee.
12. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not
be considered an agreement to employ a participant for any period of
time or in any position.
13. ASSIGNMENTS AND TRANSFERS. With the exception of transfer by
will or by the laws of descent and distribution, rights under the Plan
may not be transferred or assigned.
14. GOVERNING LAW. The Plan shall be construed, administered and
governed in all respects under and by the applicable internal laws of
the State of Missouri, without giving effect to the principles of
conflicts of law thereof.
15. AMENDMENT AND TERMINATION OF PLAN AND AWARDS. The Board may
amend, alter, suspend, discontinue or terminate the Plan without the
consent of stockholders or participants, except as is required by any
federal or state law or regulation or the rules of any stock exchange
on which the shares of FBI ("Shares") are listed, or if the Board in
its discretion determines that obtaining such stockholder approval is
for any reason advisable, provided, however, that (i) without the
consent of an affected participant, no amendment, alteration,
suspension, discontinuation, or termination of the Plan may impair the
rights of such participant under any award theretofore granted to such
participant, and (ii) the Plan may not be amended without the consent
of the stockholders of a majority of the Shares then outstanding to
(a) materially modify the requirements as to eligibility for
participation in the Plan, (b) change the specified performance
objectives for payment of awards under Section 5, (c) increase the
maximum award payable under Section 5, (d) withdraw administration of
the Plan from the Committee or (e) extend the period during which
awards may be granted.
16. EFFECTIVE DATE OF THE PLAN. The Plan, as amended, shall become
effective on January 1, 1997 provided that the Plan is approved by the
affirmative vote of the holders of a majority of the Shares present or
represented and entitled to vote at the 1997 annual meeting of the
stockholders of FBI. The terms of the Plan shall be perpetual;
subject to earlier termination by the Board pursuant to Section 15,
after which no awards may be made under the Plan, but any such
termination shall not affect awards then outstanding or the authority
of the Committee to continue to administer the Plan.<PAGE>
Exhibit 10(j)
THOMASVILLE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN<PAGE>
TABLE OF CONTENTS
-----------------
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1
OBJECTIVES OF PLAN . . . . . . . . . . . . . . . . . . . . . 1
Objectives . . . . . . . . . . . . . . . . . . . . . . 1
Award Achievement . . . . . . . . . . . . . . . . . . . 1
PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 2
Eligibility . . . . . . . . . . . . . . . . . . . . . 2
Participation. . . . . . . . . . . . . . . . . . . . . 2
Non-Eligibility. . . . . . . . . . . . . . . . . . . . 2
Plan Year. . . . . . . . . . . . . . . . . . . . . . . 2
HOW THE PLAN WORKS. . . . . . . . . . . . . . . . . . . . . 2
Plan Factors . . . . . . . . . . . . . . . . . . . . . 2
Notification of Participation. . . . . . . . . . . . . 3
Setting Thomasville Goals. . . . . . . . . . . . . . . 3
MECHANICS OF DETERMINING AWARDS . . . . . . . . . . . . . . 3
Definitions of Terms. . . . . . . . . . . . . . . . .. 3
Mechanics of Determining Awards . . . . . . . . . . .. 4
DISCRETIONARY AWARDS PROGRAM . . . . . . . . . . . . . . .. 4
PAYMENT OF AWARDS. . . . . . . . . . . . . . . . . . . . . . 5
NO CONTRACT OF EMPLOYMENT. . . . . . . . . . . . . . . . . . 5
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . 6
EXHIBIT II . . . . . . . . . . . . . . . . . . . . . . 7
EXHIBIT III . . . . . . . . . . . . . . . . . . . . . 8
EXHIBIT IV . . . . . . . . . . . . . . . . . . . . . . 9<PAGE>
THOMASVILLE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for
those management persons of Thomasville Furniture Industries, Inc.
("Thomasville") who directly and substantially influence achievement
of certain corporate goals. The Plan provides monetary awards for the
achievement of those goals. In select cases, the Plan provides for
additional special discretionary awards.
The Plan is in addition to and assumes the existence of a base
salary which is competitive, equitable, and subject to periodic
performance-related adjustments.
Thomasville believes that the total annual income of key
employees should be influenced by their individual and collective
effort, and that rewards should directly relate to the achievement of
planned, meaningful results.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several
objectives in mind:
(1) to emphasize achievement of planned strategic
objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives
through meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan
is designed to:
(1) provide for monetary awards of significant value
related directly to measurable Thomasville results;
(2) motivate participating individuals to achieve results
beyond the routine of position responsibilities; and
(3) be appropriate for both the level of responsibility
and total compensation for the position.
Total compensation, resulting from the combination of
base salary and monetary awards under the Plan, is
designed to be competitive with total compensation for
similar positions in American industry.<PAGE>
3. PARTICIPATION
A. Eligibility. Only management persons whose performance
directly and substantially influences the annual results
of Thomasville will be considered for participation in
the Plan. Ordinarily the extent of such influence will
be reflected in the Bonus Percentage (as herein defined).
B. Participation
(1) At the start of each Plan Year Thomasville
management will submit a list of proposed
participants and Bonus Percentages for review and
approval by the Executive Compensation and Stock
Option Committee of the Furniture Brands
International, Inc. Board of Directors (the
"Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated a
participant for the Plan Year and must participate
effectively for a minimum of eight full months of
the Plan Year.
(3) A participant who has lost time due to illness, or
dies, retires or becomes totally disabled during the
Plan Year, will be considered for an award under the
Plan provided that his/her influence on goal
achievement can be identified and that achievement
of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any
time during the Plan Year by reason of voluntary or
encouraged resignation, or who is discharged, will
not receive an award.
(2) Any individual who has been demoted at any time
during the Plan Year to a position not included in
the Plan will not receive an award.
D. Plan Year. The Plan Year will correspond with the
Thomasville calendar fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be
measured in order to determine an award: opportunity and
Thomasville performance.
(1) Opportunity is the potential impact that a
participant may have on the achievement of goals.
This is expressed by the Bonus Percentage.<PAGE>
(2) Thomasville Performance is the result of
achievement. This is measured by the percentage of
attainment of Thomasville's goals.
B. Notification of Participation. Each participant's target
Bonus Percentage will be communicated each Plan Year by
delivery of the Participation Form (see Exhibit II).
C. Setting Thomasville Goals. At or prior to the beginning
of each Plan Year, Thomasville management will recommend
to the Committee for approval, one or more objective
measurable performance goals for Thomasville (the "Goals")
for such year, and the weighting to be assigned to each
Goal. The Goals will be realistic, yet rigorous. They
will be attainable, but attainment will require above
average performance. The Committee may, in its
discretion, approve management's recommendations or change
the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be
expressed as a percentage (not less than 10% and not
more than 70%) of the participant's base salary.
The percentage will increase with significant
increases in responsibility, thus recognizing the
direct relationship between position responsibility
and influence on Thomasville results. Participants
who are promoted during a Plan Year to a position
with a higher Bonus Percentage will receive a
prorated award based on the percentage of the Plan
Year spent in each position.
(2) Aggregate Target Amount. The Aggregate Target
Amount will be expressed as a dollar amount,
calculated by multiplying the participant's base
annual salary rate (in effect on December 31 of the
Plan Year) by the Bonus Percentage. The result will
be the total award to which the participant will be
entitled if Thomasville achieves 100% of all Goals
for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted
Target Amount will be calculated by multiplying the
Aggregate Target Amount by the weighted percentage
applicable to the Goal. The result for each Goal
will be the portion of the total award to which the
participant will be entitled if Thomasville achieves
100% of that Goal for that Plan Year. The sum of
the Weighted Target Amounts will equal the Aggregate
Target Amount.<PAGE>
B. Mechanics of Determining Awards.
(1) Thomasville Performance. Thomasville's performance
against the Goals will be measured by the percentage
of achievement of each Goal. Thomasville's
performance with respect to each Goal will be based
upon audited results.
(2) Achievement of Target. The Plan is designed to
provide the participant with 100% of his/her
Weighted Target Amount with respect to each Goal if
Thomasville achieves 100% satisfaction of that Goal.
(3) Minimum Thomasville Performance. Each Plan Year the
Committee will establish a minimum percentage with
respect to each Goal. Achievement below the minimum
percentage will result in no award with respect to
that Goal.
Under certain circumstances, the Committee may
establish Goals the achievement of which contemplate
reducing rather than increasing an amount, such as a
reduced debt level or reduced SG&A expenses. In any
such case, the percentage which will be applied to
the Weighted Target Amount for such Goal will be
inversely proportional to the performance against
the Goal. For example, if a Goal is a year-end debt
amount and the actual year-end debt is 105% of the
Goal, the percentage Weighted Target Amount to be
paid with respect to that Goal would be 95%. In
these circumstances, the minimum performance
percentage will be expressed in terms of a figure
greater than 100%.
(4) Calculation of Award. The percentage of
Thomasville's achievement of each Goal will be
applied to the Weighted Target Amount for that Goal
to determine the amount of the award payable with
respect to that Goal. Awards will be calculated
separately for each Goal, but will be aggregated and
paid as one award check. The examples set forth in
Exhibit I illustrate this calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective is
to recognize the performance of Thomasville through a more qualitative
evaluation, rather than a quantitative evaluation. This could occur,
for example, if Thomasville does not achieve one or more Goals due to
business or economic reasons beyond its control but, given these
adverse circumstances, nonetheless performed well. Under such
circumstances, a special award may be granted at the discretion of the
Committee.<PAGE>
7. PAYMENT OF AWARDS. Awards, to the extent immediately
deductible as compensation expense by Thomasville for federal income
tax purposes, less appropriate withholdings, will be paid by check as
soon as practical after the audited close of a fiscal year. To the
extent all or any portion of an award is not immediately deductible as
compensation expense by Thomasville for federal income tax purposes,
payment of such award or portion thereof, as the case may be, will be
deferred until following termination of employment of the participant,
whereupon such award or such portion thereof, as the case may be, plus
simple interest at Thomasville's effective borrowing rate for the
period of deferral, less appropriate withholdings, will be paid by
check as soon as the same shall become immediately deductible as
compensation expense by Thomasville for federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not
be considered an agreement to employ a participant for any period of
time or in any position.<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXHIBIT 11
----------
FURNITURE BRANDS INTERNATIONAL, INC.
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
---------------------------------------------------------
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
----------- ----------- -----------
Primary:
Weighted average common shares outstanding during the
period.................................................... 59,172,153 50,114,034 50,035,868
Common shares issuable on exercise of stock options (1)..... 1,052,852 524,545 789,958
Common shares issuable on exercise of warrants (2).......... 1,721,448 - 669,006
---------- ---------- ----------
Weighted average common and common equivalent shares
outstanding for primary calculation....................... 61,946,453 50,638,579 51,494,832
========== ========== ==========
Fully diluted:
Weighted average common and common equivalent shares
outstanding for primary calculation....................... 61,946,453 50,638,579 51,494,832
Common shares issuable on exercise of stock options (3)..... 270,948 242,985 11,519
Common shares issuable on exercise of warrants (4).......... 653,120 1,435,163 -
---------- ---------- ----------
Weighted average common and common equivalent shares
outstanding for fully diluted calculation................. 62,870,521 52,316,727 51,506,351
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <S>
EXHIBIT 11 (continued)
----------------------
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
------------------------------------------------------------------
(1) Includes common stock options, the exercise of which would result in dilution of net earnings per
common share. Such common stock options have been considered as exercised and the proceeds
therefrom were used to purchase common stock at the average common stock market price, if the
average common stock market price was higher than the common stock option exercise price during the
period.
(2) Includes common stock warrants, the exercise of which would result in dilution of net earnings per
common share. Such common stock warrants have been considered as exercised and the proceeds
therefrom were used to purchase common stock at the average common stock market price, if the
average common stock market price was higher than the common stock warrant exercise price during
the period.
(3) Additional common shares issuable resulting from the application of the same principles described
in Note (1), except that the proceeds from assumed common stock options exercised were used to
purchase common stock at the month end common stock market price, if the month end common stock
market price was higher than the average common stock market price during the period.
(4) Additional common shares issuable resulting from the application of the same principles described
in Note (2), except that the proceeds from assumed common stock warrants exercised were used to
purchase common stock at the month end common stock market price, if the month end common stock
market price was higher than the average common stock market price during the period.
</TABLE>
Exhibit 21
----------
List of Subsidiaries
of
Furniture Brands International, Inc.
Jurisdiction of
Name of Subsidiary Incorporation
------------------ ---------------
Action Transport, Inc. Delaware
Action Industries, Inc. Virginia
Action UK, Inc. Delaware
Broyhill Furniture Industries, Inc. North Carolina
Broyhill Transport, Inc. North Carolina
Fayette Enterprises, Inc. Mississippi
Gordon's, Inc. Delaware
Interco Receivables Corp. Delaware
Lane Advertising, Inc. Virginia
The Lane Company, Incorporated Virginia
Thomasville Furniture Latin America, S.A. Panama
Thomasville Furniture Industries, Inc. Delaware
Thomasville Home Furnishings, Inc. Delaware
Thomasville Upholstery, Inc. Delaware<PAGE>
Exhibit 23
----------
Independent Auditors' Consent
The Board of Directors
Furniture Brands International, Inc.:
We consent to incorporation by reference in registration
statement (No. 33-65714) on Form S-8 of Furniture Brands
International, Inc. of our report dated January 28, 1997, relating to
the consolidated balance sheets of Furniture Brands International,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholder's equity,
and cash flows and related schedule for each of the years in the
three-year period ended December 31, 1996, which report appears in the
December 31, 1996 annual report on Form 10-K of Furniture Brands
International, Inc.
St. Louis, Missouri
March 25, 1997<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> 12-MOS
<CASH> 19,365
<SECURITIES> 0
<RECEIVABLES> 302,541
<ALLOWANCES> 19,124
<INVENTORY> 281,107
<CURRENT-ASSETS> 607,267
<PP&E> 425,729
<DEPRECIATION> 123,767
<TOTAL-ASSETS> 1,269,204
<CURRENT-LIABILITIES> 144,606
<BONDS> 572,600
0
0
<COMMON> 61,432
<OTHER-SE> 278,554
<TOTAL-LIABILITY-AND-EQUITY> 1,269,204
<SALES> 1,696,795
<TOTAL-REVENUES> 1,696,795
<CGS> 1,228,355
<TOTAL-COSTS> 1,228,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,179
<INTEREST-EXPENSE> 45,217
<INCOME-PRETAX> 88,292
<INCOME-TAX> 34,070
<INCOME-CONTINUING> 54,222
<DISCONTINUED> 0
<EXTRAORDINARY> (7,417)
<CHANGES> 0
<NET-INCOME> 46,805
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.74
</TABLE>
