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, 1997 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
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Commission file number I-91
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Furniture Brands International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 43-0337683
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314/863-1100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock - $1.00 Stated Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all<PAGE>
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
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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, 1998, was
approximately $1,423,012,780.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
52,127,055 shares as of February 28, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on May 6, 1998 ................... Part III<PAGE>
PART I
Item 1. Business
----------------
(a) General Development of Business
On February 10, 1998, Haverty Furniture Companies, Inc. and Furniture
Brands International, Inc. jointly announced a strategic alliance
whereby Havertys will allocate, upon full implementation of the
program, up to one-half of its retail floor space in all of its stores
to the prominent display of product manufactured by the Company.
(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.; Lane Furniture Industries, Inc.; and Thomasville
Furniture Industries, Inc.
PRODUCTS
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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.
UPHOLSTERY
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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
<PAGE>
BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium price bedroom, dining room,
upholstered and occasional furniture aimed at middle-income consumers.
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, contemporary and
lifestyle designs.
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.
LANE FURNITURE INDUSTRIES
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 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. Royal Development Company designs and
manufactures the mechanisms used in Action Industries' reclining
furniture products.
The Lane division 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 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 furniture sells in the "premium" price category and is
distributed to high-end furniture stores and interior designers.
The Venture division manufactures and markets moderately priced
wicker, rattan and bamboo upholstered furniture, tables, occasional
wood pieces and other home furnishing accessories. Venture
manufactures a line of outdoor and patio furniture featuring fast
drying upholstered cushions under the names WeatherMaster and
Weathercraft, which have 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 and wood 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/Lifestyle Contemporary. Upholstery
style is determined by both frame style and fabric or leather
selection. Thomasville's frame assortment allows the consumer to
select from a wide variety of different styles within the general
style categories, and as much as 45% of the Thomasville fabric and
leather offering changes in a 12 month period, insuring that the
latest colors and textures are available.
Wood furniture is primarily marketed in four major styles: American
Traditional/Country, 18th Century, European Traditional and Casual
Contemporary. To appeal to a younger generation, the Company has
recently introduced products which feature smaller scale and lighter
wood than Thomasville's traditional wood furniture.
Thomasville's Founders division offers assembled bedroom sets,
bookcases and home entertainment centers as well as RTA (ready-to-
assemble) furniture such as home entertainment centers, bookcases,
bedroom and kitchen/utility furniture and computer desks.
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<PAGE>
contract customers.
DISTRIBUTION
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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
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
Havertys, 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 97 free-standing stores, 1,089 galleries and 443 furniture
centers.
Haverty Furniture Companies, Inc. and the Company recently announced a
strategic alliance whereby Havertys will allocate, upon full
implementation of the program, up to one-half of its retail floor
space in all of its stores to the prominent display of product
manufactured by the Company. This alliance advances the Company's
strategy of expanding distribution and dedicated display space.
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.<PAGE>
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 348
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.
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 443 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.
LANE FURNITURE INDUSTRIES
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 Havertys 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 485
participating dealers. This includes 234 dealer-owned Comfort
Showcase Galleries established by Action Industries. The Action
Industries galleries average approximately 4,200 square feet of retail<PAGE>
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 200 square feet for a cedar chest boutique to 4,000
square feet for a Hickory Chair gallery.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at 684 independently-owned retail
locations, including 256 Thomasville Galleries, 97 Thomasville Home
Furnishings stores and 331 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 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 Value City 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 Better Homes
and Gardens, People and Good Housekeeping. 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
is developing and beginning to implement national and regional
television advertising campaigns.
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<PAGE>
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.
LANE FURNITURE INDUSTRIES
Lane became a well-known brand name through The Lane Company,
Incorporated'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 and Mark Hampton 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<PAGE>
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 print ads or
Thomasville-designed newspaper inserts for dealer use.
MANUFACTURING
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Broyhill operates 18 finished case goods and upholstery production and
warehouse facilities totalling over 5.0 million square feet of
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.
Lane operates 14 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.
Thomasville manufactures or assembles its products at 16 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. Ninety percent of CreativeInteriors products are shipped
within 14 days of production.
RAW MATERIALS AND SUPPLIERS
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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<PAGE>
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
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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. While the Company may be required to make
capital investments at some of its facilities to ensure compliance,
the Company believes that it will continue to meet all applicable
requirements in a timely fashion and that the amount of money required
to meet these 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
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
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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<PAGE>
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
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As of December 31, 1997, the Company employed approximately 20,700
people. None of the Company's employees is represented by a union.
BACKLOG
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The combined backlog of the Company's operating companies as of
December 31, 1997 aggregated approximately $223 million, compared to
approximately $205 million as of December 31, 1996.
Item 2. Properties
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The Company owns or leases the following principal plants, offices and
warehouses:
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<PAGE>
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
--------- -------- -------- --------- ------
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
Thomasville Thomasville, NC Headquarters/ 256,000 Owned
Showroom
Thomasville Thomasville, NC Plant/Warehouse 412,000 Owned<PAGE>
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
--------- -------- -------- --------- ------
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 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
-----------------------
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
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 1997 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<PAGE>
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
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Item 5. Market for The Registrant's Common Equity and Related
--------------------------------------------------------------
Stockholder Matters
--------------------
As of February 28, 1998, 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, 1996 and December 31, 1997.
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>
FIVE-YEAR CONSOLIDATED FINANCIAL REVIEW
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(Dollars in thousands except per share data) Year Ended December 31,
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1997 1996 1995 1994 1993
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Summary of operations:
Net sales $1,808,276 $1,696,795 $1,073,889 $1,072,696 $980,532
Gross profit 450,690 431,473 291,237 298,712 275,323
Interest expense 42,747 45,217 33,845 37,886 38,621
Earnings before income tax expense,
discontinued operations and
extraordinary item 107,254 88,292 57,038 48,841 37,266
Income tax expense 40,201 34,070 22,815 20,908 15,924
Net earnings from continuing operations 67,053 54,222 34,223(1) 27,933 21,342
Discontinued operations - - - 10,339 24,026
Extraordinary item - (7,417) (5,815) - -
Net earnings $ 67,053 $ 46,805 $ 28,408 $ 38,272 $ 45,368
Per share of common stock - diluted:
Net earnings from continuing operations $ 1.15 $ 0.88 $ 0.67(1) $ 0.54 $ 0.41
Discontinued operations - - - 0.20 .47
Extraordinary item - (0.12) (0.11) - -
Net earnings $ 1.15 $ 0.76 $ 0.56 $ 0.74 $ 0.88
Weighted average common and common
equivalent shares outstanding -
diluted (in thousands) 58,473 61,946 50,639 51,495 51,375
Other information (continuing operations):
Working capital $ 482,288 $ 462,661 $ 455,036 $ 308,323 $271,588
Property, plant and equipment, net 294,061 301,962 306,406 181,393 191,581
Capital expenditures 40,004 40,344 35,616 21,108 30,197
Total assets 1,257,236 1,269,204 1,291,739 881,735 858,163
Long-term debt 667,800 572,600 705,040 409,679 403,255
Shareholders' equity $ 323,322 $ 419,657 $ 301,156 $ 275,394 $338,557
--------------------------------------------------------------------------------------------------------------------
(1) 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 $0.58, respectively.<PAGE>
</TABLE>
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 the following
factors have had a significant effect on its recent financial
statements.
Common stock repurchase. On June 27, 1997, the Company completed
the repurchase of 10,842,299 shares of common stock and warrants to
purchase 290,821 shares of common stock from Apollo Investment Fund,
L.P. and Lion Advisors, L.P. for $170.5 million. The Company financed
the repurchase by amending the Secured Credit Agreement to include a
new term loan facility of $200.0 million.
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.
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 1997, 1996
and 1995. The results for 1995 do not include any of the operations
of Thomasville.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995
----------------------- --------------------- -------------------
% of Net % of Net % of Net
Dollars Sales Dollars Sales Dollars Sales
------------------------------------------------------------------------------------------
Net sales $1,808.3 100.0% $1,696.8 100.0% $1,073.9 100.0%
Cost of operations 1,319.5 73.0 1,228.4 72.4 760.4 70.8
Selling, general and
administrative
expenses 286.1 15.8 283.4 16.7 198.3 18.5
Depreciation and
amortization 56.0 3.1 54.1 3.2 36.1 3.3
-----------------------------------------------------------------------------------------
Earnings from
operations 146.7 8.1 130.9 7.7 79.1 7.4
Interest expense 42.7 2.4 45.2 2.7 33.9 3.2
Other income, net:
Gain on insurance
settlement - - - - 7.9 0.7
Other 3.3 0.2 2.6 0.2 3.9 0.4
-----------------------------------------------------------------------------------------
Earnings before income
tax expense and
extraordinary item 107.3 5.9 88.3 5.2 57.0 5.3
Income tax expense 40.2 2.2 34.1 2.0 22.8 2.1
-----------------------------------------------------------------------------------------
Net earnings before
extraordinary item $ 67.1 3.7% $ 54.2 3.2% $ 34.2 3.2%
==========================================================================================
Gross profit(1) $ 450.7 24.9% $ 431.5 25.4% $ 291.2 27.1%
(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>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
1997 1996 1995
------------------------------------------------------------------------------------------
Net sales $1,808.3 $1,696.8 $1,073.9
Cost of operations 1,319.5 1,228.4 760.4
Depreciation (associated with
cost of goods sold) 38.1 36.9 22.3
------------------------------------------------------------------------------------------
Gross profit $ 450.7 $ 431.5 $ 291.2
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales for 1997 were $1,808.3 million compared to $1,696.8 million for 1996,
an increase of $111.5 or 6.6%. The improved sales performance for 1997 occurred at
each operating company and ranged, in varying degrees, across all product lines.
The increase in net sales was achieved through continued introductions of new
products, emphasis on the Company's brand names and expansion of distribution.
Cost of operations for 1997 was $1,319.5 million compared to $1,228.4 million
for 1996, an increase of 7.4%. Cost of operations as a percentage of net sales
increased from 72.4% for 1996 to 73.0% in 1997 primarily due to the negative impact
of a manufacturing plant closing and related production realignment at Thomasville.
Selling, general and administrative expenses increased to $286.1 million in
1997 from $283.4 million in 1996, an increase of 0.9%. As a percentage of net
sales, selling, general and administrative expenses decreased from 16.7% for 1996 to
15.8% for 1997 reflecting the Company's ongoing implementation of cost control and
reduction programs.
Depreciation and amortization for 1997 was $56.0 million compared to $54.1
million in 1996, an increase of 3.5%. The amount of depreciation and amortization
attributable to the "fresh-start" reporting was $16.4 million and $16.3 million in
1997 and 1996, respectively.
Interest expense for 1997 totaled $42.7 million compared with $45.2 million in
1996. The reduced interest expense reflects lower long-term debt balances during
the first six months of the year, offset partially by additional long-term debt
incurred at the end of the second quarter to finance the Company's repurchase of
approximately 10.8 million shares of its common stock.
Other income, net for 1997 totaled $3.3 million compared to $2.6 million for
1996. For 1997, other income consisted of interest on short-term investments of
$0.9 million and other miscellaneous income and expense items totaling $2.4 million.
Income tax expense for 1997 totaled $40.2 million, producing an effective tax
rate of 37.5% compared with an effective tax rate of 38.6% for 1996. The effective
tax rates for both periods were adversely impacted by certain nondeductible expenses
incurred and provisions for state and local income taxes.
Net earnings per common share before extraordinary item on a diluted basis were
$1.15 and $0.88 for 1997 and 1996, respectively. Weighted average shares
outstanding used in the calculation of net earnings per common share on a basic and
diluted basis were 56,438,000 and 58,473,000 in 1997, respectively, and 59,172,000
and 61,946,000 in 1996, respectively.
Gross profit for 1997 was $450.7 million compared with $431.5 million in 1996,
an increase of 4.5%. The decrease in gross profit margin to 24.9% in 1997 from
25.4% in 1996 was primarily due to the previously noted manufacturing plant closing
and related production realignment at Thomasville.<PAGE>
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales for 1996 increased to $1,696.8 million from $1,073.9
million 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 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 before extraordinary item on a diluted
basis were $0.88 and $0.67 for 1996 and 1995, respectively. Net earnings per
common share before extraordinary item and gain on insurance settlement, net
of income tax expense, on a diluted basis was $0.58 for 1995. Weighted
average shares outstanding used in the calculation of net earnings per
common share on a basic and diluted basis were 59,172,000 and 61,946,000 in
1996, respectively, and 50,114,000 and 50,639,000 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%.
Financial Condition and Liquidity
Liquidity
Cash and cash equivalents at December 31, 1997 totaled $12.3 million
compared to $19.4 million at December 31, 1996. For 1997, net cash provided by
operating activities totaled $103.7 million. Net cash used by investing
activities totaled $39.3 million. Net cash used in financing activities
totaled $71.5 million, including $173.2 million for the repurchase of common
stock and warrants, partially offset by the net addition of $95.2 million of
long-term debt and the receipt of $10.7 million from the exercise of warrants
and stock options to purchase shares of common stock.
Working capital was $482.3 million at December 31, 1997 compared to
$462.7 million at December 31, 1996. The current ratio was 4.5 to 1 at
December 31, 1997 compared to 4.2 to 1 at December 31, 1996. 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, 1997, long-term debt totaled $667.8 million compared
to $572.6 million at December 31, 1996. The increase in indebtedness was the
result of additional borrowings to finance the repurchase of approximately
11 million shares of common stock and warrants to purchase common stock for
$170.5 million, partially offset by repayments of approximately $80.0 million
funded by cash flow from operations and warrant exercise proceeds. The
Company's debt-to-capitalization ratio was 67.4% at December 31, 1997
compared to 57.7% at December 31, 1996.
Financing Arrangements
To meet short-term capital and other financial requirements, the
Company maintains a $475.0 million revolving credit facility as part of its
Secured Credit Agreement with a group of financial institutions. The revolving
credit facility allows for both issuance of letters of credit and cash
borrowings. Letter of credit outstandings are limited to no more than $60.0
million. Cash borrowings are limited only by the facility's maximum
availability less letters of credit outstanding. At December 31, 1997,
there were $235.0 million of cash borrowings outstanding under
the revolving credit facility and $34.7 million in letters of credit
outstanding, leaving an excess of $205.3 million available under the
revolving credit facility.
On June 27, 1997, the Company completed the repurchase of 10,842,299
shares of its common stock and warrants to purchase 290,821 shares of common
stock from Apollo Investment Fund, L.P. and Lion Advisors, L.P. for
approximately $170.5 million. The Company financed the repurchase by amending
its Secured Credit Agreement to include a new term loan facility of
$200.0 million. The term loan facility is a non-amortizing ten-year
facility, bearing interest at a base rate plus 0.75% or at an adjusted
Eurodollar rate plus 1.75%, depending upon the type of loan the Company
executes. Net cash proceeds received from the term loan facility in excess
of the amount required for the stock and warrant repurchase and associated
fees and expenses were used to reduce outstanding borrowings from the
revolving credit facility under the Company's existing Secured Credit
Agreement.
The Company also maintains a Receivables Securitization Facility totaling
$225.0 million 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.
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.
Other
The Company has commenced conversion of its computer programs and files in
order to function in the year 2000. The Company believes the cost of conversion
will not be material to its results of operations and financial position.<PAGE>
Item 8. Financial statements and Supplementary Data
- -----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------
(Dollars in thousands) December 31, December 31,
1997 1996
-----------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 12,274 $ 19,365
Receivables, less allowances of $13,793
($19,124 at December 31, 1996) (Note 6) 293,975 283,417
Inventories (Note 4) 287,046 281,107
Prepaid expenses and other current assets 25,214 23,378
-----------------------------------------------------------------------------------
Total current assets 618,509 607,267
Property, plant and equipment:
Land 16,758 16,292
Buildings and improvements 178,245 172,783
Machinery and equipment 264,689 236,654
-----------------------------------------------------------------------------------
459,692 425,729
Less accumulated depreciation 165,631 123,767
-----------------------------------------------------------------------------------
Net property, plant and equipment 294,061 301,962
Intangible assets (Note 5) 330,549 344,101
Other assets 14,117 15,874
----------------------------------------------------------------------------------
$1,257,236 $1,269,204
==================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 52,141 $ 61,095
Accrued employee compensation 29,430 29,864
Accrued interest expense 7,451 6,579
Other accrued expenses 47,199 47,068
----------------------------------------------------------------------------------
Total current liabilities 136,221 144,606
Long-term debt (Note 6) 667,800 572,600
Other long-term liabilities 129,893 132,341
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 52,003,520 and
61,432,181 shares at December 31, 1997 and
1996 (Note 7) 52,003 61,432
Paid-in capital 124,595 278,554
Retained earnings 146,724 79,671
----------------------------------------------------------------------------------
Total shareholders' equity 323,322 419,657
----------------------------------------------------------------------------------
$1,257,236 $1,269,204
==================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
Year Ended December 31,
------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------------
Net sales $1,808,276 $1,696,795 $1,073,889
Costs and expenses:
Cost of operations 1,319,455 1,228,355 760,393
Selling, general and administrative expenses 286,086 283,432 198,321
Depreciation and amortization (includes
$16,369, $16,285 and $15,922 related to
fair value adjustments) 55,995 54,082 36,104
-------------------------------------------------------------------------------------------
Earnings from operations 146,740 130,926 79,071
Interest expense 42,747 45,217 33,845
Other income, net:
Gain on insurance settlement (Note 11) - - 7,882
Other 3,261 2,583 3,930
-------------------------------------------------------------------------------------------
Earnings before income tax expense
and extraordinary item 107,254 88,292 57,038
Income tax expense (Note 8) 40,201 34,070 22,815
-------------------------------------------------------------------------------------------
Net earnings before extraordinary item 67,053 54,222 34,223
Extraordinary item - early extinguishment
of debt, net of tax benefit (Note 10) - (7,417) (5,815)
-------------------------------------------------------------------------------------------
Net earnings $ 67,053 $ 46,805 $ 28,408
===========================================================================================
Net earnings per common share - basic (Note 2):
Net earnings before extraordinary item $ 1.19 $ 0.92 $ 0.68
Extraordinary item - early extinguishment of debt - (0.13) (0.11)
-------------------------------------------------------------------------------------------
Net earnings per common share - basic $ 1.19 $ 0.79 $ 0.57
===========================================================================================
Net earnings per common share - diluted (Note 2):
Net earnings before extraordinary item $ 1.15 $ 0.88 $ 0.67
Extraordinary item - early extinguishment of debt - (0.12) (0.11)
-------------------------------------------------------------------------------------------
Net earnings per common share - diluted $ 1.15 $ 0.76 $ 0.56
===========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31,
-----------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 67,053 $ 46,805 $ 28,408
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net loss on early extinguishment of debt - 7,417 5,815
Depreciation of property, plant and equipment 43,935 42,022 26,371
Amortization of intangible and other assets 12,060 12,060 9,733
Noncash interest expense 1,297 2,042 2,150
(Increase) decrease in receivables (10,558) (7,301) 165
(Increase) decrease in inventories (5,939) (11,430) 3,340
Decrease in prepaid expenses and intangible
and other assets 3,655 13,695 1,179
Increase (decrease) in accounts payable,
accrued interest expense and other
accrued expenses (7,405) 33,710 14,794
Decrease in net deferred tax liabilities (8,056) (7,972) (211)
Increase (decrease) in other long-term
liabilities 7,669 (15,628) 246
-------------------------------------------------------------------------------------------
Net cash provided by operating activities 103,711 115,420 91,990
-------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of business (Note 3) - - (335,438)
Proceeds from the disposal of assets 732 2,766 519
Additions to property, plant and equipment (40,004) (40,344) (35,616)
-------------------------------------------------------------------------------------------
Net cash used by investing activities (39,272) (37,578) (370,535)
-------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments for debt issuance costs (3,342) (4,467) (14,026)
Additions to long-term debt 220,000 380,000 576,000
Payments of long-term debt (124,800) (530,279) (286,574)
Proceeds from the sale of common stock - 81,292 -
Proceeds from the issuance of common stock 10,734 9,290 201
Payment for the repurchase and retirement
of common stock (168,056) - -
Payments for the repurchase of common stock
warrants (5,187) (19,961) (2,789)
Payments for common stock offering expenses
of selling shareholders (879) (764) -
------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (71,530) (84,889) 272,812
------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,091) (7,047) (5,733)
Cash and cash equivalents at beginning of period 19,365 26,412 32,145
------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,274 $ 19,365 $ 26,412
==========================================================================================
Supplemental Disclosure:
Cash payments for income taxes, net $ 40,639 $ 33,126 $ 14,386
==========================================================================================
Cash payments for interest expense $ 40,707 $ 37,960 $ 32,010
==========================================================================================
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, 1994 $50,076 $220,788 $ 4,530 $275,394
Net earnings 28,408 28,408
Common stock activity:
Stock option exercises (Note 7) 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 7) 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 61,432 278,554 79,671 419,657
Net earnings 67,053 67,053
Common stock activity:
Repurchase of common stock - 10,842,299 shares (10,842) (157,214) (168,056)
Stock option exercises (Note 7) 174 1,302 1,476
Warrant exercises - 1,298,498 shares 1,298 7,960 9,258
Warrant purchases - 650,071 shares (5,187) (5,187)
Retirement of common stock - 58,824 shares (59) 59 -
Common stock offering expenses of
selling shareholders (879) (879)
---------------------------------------------------------------------------------------------
Balance December 31, 1997 $52,003 $124,595 $146,724 $323,322
=============================================================================================
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, 1997, 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. 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. Fiscal
year 1997 includes 53 weeks of operations, while 1996 and 1995 each
represented 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.
Depreciation is calculated using both accelerated and straight-line
methods 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. 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.
Long-lived assets are reviewed for impairment whenever events or
changes in business circumstances indicate the carrying value of the
assets may not be recoverable. Impairment losses are recognized if
expected future cash flows of the related assets are less than their
carrying values.
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 long-term debt agreements are
considered to be carried on the financial statements at their
estimated fair values because they were entered into recently and/or
accrue interest at rates which generally fluctuate with interest rate
trends.<PAGE>
Interest rate swap agreements used by the Company to fix the
interest rate on a portion of its floating rate long-term debt are
accounted for on the accrual basis. 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 at December 31, 1997 exceed the book value by
approximately $2.6 million. The fair value of the interest rate swap
agreements is based upon market quotes from the counterparties.
Revenue Recognition
The Company recognizes revenue when finished goods are shipped
with appropriate provisions for returns and uncollectible accounts.
Income Taxes
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 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.
Net Earnings Per Common Share
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."
SFAS No. 128 requires the presentation of basic and diluted net
earnings per common share for 1997 interim and annual periods, and
restatement of all prior periods presented. The adoption of SFAS No.
128 did not have a material effect on the consolidated financial
statements. Restated interim net earnings per common share
information for 1997 and 1996 interim periods is contained in Note 13,
"Quarterly Financial Information (Unaudited)."
Stock-Based Compensation
The Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Had
compensation expense been determined in accordance with Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," net earnings and net earnings per common share would
not materially differ from reported amounts.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform to
the 1997 presentation.
3. 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.
4. Inventories
Inventories are summarized as follows:
---------------------------------------------------------------------
December 31, December 31,
1997 1996
---------------------------------------------------------------------
Finished products $118,385 $127,292
Work-in-process 53,536 51,587
Raw materials 115,125 102,228
---------------------------------------------------------------------
$287,046 $281,107
=====================================================================
5. Intangible Assets
Intangible assets include the following:
---------------------------------------------------------------------
December 31, December 31,
1997 1996
---------------------------------------------------------------------
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 93,110
---------------------------------------------------------------------
396,001 396,001
Less accumulated amortization 65,452 51,900
---------------------------------------------------------------------
$330,549 $344,101
=====================================================================<PAGE>
6. Long-Term Debt
Long-term debt consists of the following:
---------------------------------------------------------------------
December 31, December 31,
1997 1996
---------------------------------------------------------------------
Secured credit agreement:
Revolving credit facility $235,000 $359,000
Term loan facility 200,000 -
Receivables securitization facility 220,000 200,000
Other 12,800 13,600
---------------------------------------------------------------------
$667,800 $572,600
=====================================================================
The following discussion summarizes certain provisions of the
long-term debt.
Secured Credit Agreement
The Secured Credit Agreement, amended and restated as of June 27,
1997, consists of a revolving credit facility and a term loan
facility. The revolving credit facility is a five-year reducing
revolving credit facility with an initial commitment of $475,000. The
revolving credit facility 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 revolving credit facility 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, 1997, all loans outstanding under
the revolving credit facility were based on the Eurodollar rate.
At December 31, 1997, there were $235,000 of cash borrowings and
$34,681 in letters of credit outstanding under the revolving credit
facility, leaving an excess of $205,319 available under the facility.
The revolving credit facility 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.
On June 27, 1997, the Company amended the Secured Credit
Agreement to include a new term loan facility of $200,000. The term
loan facility is a non-amortizing ten-year facility, bearing interest
at a base rate plus 0.75% or at an adjusted Eurodollar rate plus
1.75%, depending upon the type of loan the Company executes. At
December 31, 1997, all loans outstanding under the term loan facility
were based on the Eurodollar rate.
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.
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, 1997 was
$220,000. 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).
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.<PAGE>
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 February 1999, 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 counterparties; however, the Company does not
anticipate nonperformance by the counterparties.
Other Information
Maturities of long-term debt are $0, $0, $220,000, $235,000 and
$0 for years 1998 through 2002, respectively.
7. 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, 1997, 52,003,520
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, 1997:
----------------------------------------------------------------------
Number
of Shares
----------------------------------------------------------------------
Common stock options:
Granted 3,897,930
Available for grant 972,306
----------------------------------------------------------------------
4,870,236
======================================================================
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.
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>
--------------------------------------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995
----------------------- -------------------- ----------------------
Average Average Average
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------------------------------
Beginning of period 3,859,476 $ 6.63 2,498,000 $4.75 2,643,000 $4.64
Granted 292,500 16.36 1,620,926 9.14 125,000 6.42
Exercised (173,964) 3.93 (85,050) 3.99 (43,000) 3.38
Cancelled (80,082) 6.62 (174,400) 4.29 (227,000) 4.68
--------------------------------------------------------------------------------------------------------
End of period 3,897,930 $ 7.48 3,859,476 $6.63 2,498,000 $4.75
========================================================================================================
Exercisable at
end of period 1,979,287 1,473,600 1,346,750
========================================================================================================
Weighted average fair
value of options granted $ 7.54 $4.79 $2.94
========================================================================================================
</TABLE>
The weighted average fair value of options granted is estimated
on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk free interest rate of
6%; expected dividend yield of 0%; expected life of seven years and
expected volatility of 31%.<PAGE>
Summarized information regarding stock options outstanding and
exercisable at December 31, 1997 follows:
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Outstanding Exercisable
------------------------------------------ -------------------------
Range of Average Average Average
Exercise Prices Shares Contractual Life Price Shares Price
------------------------------------------------------------------------------------------
Up to $10 2,900,430 5.3 $ 5.55 1,838,287 $ 4.70
$10 - $20 942,500 7.7 12.64 141,000 11.75
$20 - $30 55,000 8.6 21.00 - -
------------------------------------------------------------------------------------------
3,897,930 5.9 $ 7.48 1,979,287 $ 5.20
==========================================================================================
</TABLE>
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
per Share." SFAS No. 128 requires a reconciliation of the numerator and
denominator of the net earnings per common share calculations for all periods
presented. The numerator for basic and diluted net earnings per common share
is net earnings for all periods presented. The denominator for basic and
diluted net earnings per common share for 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995
------------------------------------------------------------------------------------------
Weighted average shares used for
basic net earnings per common share 56,438,465 59,172,153 50,114,034
Effect of dilutive securities:
Stock options 1,447,624 1,052,852 524,545
Warrants 587,105 1,721,448 -
------------------------------------------------------------------------------------------
Weighted average shares used for
diluted net earnings per common share 58,473,194 61,946,453 50,638,579
==========================================================================================
</TABLE>
Excluded from the computation of diluted net earnings per common share
were options to purchase 55,000, 250,000 and 43,000 shares at an average price
of $21.00, $14.25 and $7.37 per share during 1997, 1996 and 1995,
respectively, and warrants to purchase 7,394,249 shares at $7.13 per share
during 1995. The securities were excluded from the calculation of diluted
earnings per share because the exercise price was greater than the
average market price of the common stock.
At December 31, 1996, the Company had outstanding approximately 2.0
million warrants to purchase common stock at $7.13 per share. The warrants,
which included a five-year call protection which expired on August 3, 1997,
were redeemed on August 15, 1997.
8. Income Taxes
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income tax expense was comprised of the following:
------------------------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995
------------------------------------------------------------------------------------------
Current:
Federal $43,680 $40,870 $20,499
State and local 4,577 4,014 2,527
------------------------------------------------------------------------------------------
48,257 44,884 23,026
Deferred (8,056) (10,814) (211)
------------------------------------------------------------------------------------------
$40,201 $34,070 $22,815
==========================================================================================
The following table reconciles the differences between the federal corporate
statutory rate and the Company's effective income tax rate:
------------------------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995
------------------------------------------------------------------------------------------
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal tax benefit 2.3 2.3 2.6
Amortization of excess reorganization value 2.4 2.9 4.5
Other (2.2) (1.6) (2.1)
------------------------------------------------------------------------------------------
Effective income tax rate 37.5% 38.6% 40.0%
==========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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,
1997 1996
--------------------------------------------------------------------------------------
Deferred tax assets:
Expense accruals $ 18,855 $ 14,251
Valuation reserves 8,190 6,514
Employee postretirement benefits other than pensions 3,648 3,318
Inventory costs capitalized 3,367 2,550
Employee pension plans 1,109 -
Other 2,208 1,063
--------------------------------------------------------------------------------------
Total gross deferred tax assets 37,377 27,696
Valuation allowance - -
--------------------------------------------------------------------------------------
Total net deferred tax assets 37,377 27,696
Deferred tax liabilities:
Fair value adjustments (76,558) (77,645)
Depreciation (5,535) (7,158)
Fair market value adjustments (4,631) -
Employee pension plans - (697)
Other (10,185) (9,784)
---------------------------------------------------------------------------------------
Total deferred tax liabilities (96,909) (95,284)
---------------------------------------------------------------------------------------
Net deferred tax liabilities $(59,532) $(67,588)
=======================================================================================
The net deferred tax liabilities are included in the consolidated balance sheet as
follows:
---------------------------------------------------------------------------------------
December 31, December 31,
1997 1996
---------------------------------------------------------------------------------------
Prepaid expenses and other current assets $ 19,214 $ 19,783
Other long-term liabilities (78,746) (87,371)
---------------------------------------------------------------------------------------
$(59,532) $(67,588)
=======================================================================================
</TABLE>
9. Employee Benefits
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 1997, 1996 and
1995 was $8,412, $9,450 and $7,070, 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.<PAGE>
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.<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
December 31, December 31,
1997 1996
--------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $239,176 $230,456
=======================
Accumulated benefit obligation $246,731 $237,512
=======================
Projected benefit obligation $273,487 $262,667
Plan assets at fair value 306,797 279,054
--------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 33,310 16,387
Unrecognized net gain (33,558) (13,975)
Unrecognized prior service cost 978 1,021
--------------------------------------------------------------------------------------
Prepaid pension cost $ 730 $ 3,433
======================================================================================
Net periodic pension cost for 1997, 1996 and 1995 includes the following components:
---------------------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995
---------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 7,120 $ 6,792 $ 3,544
Interest cost on the projected benefit obligation 19,026 18,102 17,005
Actual return on plan assets (42,531) (41,006) (49,272)
Net amortization and deferral 19,628 20,366 31,566
--------------------------------------------------------------------------------------
Net periodic pension cost $ 3,243 $ 4,254 $ 2,843
======================================================================================
</TABLE>
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 1997,
1996 and 1995. Measurement of the projected benefit obligation was based upon
a weighted average discount rate of 7.25% and a long-term rate of compensation
increase of 4.5% for all years presented.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes contributions to
defined contribution plans and sponsors employee savings plans. The cost of
these plans is included in the total cost for all plans reflected above.
10. 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.
11. 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.
12. Commitments and Contingent Liabilities
Certain of the Company's real properties and equipment are operated
under lease agreements. Rental expense under operating leases totaled $15,699,
$14,758 and $12,241 for 1997, 1996 and 1995, respectively. Annual minimum
payments under operating leases are $11,929, $9,195, $5,925, $2,596 and $797 for
1998 through 2002, respectively.
Prior to the distribution of the common stock of The Florsheim Shoe
Company (a former subsidiary) to its shareholders on November 17, 1994, the
Company had guaranteed certain of Florsheim's retail store operating leases.
At December 31, 1997, the Company had guarantees outstanding on 71 retail
store leases with a contingent liability totaling approximately $24,132.
The Florsheim Shoe Company has agreed to indemnify the Company against any
losses incurred as a result of the lease guarantees.
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.
13. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Following is a summary of unaudited quarterly information:
--------------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------
Year ended December 31, 1997:
Net sales $473,597 $440,666 $444,152 $449,861
Gross profit 116,738 107,803 112,724 113,425
Net earnings $ 18,865 $ 14,614 $ 16,515 $ 17,059
Net earnings per common share:
Basic $ 0.36 $ 0.28 $ 0.27 $ 0.28
Diluted $ 0.35 $ 0.27 $ 0.26 $ 0.27
Common stock price range:
High $ 21 1/8 $ 21 $ 19 3/8 $ 15 7/8
Low $ 15 7/8 $ 17 1/2 $ 14 3/8 $ 13 7/8
========================================================================================
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:
Before extraordinary item 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
- basic:
Before extraordinary item $ 0.28 $ 0.23 $ 0.19 $ 0.20
Extraordinary item - (0.12) - -
Total $ 0.28 $ 0.11 $ 0.19 $ 0.20
Net earnings per common share
- diluted:
Before extraordinary item $ 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 $ 14 7/8 $ 14 5/8 $ 12 1/8 $ 10 1/8
Low $ 12 $ 10 $ 9 1/8 $ 8 3/8
========================================================================================
</TABLE>
The Company has not paid cash dividends on its common stock
during the three years ended December 31, 1997. The closing market
price of the Company's common stock on December 31, 1997 was $20.50
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 May 6, 1998 is
incorporated herein by reference.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <S> <C>
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Wilbert G. Holliman 60 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 70 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 50 President and Chief Executive
Officer of the Subsidiary -
Action Industries, Inc. X 1996
Brent B. Kincaid 66 President and Chief Executive
Officer of the Subsidiary -
Broyhill Furniture Industries,
Inc. X 1992
Director X 1997
Christian J. Pfaff 49 President and Chief Executive
Officer of the Subsidiary -
Thomasville Furniture Industries,
Inc. X 1997
David P. Howard 47 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Treasurer X 1996
Lynn Chipperfield 46 General Counsel X 1993
Vice-President and
Secretary X 1996
Steven W. Alstadt 43 Controller X 1994
Chief Accounting Officer X 1994
Retired as an officer of the Company on December 31, 1997
Frederick B. Starr 65 President and Chief Executive
Officer of the Subsidiary -
Thomasville Furniture
Industries,Inc. 1982
Retired as an officer of the Company on February 11, 1998
K. Scott Tyler, Jr. 58 President of the Subsidiary -
The Lane Company, Incorporated 1989
Chief Executive Officer of the
Subsidiary - The Lane Company,
Incorporated 1991
</TABLE>
-----------------------------------
* Member of the Executive Committee
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 May 6, 1998 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
May 6, 1998, is incorporated herein by reference.
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 May 6, 1998, 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, 1997 and 1996.
Consolidated statements of operations for each of the
years in the three-year period ended December 31, 1997.
Consolidated statement of cash flows for each of the years
in the three-year period ended December 31, 1997.
Consolidated statement of shareholders' equity for each of
the years in the three-year period ended December 31, 1997.
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;
September 6, 1996; and June 27, 1997, 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 June 30, 1997.)
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 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) Amendment No. 3, dated as of June 27, 1997, to the
Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995; June 27, 1996; and September 6,
1996 among The Lane Company, Incorporated, Action
Industries, Inc., Broyhill Furniture Industries,
Inc. and Thomasville Furniture Industries, Inc. as<PAGE>
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 June 30,
1997.)
4(f) Amendment No. 4 dated as of January 1, 1998, to the
Purchase and Contribution Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995; June 27, 1996; September 6, 1996
and June 27, 1997 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.
4(g) 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(h) 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(i) 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 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(j) Amendment No. 3, dated as of June 27, 1997, to the
Receivables Purchase Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995; June 27, 1996; and September 6,
1996 among INTERCO Receivables Corp. as Seller,<PAGE>
Atlantic Asset Securitization Corp., as Issuer,
and Credit Lyonnais New York Branch, as Agent for
the investors. (Incorporated by reference to
Exhibit 4(c) to Furniture Brands International,
Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.)
4(k) Amendment No. 4 dated as of January 1, 1998 to the
Receivables Purchase Agreement, dated as of
November 15, 1994, as amended and restated as of
December 29, 1995; June 27, 1996; September 6,
1996 and June 27, 1997 among INTERCO Receivables
Corp. as Seller, Atlantic Asset Securitization
Corp., as Issuer, and Credit Lyonnais New York
Branch, as Agent for the investors.
4(l) 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 S-8 Registration Statement,
No. 333-39355.
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.)
10(c) 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(d) 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(e) First Amendment to Retirement Plan for Directors.
10(f) Furniture Brands International, Inc. Executive
Incentive Plan. (Incorporated by reference to
Exhibit 10(b) to Furniture Brands International,
Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.)
10(g) 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(h) Thomasville Furniture Industries, Inc.
ExecutiveIncentive Plan (Incorporated by reference
to Exhibit 10(j) to Furniture Brands International,
Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996.)
10(i) Employment Agreement, dated as of April 29, 1997,
between Action Industries, Inc. and John T. Foy.
(Incorporated by reference to Exhibit 10(d) to
Furniture Brands International Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997.)
10(j) 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(k) 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(l) 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(m) 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.)<PAGE>
10(n) Employment Agreement, dated as of April 30, 1997
between the Company and Richard B. Loynd.
(Incorporated by reference to Exhibit 10(c) to
Furniture Brands International, Inc.'s Quarterly
Report on form 10-Q for the quarter ended March 31,
1997.)
10(o) Employment Agreement, dated as of January 29, 1998,
between Thomasville Furniture Industries, Inc. and
Christian J. Pfaff.
10(p) 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.)
10(q) Consulting Agreement, dated as of May 15, 1995, and
Addendum thereto, dated January 29, 1998, between
Broyhill Furniture Industries, Inc. and Brent B.
Kincaid.
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.)<PAGE>
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 not required to filed during the quarter ended
December 31, 1997.
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, 1997 and 1996 18
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1997 19
Consolidated Statement of Cash Flows for each of the years in the
three-year period ended December 31, 1997 20
Consolidated Statement of Shareholders' Equity for each of the
years in the three-year period ended December 31, 1997 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>
<S> <C> <C> <C> <C> <C> <C> <S> <C>
SCHEDULE II
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, 1997
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful
accounts $17,054 $ 5,098 $(10,387) (a) $ - $11,765
Allowance for cash
discounts/chargebacks 2,070 754 (796) (c) - 2,028
------- ------- -------- -------- -------
$19,124 $ 5,852 $(11,183) $ - $13,793
======= ======= ========= ======== =======
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
======== ======= ========= ======= =======
(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, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1997, 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 29, 1998<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 27, 1998
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 27,
1998.
Signature Title
--------- -----
Wilbert G. Holliman President and Director
----------------------- (Principal Executive Officer)
(Wilbert G. Holliman)
Katherine Button Bell Director
-----------------------
(Katherine Button Bell)
Michael S. Gross Director
-----------------------
(Michael S. Gross)
Bruce A. Karsh Director
-----------------------
(Bruce A. Karsh)
Brent B. Kincaid Director
-----------------------
(Brent B. Kincaid)
Donald E. Lasater Director
------------------------
(Donald E. Lasater)
Lee M. Liberman Director
------------------------
(Lee M. Liberman)
Richard B. Loynd Director
------------------------
(Richard B. Loynd)
Albert E. Suter Director
------------------------
(Albert E. Suter)
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 4(f)
EXECUTION COPY
AMENDMENT NO. 4 OF PURCHASE AND CONTRIBUTION AGREEMENT
AMENDMENT NO. 4, dated as of January 1, 1998, to the Purchase and
Contribution Agreement, dated as of November 15, 1994, as amended and
restated as of December 29, 1995, and as further amended as of June
27, 1996, as of September 6, 1996 and as of June 27, 1997 (the
"Agreement"), among THE LANE COMPANY, INCORPORATED, ACTION INDUSTRIES,
INC., BROYHILL FURNITURE INDUSTRIES, INC. and THOMASVILLE FURNITURE
INDUSTRIES, INC., as sellers (the "Sellers"), and INTERCO RECEIVABLES
CORP., as purchaser (the "Purchaser") (the "Amendment").
PRELIMINARY STATEMENTS
1. Terms used herein but not defined herein shall have the
meanings assigned thereto in the Agreement.
2. On or before January 1, 1998, Furniture Brands
International, Inc. will organize a new wholly-owned subsidiary, Lane
Furniture Industries, Inc., under the laws of the State of Delaware
(hereinafter "New Lane Holdings"). New Lane Holdings is intended to
be a holding company and not an operating company.
3. On or before January 1, 1998, Furniture Brands
International, Inc. will transfer to New Lane Holdings all of the
issued and outstanding capital stock of The Lane Company,
Incorporated, a corporation organized under the laws of the State of
Virginia ("Lane-VA"). Also on or before January 1, 1998, Lane-VA will
organize a new wholly-owned subsidiary under the laws of the State of
Mississippi (such subsidiary to be referred to hereinafter as "Action
Merger Sub Inc.").
4. Action Industries, Inc., a corporation organized under the
laws of the State of Virginia ("Action-VA"), is a wholly-owned
subsidiary of Lane-VA. On or before January 1, 1998, Lane-VA will
transfer all of the issued and outstanding stock of Action-VA, as a
contribution of capital, to Action Merger Sub Inc.
5. On or before January 1, 1998, and pursuant to resolutions
of the boards of directors and shareholders of Action-VA and Action
Merger Sub Inc., Action-VA intends to transfer all of the right, title
and interest to all of its tangible and intangible properties, assets
and businesses, subject to all existing liens and encumbrances
(collectively, the "Action Assets") to Action Merger Sub Inc. (such
transfer hereinafter called the "Liquidation") in exchange for the
surrender by Action Merger Sub Inc. of all its shares of Action-VA and
the simultaneous cancellation of such shares by Action-VA. <PAGE>
6. Immediately following the Liquidation, and pursuant to
resolutions of the boards of directors and shareholders of Lane-VA and
Action Merger Sub Inc., Lane-VA intends to transfer to Action Merger
Sub Inc. all of its right, title and interest in all of the tangible
and intangible properties, assets and businesses, subject to all
existing liens and encumbrances, of the Royal Division of Lane-VA (the
foregoing transfer is hereinafter called the "Contribution").
Following the Contribution, all of the businesses and contracts of the
Royal Division of Lane-VA will be continued by Action Merger Sub Inc.
7. Immediately following the Contribution, pursuant to various
resolutions of the Board of Directors of Lane-VA, Lane-VA intends to
declare a dividend consisting of all of the issued and outstanding
capital stock of Action Merger Sub Inc. (the "Dividend").
8. Following the Liquidation, the Contribution and the
Dividend, Action Merger Sub Inc. shall change its name to "Action
Industries, Inc."
9. On or before January 3, 1998, the Board of Directors of
Thomasville Upholstery, Inc., a corporation organized under the laws
of the State of Delaware, and Thomasville, as the sole shareholder of
Thomasville Upholstery, Inc., intend to vote to liquidate and dissolve
Thomasville Upholstery, Inc. and simultaneously therewith, Thomasville
Upholstery, Inc. will transfer all of its right, title and interest in
all of its tangible and intangible properties, assets and businesses,
subject to all existing liens and encumbrances, to Thomasville, with
the result that Thomasville shall continue in the businesses and
contracts of Thomasville Upholstery, Inc.
10. On or before January 1, 1998, the Board of Directors of
Gordon's, Inc., a corporation organized under the laws of Delaware,
and Thomasville, as the sole shareholder of Gordon's, Inc., intend to
vote to liquidate and dissolve Gordon's, Inc. and simultaneously
therewith, Gordon's, Inc. will transfer all of its right, title and
interest in all of its tangible and intangible properties, assets and
businesses, subject to all existing liens and encumbrances, to
Thomasville, with the result that Thomasville shall continue in the
businesses and contracts of Gordon's, Inc.
11. The Sellers have requested that the Purchaser waive
compliance with certain provisions of the Agreement in order to enable
the Sellers to effectuate the transactions described in paragraphs 2
through 10 of these Preliminary Statements (collectively, the
"Reorganization"), and the Purchaser is willing to agree to amend the
Agreement as hereinafter set forth as of the date on which (i) each of
the transactions constituting the Reorganization has occurred, and
(ii) each of the terms and conditions in this Agreement (including
without limitation the conditions precedent in paragraph 3A and the
conditions subsequent in paragraph 3B) has been met (such date, the
Effective Date ).<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby expressly acknowledged by all
parties, the parties agree as follows:
1. Acknowledgment of Waiver. In reliance on the Sellers'
representation in the following sentence, the Purchaser, as of the
Effective Date, hereby consents to the Reorganization and waives any
and all violations of the Agreement resulting solely from actions
taken by the Sellers to effectuate the Reorganization, including but
not limited to, actions required to be taken or prohibited under
Section 5.01, concerning preservation of corporate existence, and
Section 5.03(e), concerning changes in corporate names. Each of the
Sellers represents and warrants, as of the date hereof and as of the
Effective Date, that the Reorganization will not materially and
adversely affect its Contracts or the collectibility of Transferred
Receivables originated by it.
2. Amendment of Agreement. The Agreement shall be and is
hereby amended, as of the Effective Date, as follows:
A. Action-VA shall cease to be a party to the Agreement, and
Action Merger Sub Inc. shall be added as a party to the Agreement.
Action Merger Sub Inc. hereby agrees to assume and perform, and to be
bound by, all of the obligations of Action-VA under the Agreement.
Without limiting the generality of the foregoing, Action Merger Sub
Inc. acknowledges that pursuant to Section 5.05 of the Agreement, it
grants a security interest to the Purchaser in all of its right, title
and interest now or hereafter existing in, to and under all
Receivables which do not constitute Transferred Receivables, the
Related Security and all Collections with regard thereto. From and
after the Effective Date, all references in the Agreement to "Action"
shall be deemed to be a reference to Action Merger Sub Inc., and all
of the covenants, representations, warranties, entitlements and
agreements of Action-VA shall become the covenants, representations,
warranties, entitlements and agreements of Action Merger Sub Inc..
B. The definition of "CP Rate" is hereby amended and restated
in its entirety as follows:
"CP Rate" means, at any time, the weighted
average of the rates paid by the Purchaser
as "Yield" with respect to all "Receivable
Interests" outstanding under the CL Sale
Agreement during the preceding calendar month,
as such rate is determined by the Purchaser
from time to time.
C. Section 6.01(b) is hereby amended and restated in its
entirety as follows:
(b) Until the Purchaser gives notice (the
"Successor Notice") to any Seller of a
designation of a new Servicer for such Seller's
Transferred Receivables, Action is hereby <PAGE>
designated as Servicer for Transferred
Receivables originated by Action, Broyhill
is hereby designated as Servicer for
Transferred Receivables originated by Broyhill,
Lane is hereby designated as Servicer for
Transferred Receivables originated by Lane and
Thomasville is hereby designated as Servicer for
Transferred Receivables originated by Thomasville.
Action, Broyhill, Lane and Thomasville each hereby
agrees to perform the duties and obligations of
the Servicer for such Transferred Receivables
pursuant to the terms hereof. The Successor Notice
may only be given following the occurrence and
during the continuation of a Servicer Default.
Any Servicer other than such Seller shall execute
any confidentiality agreement reasonably requested
by such Seller in connection with the designation
of a new Servicer.
D. Section 6.01(c) is hereby amended by inserting "Action,"
immediately following the reference to Lane in the first line thereof.
E. Schedule II to the Agreement is hereby amended by changing
the parenthetical at the end of the address of the first bank listed
therein as follows: "(With respect to Receivables originated by
Lane)."
F. Schedule II to the Agreement is hereby amended by adding an
additional Bank and Lock-Box Account No. as follows:
Bank Lock-Box Account No.
---- --------------------
First Union National Bank 60015 (Lock-Box Number)
301 South College St. 2020000105514 (Lock-Box
Charlotte, NC 28288 Account Number)
3. A. Conditions Precedent. The effectiveness of the waiver
and the amendments set forth in Sections 1 and 2 are subject to the
conditions precedent that the Purchaser and the Purchaser's assignee
shall have received each of the following, in form and substance
satisfactory to the Purchaser and the Purchaser's assignee:
(i) Certified copies of resolutions of the Board of Directors of
(x) Action-VA, Lane-VA, New Lane Holdings, Action Merger Sub Inc. and
Thomasville approving each of their actions with respect to the
Reorganization and (y) each of the Sellers (including Action Merger
Sub Inc.) approving this Amendment;
(ii) A certificate of the Secretary or Assistant Secretary of
Action Merger Sub Inc. certifying the names and the signatures of the
officers authorized on its behalf to sign this Amendment and the other
documents to be delivered by it hereunder;<PAGE>
(iii) Financing Statements (Form UCC-1) naming Action Merger Sub
Inc. as the debtor and the Purchaser as the secured party, as may be
necessary or, in the opinion of the Purchaser, advisable under the UCC
of all appropriate jurisdictions or other applicable law to perfect
the Purchaser's ownership of and security interest in the Receivables
originated by Action Merger Sub Inc. and Related Security and
Collections with respect thereto;
(iv) A Lock-Box Agreement in respect of each Lock-Box Account
of Action Merger Sub Inc., duly executed by the Lock-Box Bank holding
such Lock-Box Account;
(v) The Amended and Restated Agreement of Furniture Brands
International, Inc;
(vi) Copies of all agreements entered into by the Sellers and
their affiliates to effectuate the Reorganization;
(vii) The Articles of Incorporation of Action Merger Sub Inc.,
duly certified by the Secretary of State of Mississippi, as of a
recent date acceptable to Purchaser, together with a copy of the By-
Laws of Action Merger Sub Inc., duly certified by its Secretary or
Assistant Secretary; and
(viii) Favorable opinions of counsel for each of the Sellers and
Furniture Brands International, Inc. as to such matters as the
Purchaser may reasonably request.
B. Conditions Subsequent. The effectiveness of the
waiver and the amendments set forth in Sections 1 and 2 are subject to
the conditions subsequent that the Purchaser and the Purchaser's
assignee shall have received each of the following, in form and
substance satisfactory to the Purchaser and the Purchaser's assignee:
(i) Written notice from the chief executive officer or chief
operating officer of each of Lane-VA and Action Merger Sub Inc. or its
successor to the effect that the transactions described in paragraphs
6, 7 and 8 of the Preliminary Statements hereof have been completed.
(ii) A true and complete copy of the Credit and Collection
Policy (the Policy ) adopted by Action Merger Sub Inc. or its
successor, which Policy shall require that Action Merger Sub Inc. or
its successor shall originate and/or service any and all Transferred
Receivables in accordance with standards of origination and servicing
customary for prudent originators or servicers of similar receivables
in the industry and, in any event, in accordance with standards of
origination and servicing acceptable to the Purchaser or its assignee.
(iii) A certificate of the chief executive officer or chief
operating officer of Action Merger Sub Inc. or its successor
certifying that Action Merger Sub Inc. has adopted and effectively
implemented such Credit and Collection Policy (including without
limitation employment of personnel having adequate experience in<PAGE>
origination and servicing and the implementation and maintenance of
adequate computer and data management systems).
4. Representations and Warranties. Each of the Sellers
(including Action Merger Sub Inc.) confirms that each of the
representations and warranties made by it in Section 4.01 of the
Agreement, as amended by this Amendment, is correct on and as of the
date hereof and will be correct as of the Effective Date as though
made on and as of this date or the Effective Date, as the case may be.
Each of the Sellers (including Action Merger Sub Inc.) further
represents and warrants that (a) this Amendment has been duly
authorized, executed and delivered by it pursuant to its corporate
powers, and (b) after giving effect to this Amendment, no Event of
Termination, or event that would constitute an Event of Termination
but for the requirement that notice be given or time elapse or both,
will exist.
5. Execution in Counterparts, Etc. This Amendment may be
executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together
shall constitute one and the same amendment. The delivery of a signed
signature page to this Amendment by telecopy transmission shall
constitute due execution and delivery of this Amendment for all
purposes.
6. Agreement in Full Force and Effect. Except as amended by
this Amendment, all of the provisions of the Agreement are ratified
and confirmed in all respects and shall remain in full force and
effect in accordance with their terms.
7. References to Agreement. From and after the date hereof,
(a) all references in the Agreement to "this Agreement", "hereof",
"herein", or similar terms and (b) all references to the Agreement in
each agreement, instrument and other document executed or delivered in
connection with the Agreement, shall mean and refer to the Agreement,
as amended by this Amendment.
8. Further Assurances. The parties hereto agree to execute
and deliver any and all further agreements, certificates and other
documents reasonably necessary to implement the provisions of this
Amendment.
9. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the law of the State of New York without
giving effect to the conflict of laws principles thereof.
IN WITNESS WHEREOF, the Sellers and the Purchaser have caused
this Amendment to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.
SELLERS: THE LANE COMPANY, INCORPORATED
By: Lynn Chipperfield
----------------------------
Name: Lynn Chipperfield
Title: Vice President
ACTION MERGER SUB, INC.
(a Mississippi corporation)
By: Lynn Chipperfield
----------------------------
Name: Lynn Chipperfield
Title: Vice President
ACTION INDUSTRIES, INC.
By: Lynn Chipperfield
-----------------------------
Name: Lynn Chipperfield
Title: Vice President
BROYHILL FURNITURE INDUSTRIES, INC.
By: Lynn Chipperfield
-----------------------------
Name: Lynn Chipperfield
Title: Vice President
THOMASVILLE FURNITURE INDUSTRIES, INC.
By: Lynn Chipperfield
-------------------------------
Name: Lynn Chipperfield
Title: Vice President
PURCHASER: INTERCO RECEIVABLES CORP.
By: Lynn Chipperfield
-------------------------------
Name: Lynn Chipperfield
Title: Vice President
<PAGE>
Exhibit 4(h)
EXECUTION COPY
AMENDMENT NO. 4 OF RECEIVABLES PURCHASE AGREEMENT
AMENDMENT NO. 4, dated as of January 1, 1998 this
"Amendment"), to the Receivables Purchase Agreement, dated as of
November 15, 1994, as amended and restated as of December 29, 1995,
and as amended as of June 27, 1996, as of September 6, 1996 and as of
June 27, 1997 (the "Agreement") among INTERCO RECEIVABLES CORP. (the
"Issuer"), and CREDIT LYONNAIS NEW YORK BRANCH ("CL-NY"), as agent
(the "Agent") for the Investors.
R E C I T A L S
WHEREAS, the Seller, the Issuer and the Agent have agreed,
subject to the terms and conditions of this Amendment, to amend the
Agreement as hereinafter set forth.
Terms used herein but not defined herein shall have the
meaning assigned thereto in the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Amendment of Agreement. The Agreement shall be and
is hereby amended, as of the date hereof (subject to the satisfaction
of the conditions precedent set forth in Section 2 hereof), as
follows:
A. The definition of "CP Rate" in Exhibit I shall be
amended to provide in its entirety as follows:
"CP Rate" for any Fixed Period for any Receivable
Interest means, to the extent the Issuer funds such
Receivable Interest for such Fixed Period by issuing
commercial paper, the rate (or if more than one rate, the
weighted average of the rates) at which commercial paper
notes of the Issuer having a term equal to such Fixed period
and to be issued to fund such Receivable Interest may be
sold by any placement agent or commercial paper dealer
selected by the Agent on behalf of the Issuer, as agreed
between each such agent or dealer and the Agent and
notified by the Agent to the Servicer; provided if the
rate (or rates) as agreed between any such agent or
dealer and the Agent with regard to any Fixed Period for
any Receivable Interest is a discount rate (or rates),
then such rate shall be the rate (or if more than one
rate, the weighted average of the rates) resulting from
converting such discount rate (or rates) to an interest-
bearing equivalent rate per annum.<PAGE>
B. The definition of "Action" in Exhibit I shall be
amended to provide in its entirety as follows:
"Action" means Action Industries, Inc., a Mississippi
corporation.
2. A. Conditions Precedent to Effectiveness of
Amendment. The effectiveness of this Amendment is subject to the
conditions precedent that the Agent shall have received, on or before
the date hereof, (a) an amendment to the Originator Purchase
Agreement, in form and substance satisfactory to the Agent, duly
executed by the parties thereto, and evidence that all of the
conditions precedent to the effectiveness of such amendment have been
satisfied, and (b) the written statement from each of the Relevant
Rating Agencies required by Section 4.01 of the Agreement.
B. Conditions Subsequent to Effectiveness of
Amendment. The effectiveness of this Amendment is subject to the
conditions subsequent that the Issuer and the Agent shall have
received each of the following, in form and substance satisfactory to
the Issuer and the Agent:
(i) A true and complete copy of the Credit and
Collection Policy (the Policy ) adopted by Action Merger Sub, Inc. or
its successor, which Policy shall require that Action Merger Sub, Inc.
or its successor shall originate and/or service any and all
Transferred Receivables in accordance with standards of origination
and servicing customary for prudent originators or servicers of
similar receivables in the industry and, in any event, in accordance
with standards of origination and servicing acceptable to the
Purchaser or its assignee.
(ii) A certificate of the chief executive officer or
chief operating officer of Action Merger Sub, Inc. or its successor
certifying that Action Merger Sub, Inc. has adopted and effectively
implemented such Credit and Collection Policy (including without
limitation employment of personnel having adequate experience in
origination and servicing and the implementation and maintenance of
adequate computer and data management systems).
3. Execution in Counterparts. This Amendment may be
executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together
shall constitute one and the same amendment. The delivery of a signed
signature page to this Amendment by telecopy transmission shall
constitute due execution and delivery of this Amendment for all
purposes.
4. Agreement in Full Force and Effect. Except as
amended by this Amendment, all of the provisions of the Agreement are
ratified and confirmed in all respects and shall remain in full force
and effect in accordance with their terms.<PAGE>
5. Consent to Amendment of Originator Purchase
Agreement. Pursuant to paragraph (n) of Exhibit IV to the Agreement,
the Agent hereby consents to the Amendment, as of the date hereof, of
the Originator Purchase Agreement, and the Amendment, as of the date
hereof, of the Interco Agreement, in each case in the form previously
delivered to the Agent.
6. References to Agreement. From and after the date
hereof, (a) all references in the Agreement to "this Agreement",
"hereof", "herein", or similar terms and (b) all references to the
Agreement in each agreement, instrument and other document executed or
delivered in connection with the Agreement, shall mean and refer to
the Agreement, as amended by this Amendment.
7. Further Assurances. The parties hereto agree to
execute and deliver any and all further agreements, certificates and
other documents reasonably necessary to implement the provisions of
this Amendment.
8. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the law of the State of New York
without giving effect to the conflict of laws principles thereof.
IN WITNESS WHEREOF, the parties each have caused this
Amendment to be duly executed by their respective officers thereunto
duly authorized as of the day and year first above written.
CREDIT LYONNAIS
NEW YORK BRANCH, as Agent
By: L.M. Wertheim
---------------------
Name: L.M. Wertheim
Title: Senior Vice-President
INTERCO RECEIVABLES CORP.
By: Lynn Chipperfield
-----------------------
Name: Lynn Chipperfield
Title: Vice President<PAGE>
Exhibit 10(e)
First Amendment to
INTERCO INCORPORATED
Retirement Plan for Directors
1. The name of the Plan is changed to "Furniture Brands
International Retirement Plan for Directors."
2. The following sentence is added to the end of Section 2 of the
Plan:
"Anything herein to the contrary notwithstanding, no non-
employee director shall be eligible to receive benefits
under the Plan unless he shall have been so eligible as
of July 29, 1997."
3. Section 3 of the Plan is deleted in its entirety, and the
following is inserted in its stead:
"Non-employee directors eligible to receive benefits under
this Plan shall be paid the sum of $24,000 per year for
the life of the non-employee director, commencing with the
last day of the month next following his termination of
service as a non-employee director.
By Authority of the
Furniture Brands International, Inc.
Board of Directors
July 29, 1997<PAGE>
Exhibit 10(o)
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into on January 29,
1998 (the "Effective Date") by and between Thomasville Furniture
Industries, Inc., a Delaware corporation ("Thomasville") and Christian
J. Pfaff ("Executive").
WHEREAS, Executive is now and has been employed by Thomasville in
senior management executive positions and is broadly experienced in
all facets of Thomasville's operations; and
WHEREAS, it is in the best interests of Thomasville to assure
that it will have the continued dedication of Executive;
NOW THEREFORE, for good and valuable consideration and in order
to induce Executive to remain in the employ of Thomasville, the
parties covenant and agree as follows:
1. Definitions. The following terms shall have the following
meanings for purposes of this Agreement.
a. "Cause" means (i) an act or acts of personal dishonesty taken
by Executive and intended to result in substantial personal
enrichment of Executive at the expense of Thomasville, (ii)
violations by Executive of this Agreement or Executive's
employment obligations to Thomasville which are demonstrably
willful on Executive's part and which are not remedied within
a reasonable period of time after receipt of written notice
from Thomasville, or (iii) the conviction of Executive of a
felony involving moral turpitude.
b. "Disability" means the incapacity to attend to and perform
effectively one's duties and responsibilities which continues
for at least 26 weeks after its commencement, as determined
by a physician selected by Thomasville.
c. "Employment Period" that period beginning on the Effective
Date and ending upon Executive's retirement or earlier
termination of employment.
2. Employment. Thomasville agrees to employ Executive, and
Executive agrees to serve Thomasville in an executive, managerial
and supervisory capacity, subject to the direction and control of
the Board of Directors of Thomasville, all upon the terms and
conditions hereinafter set forth. During the Employment Period:
a. Executive's position (including, without limitation, status,
offices, titles and reporting requirements), authority, duties
and responsibilities shall be at least commensurate in all
material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date,<PAGE>
b. Executive's services shall be performed at the location where
the Executive is employed on the Effective Date, or at any office
or location not more than thirty-five (35) miles from such
location,
c. Executive shall continue to receive an annual base salary at
least equal to the annual base salary payable to the Executive by
Thomasville on the Effective Date ("Base Salary"),
d. Executive shall continue to have an annual cash bonus
potential, either pursuant to the Lane Profit Sharing Plan in
effect on the Effective Date or pursuant to a similar incentive
compensation plan of Thomasville, at least equal to the level in
existence on the Effective Date ("Annual Bonus"), and
e. Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs
applicable to other key executive employees of Thomasville
("Benefit Plans").
The failure of Thomasville, without Executive's consent, to comply
with the terms and conditions of employment as set forth in this
Section 2 shall constitute "Good Reason" for Executive's termination
of his employment with Thomasville.
3. Best Efforts. Executive agrees during the Employment Period
to devote his best efforts and substantially all of his business time
and attention to the business of Thomasville, it being agreed that the
Executive will have complied with this obligation if he devotes to the
business of Thomasville his same best efforts and the same time and
attention to the business of Thomasville that he has devoted to the
business of Thomasville during the twelve months next preceding the
Effective Date. Executive agrees that he will perform such other
executive duties for Thomasville and for Thomasville's subsidiaries
relating to its business as the Board of Directors of Thomasville may
reasonably direct.
4. Term. Subject to the provisions of Sections 4 and 5 of this
Agreement, either party shall have the right to terminate the
Employment Period at any time. If Executive's employment with
Thomasville is terminated by Thomasville, other than for Cause or as a
result of his death or Disability, or if Executive terminates his
employment with Thomasville for Good Reason, then Thomasville will,
for a period of one year after the termination date (or, if shorter,
until Executive reaches "Normal Retirement Age" (as such concept is
used in the primary retirement plan in which Executive is a
participant on the Effective Date)), (i) pay to Executive as and when
normally payable his Base Salary as in effect on the date of
termination and an amount equal to the average Annual Bonus received
by such Executive for the past three years prior to termination (or a
pro-rated portion of such average Annual Bonus) and (ii) subject to
program eligibility requirements and continuation of programs by
Thomasville, continue his participation in the Benefit Plans in which
he was participating on the date of termination of employment.
5 Split Dollar Insurance Policy. If Executive's employment with
Thomasville is terminated by Thomasville other than for Cause or as a
result of his death or Disability, or if during such period Executive
terminates his employment with Thomasville for Good Reason, then
Thomasville will continue to make premium payments for so long as
Thomasville is making payments to Executive under Section 4 hereof
under any and all split dollar life insurance programs in effect on
the life of the Executive as of the Effective Date, after which the
Executive will be entitled to ownership of the policy and Thomasville
will be entitled to premium retrieval, all in accordance with the
terms of the program, but only to the extent of the cash value of the
policy, and without recourse to the Executive for the balance of any
such premium retrieval.
6. Non-Competition. During the period commencing on the
Effective Date and while employed by Thomasville, and for a period of
one year after termination of employment, Executive shall not, without
the prior written consent of Thomasville, directly or indirectly, own,
control, finance, manage, operate, join or participate in the
ownership, control, financing, management or operation of, or be
connected as an employee, consultant or in any other capacity with,
any business engaged in the manufacture or distribution of residential
furniture in the United States. Nothing in this Section 6 shall,
however, restrict Executive from making investments in other ventures
which are not competitive with Thomasville, or restrict Executive from
owning less than one percent (1%) of the outstanding securities of
companies listed on a national stock exchange or actively traded in
the "over-the-counter" market. In addition, if the Employment Period
is terminated by Thomasville (other than for Cause) and the Executive
elects to forego the payments called for in Sections 4 and 5 hereof,
the provisions of this Section 6 shall not apply. Should any of the
terms of this Section 6 be found to be unenforceable because they are
over-broad in any respects then they shall be deemed amended to the
extent, and only to the extent, necessary to render them enforceable.
Both parties stipulate that money damages would be inadequate to
compensate for any breaches of the terms of this Section 6, and that
such terms shall be enforceable through appropriate equitable relief,
without the necessity of proving actual damages and to an equitable
accounting of all earnings, profits, and other benefits arising from
such violation, which rights shall be cumulative and in addition to
any other rights and remedies to which Thomasville may be entitled.
7. Confidentiality. During the Employment Period and at all
times thereafter, Executive shall maintain the confidentiality of, and
shall not disclose to any person (except as his duties as an employee
of Thomasville may require) any non-public information concerning
Thomasville or its business.
8. Miscellaneous. This Employment Agreement shall be binding
upon and shall inure to the benefit of Executive's heirs, executors,
administrators and legal representatives, and shall be binding upon
and inure to the benefit of Thomasville and its successors and<PAGE>
assigns. This Agreement shall supersede and stand in place of any and
all other agreements between Executive and Thomasville regarding
severance pay and/or any and all severance pay benefits pursuant to
any plan or practice of Thomasville. This Employment Agreement shall
take effect as of the day and year first above set forth, and its
validity, interpretation, construction and performance shall be
governed by the laws of the State of Mississippi.
9. Indemnification. In the event that either party hereto is
required to pursue litigation against the other party to enforce his
or its rights hereunder, the prevailing party in any such litigation
shall be entitled to reimbursement of the costs and expenses of such
litigation, including attorney's fees.
10. Waivers. In consideration of the undertakings of
Thomasville set forth in this Agreement, Executive hereby irrevocably
waives and forever releases any and all claims and causes of action of
any nature whatsoever that Executive has or may have against
Thomasville or any of its officers, directors, employees or agents
arising out of the negotiation, execution, delivery or terms of this
Agreement, including, without limitation, any claims arising under the
Age Discrimination in Employment Act, 29 U.S.C. Subsection 21 et seq.,
and any state or local law relating to age discrimination.
11. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to its subject matter, and no
waiver, modification or change of any of its provisions shall be valid
unless in writing and signed by the party against whom such claimed
waiver, modification or change is sought to be enforced.
IN WITNESS WHEREOF, the parties hereto have each executed this
Agreement the date set forth below.
THOMASVILLE FURNITURE
INDUSTRIES, INC.
By: /s/ Lynn Chipperfield
-----------------------
Vice-President
Agreed to and Approved:
FURNITURE BRANDS CHRISTIAN J. PFAFF
INTERNATIONAL, INC.
By: /s/ W.G. Holliman By: /s/ Christian J. Pfaff
----------------------- -------------------------
President<PAGE>
Exhibit 10(q)
Consulting Agreement
THIS CONSULTING AGREEMENT is entered into as of the 15th day
of May, 1995, by and between Broyhill Furniture Industries, Inc.,
a North Carolina corporation ("Broyhill"), and Brent B. Kincaid,
an individual residing in North Carolina ("Consultant").
WHEREAS, Consultant is now and has been employed by Broyhill
in senior executive positions and is broadly experienced in all
facets of Broyhill's operations; and
WHEREAS, the parties hereto are desirous of providing for
the services of Consultant upon and after his retirement from
active employment at Broyhill, upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements of the parties herein contained,
the parties agree as follows:
1. Engagement. Effective on the later of the date of his
normal retirement or actual retirement, Broyhill hereby engages
Consultant, as an independent contractor and not as an employee,
to provide consultant services as hereinafter provided. The term
of this agreement shall commence on the date of Consultant's
retirement and shall end upon his death or on that date which is
ten (10) years after date of his retirement, whichever is the
later. Consultant agrees to serve Broyhill as an independent
contractor in the capacity of a consultant for said term.
2. Duties. Consultant shall, from time to time after the
commencement of this Agreement, upon the request of the
management of Broyhill or of INTERCO INCORPORATED, Broyhill's
parent corporation, consult with them on any matters relating to
Broyhill's operations, including the operations of Broyhill's
subsidiaries and affiliates. In the event of a schedule conflict
with Consultant's other activities, the duties herein required
shall be fulfilled at the earliest possible date thereafter.
Consultant shall render such consulting services at any of
Broyhill's offices as might be requested by Broyhill or INTERCO.
3. Compensation. For all services rendered under the
provisions of this Agreement, Broyhill shall pay, and Consultant
shall accept as total compensation, the sum of Two thousand
Eighty-three and 33/100ths Dollars ($2,083.33) per month payable
on the last day of each month during the term of this Agreement.
4. Expenses. In addition to the compensation payable
pursuant to paragraph 3 above, Consultant shall be reimbursed by
Broyhill, upon submission of appropriate vouchers, for such<PAGE>
reasonable out-of-pocket expenses as may be incurred by
Consultant in rendering such consultant services requested by
Broyhill or INTERCO in a manner consistent with Broyhill's policy
for business expenses reimbursement for corporate level
executives.
5. Non-Competition. During the term of this Agreement,
Consultant shall not, without the prior written consent of
Broyhill, directly or indirectly own, control, manage, operate,
join or participate in the ownership, control, management, or
operation of or be connected with, any business in competition
with Broyhill or any of Broyhill's subsidiaries or affiliates.
Nothing in this Section 5 shall, however, restrict Consultant
from making investments in other ventures which are not
competitive with Broyhill, or restrict Consultant from owning
less than one percent (1%) of the outstanding securities of
companies listed on a national stock exchange or actively traded
in the "over-the-counter" market.
6. Termination. The obligations of Broyhill hereunder
shall terminate immediately upon the occurrence of any of the
following:
(a) in the event Consultant shall voluntarily terminate
his employment with Broyhill before the date of his
normal retirement;
(b) in the event of a breach of the provisions of this
Agreement by Consultant, continuing for thirty (30)
days after written notice from Broyhill specifying
the alleged breach; or
(c) in the event Consultant's employment by Broyhill shall
be terminated for cause. For purposes of this
Agreement, "cause" means (i) an act or acts of
personal dishonesty taken by Consultant and intended
to result in substantial personal enrichment of
Consultant at the expense of Broyhill or INTERCO, (ii)
repeated violations by Consultant of Consultant's
employment obligations to Broyhill which are
demonstrably willful and deliberate on Consultant's
part and which are not remedied within a reasonable
period of time after receipt of written notice from
Broyhill or INTERCO, or (iii) the conviction of
Consultant of a felony involving moral turpitude.
7. Death or Disability. Notwithstanding any disability of
Consultant rendering him incapable to perform the services
hereunder, Broyhill shall continue the payments required
hereunder and shall adhere to the terms of this Agreement. In
the event of the death of Consultant before the tenth anniversary
of the commencement of the term of this Agreement, the
compensation called for by this Agreement shall not terminate but
Broyhill shall be obligated to continue same for the term hereof<PAGE>
to Consultant's estate or to his beneficiary as designated in
writing by him.
8. Indemnification. In the event that either party hereto
is required to pursue litigation against the other party in order
to enforce his or its rights hereunder, the prevailing party in
any such litigation shall be entitled to reimbursement of the
costs and expenses of such litigation, including attorneys' fees.
9. Successors and Assigns. This Agreement shall inure to
the benefit of an be binding upon the heirs, executors,
administrators, successors and assigns of the parties hereto.
The parties acknowledge that the consulting services to be
performed by Consultant hereunder are personal in nature and
cannot be assigned.
10. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to its subject matter, and
no waiver, modification or change of any of its provisions shall
be valid unless in writing and signed by the party against whom
such claimed waiver, modification or change is sought to be
enforced.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement the date and year first above written.
BROYHILL FURNITURE INDUSTRIES, INC.
By: /s/ Jerry T. Church
----------------------------------
Vice President
BRENT B. KINCAID
By: /s/ Brent B. Kincaid
---------------------------------
Approved:
INTERCO INCORPORATED
By: /s/ R.B. Loynd
------------------------
Chairman of the Board<PAGE>
Addendum to Consulting Agreement
dated May 15, 1995 Between
Broyhill Furniture Industries, Inc., and
Brent B.Kincaid
At a meeting held on January 29, 1998, the Board of Directors of
Furniture Brands International, Inc., upon recommendation of the
Executive Compensation and Stock option Committee of the Board,
approved an amendment to the Consulting Agreement dated May 15,
1995 between Broyhill Furniture Industries, Inc. and Brent B.
Kincaid, which amendment provides that the monthly payment set
forth in Section 3 of the Consulting Agreement shall be increased
by $2,083.33 per month to $4,166.67 per month.
In all other respects the Consulting Agreement remains unamended
and in full force and effect.
By Authority of the Board of Directors
of Furniture Brands International, Inc.
January 29, 1998<PAGE>
Exhibit 21
List of Subsidiaries
of
Furniture Brands International, Inc.
Jurisdiction of
Name of Subsidiary Incorporation
------------------ ---------------
Action Transport, Inc. Delaware
Action Industries, Inc. Mississippi
Broyhill Furniture Industries, Inc. North Carolina
Broyhill Transport, Inc. North Carolina
Fayette Enterprises, Inc. Mississippi
Interco Receivables Corp. Delaware
Lane Advertising, Inc. Virginia
Lane Furniture Industries, Inc. Delaware
The Lane Company, Incorporated Virginia
Thomasville Furniture Industries, Inc. Delaware
Thomasville Furniture Latin America, S.A. Panama
<PAGE>
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Furniture Brands International, Inc.:
We consent to incorporation by reference in the registration
statement (Nos. 33-65714, 333-6990, 333-39355) on Form S-8 of
Furniture Brands International, Inc. of our report dated January
29, 1998, relating to the consolidated balance sheets of
Furniture Brands International, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows
and related schedule for each of the years in the three-year
period ended December 31, 1997, which report appears in the
December 31, 1997 annual report on Form 10-K of Furniture Brands
International, Inc.
St. Louis, Missouri
March 27, 1998<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 12,274
<SECURITIES> 0
<RECEIVABLES> 307,768
<ALLOWANCES> 13,793
<INVENTORY> 287,046
<CURRENT-ASSETS> 618,509
<PP&E> 459,692
<DEPRECIATION> 165,631
<TOTAL-ASSETS> 1,257,236
<CURRENT-LIABILITIES> 136,221
<BONDS> 667,800
0
0
<COMMON> 52,003
<OTHER-SE> 124,595
<TOTAL-LIABILITY-AND-EQUITY> 1,257,236
<SALES> 1,808,276
<TOTAL-REVENUES> 1,808,276
<CGS> 1,319,455
<TOTAL-COSTS> 1,319,455
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,098
<INTEREST-EXPENSE> 42,747
<INCOME-PRETAX> 107,254
<INCOME-TAX> 40,201
<INCOME-CONTINUING> 67,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,053
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.15
</TABLE>
<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
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