<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
LADD FURNITURE, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
Notice of
1997
Annual
Meeting
Proxy Statement
Annual Report on Form 10-K
(Ladd Furniture, Inc. logo appears here)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Notice of Annual Meeting.............................................................................................. 1
Proxy Statement
General............................................................................................................. 2
Voting Securities................................................................................................... 2
Security Ownership of Certain Beneficial Owners and Management...................................................... 2
Nominees for Election of Directors.................................................................................. 4
Executive Cash Compensation and Related Information................................................................. 5
Long-Term Incentive Plan -- Awards in 1996.......................................................................... 12
Defined Benefit Plans............................................................................................... 12
Other Compensation.................................................................................................. 13
Comparative Company Performance..................................................................................... 15
The Board of Directors -- Committees and Meetings................................................................... 15
Approval of Amendment of LADD Furniture, Inc. 1994 Incentive Stock Option Plan...................................... 16
Ratification of Independent Public Accountants...................................................................... 20
Date for the Receipt of Shareholder Proposals....................................................................... 21
Other Business...................................................................................................... 21
Form 10-K........................................................................................................... 21
Solicitation of Proxies............................................................................................. 21
Appendix A:
Annual Report on Form 10-K
PART I
Item 1. Business............................................................................................... A-2
Item 2. Properties............................................................................................. A-6
Item 3. Legal Proceedings...................................................................................... A-7
Item 4. Submission of Matters to a Vote of Security Holders.................................................... A-7
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters........................... A-8
Item 6. Selected Financial Data................................................................................ A-9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. A-10
Item 8. Financial Statements and Supplementary Data............................................................ A-14
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................... A-34
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................... A-34
Item 11. Executive Compensation................................................................................. A-34
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................... A-34
Item 13. Certain Relationships and Related Transactions......................................................... A-34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................... A-35
</TABLE>
<PAGE>
LADD FURNITURE, INC.
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
LADD FURNITURE, INC.
The annual meeting of the shareholders of LADD Furniture, Inc. will be held
at the Radisson Hotel, 135 S. Main Street, High Point, North Carolina, on May 1,
1997, at 10:00 a.m., for the purpose of considering and acting upon the
following:
1. The election of nine directors;
2. Approval of an Amendment to the Company's 1994 Incentive Stock Option
Plan;
3. Ratification of the appointment of KPMG Peat Marwick LLP as independent
public accountants for the 1997 fiscal year; and
4. All other business as may properly come before the meeting.
Only shareholders of record as of the close of business on March 6, 1997,
will be entitled to notice of, and to vote at, this meeting or at any
adjournment thereof.
The Company's Annual Report on Form 10-K for the fiscal year ended December
28, 1996 is enclosed as Appendix A. It is not to be considered part of the proxy
soliciting material.
Shareholders are requested to date, sign and return the enclosed proxy. An
envelope is provided requiring no postage for mailing in the United States. Your
prompt response will be appreciated.
WILLIAM S. CREEKMUIR
SECRETARY
April 1, 1997
LADD Furniture, Inc.
One Plaza Center, Box HP-3
High Point, North Carolina 27261-1500
<PAGE>
LADD FURNITURE, INC.
One Plaza Center, Box HP-3
High Point, North Carolina 27261-1500
PROXY STATEMENT
GENERAL
This Proxy Statement and form of proxy (the "Proxy") is solicited by and on
behalf of the Board of Directors of LADD Furniture, Inc. (the "Company") for use
at the 1997 Annual Meeting of Shareholders to be held at the Radisson Hotel, 135
S. Main Street, High Point, North Carolina, on May 1, 1997, at 10:00 a.m. and at
any subsequent time which may be made necessary by its adjournment. This Proxy
Statement and Proxy were mailed to shareholders on or about April 1, 1997.
Only shareholders of record at the close of business on March 6, 1997, will
be entitled to notice of, and to vote at the meeting. There were 7,719,567
shares of Common Stock outstanding on March 6, 1997.
If the accompanying Proxy is properly signed and returned, the shares
represented thereby will be voted. Where a choice is specified on any Proxy as
to the vote on any matter to come before the meeting, the Proxy will be voted in
accordance with such specification. If no choice is specified in a Proxy that is
properly executed and returned, the Proxy will be voted FOR the nominees for
directors named herein and FOR Items 2 and 3 of the accompanying Notice. Any
shareholder giving the solicited Proxy may revoke it at any time before it is
exercised, and any shareholder who has executed a Proxy and attends the meeting
may elect to vote in person rather than by proxy. The Proxy may be revoked by
the shareholder filing with the Secretary of the Company either a written
instrument of revocation or a duly executed proxy bearing a later date.
VOTING SECURITIES
The laws of North Carolina under which the Company is incorporated provide
that each shareholder present or represented and entitled to vote on a matter at
the meeting or any adjournment thereof, including with respect to the election
of directors, will be entitled to one vote on such matter for each share held by
him at the close of business on the record date. Other than the election of
directors, which requires a plurality of the votes cast, each matter to be
submitted to the shareholders requires the affirmative vote of a majority of the
votes cast at the meeting. For purposes of determining the numbers of votes cast
with respect to any voting matter, only those cast "for" or "against" are
included. Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below are all persons known by management to own
beneficially five percent or more of the Company's outstanding Common Stock as
of December 31, 1996, except for Mr. Allen whose beneficial ownership has been
determined as of March 6, 1997. The persons have sole voting and investment
power except as noted:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES
<S> <C> <C>
FLB Investment Advisory Services, Inc..................................... 836,496(1) 10.8%
5400 University Avenue
West Des Moines, IA 50266
Richard R. Allen.......................................................... 787,611(2) 10.2%
2815 Lake Forest Drive
Greensboro, NC 27408
Pioneering Management Corporation......................................... 770,398(3) 10.0%
60 State Street
Boston, MA 02109
Dimensional Fund Advisors, Inc............................................ 391,791(4) 5.1%
1299 Ocean Venue, 11th Floor
Santa Monica, CA 90401
</TABLE>
(1) All such shares are held on behalf of various investment advisory clients of
FLB Investment Advisory Services, Inc. ("FLB"), which have the right to
receive or the power to direct receipt of dividends from or the proceeds
from a sale of the shares. FLB has the sole power to vote and dispose of the
shares.
2
<PAGE>
(2) Does not include 13,334 shares owned by Mr. Allen's wife, 7,787 shares held
in trust for an adult daughter, and 7,653 shares held by an adult daughter,
as to all such shares Mr. Allen disclaims beneficial ownership. Includes
currently exercisable options as to 100 shares.
(3) Pioneering Management Corporation is an investment advisor that holds sole
voting power over the shares but has shared disposition power.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 391,791 shares of the
Company stock as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group, Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
The following table shows the number of shares of the Company's Common
Stock beneficially owned at March 6, 1997 by each director and each nominee for
election to the Board of Directors of the Company and all named executive
officers of the Company in addition to Mr. Richard R. Allen named in the table
above who is a director. Also shown is information as to the beneficial
ownership of all directors and executive officers as a group. The persons have
sole voting and investment power except as noted:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME BENEFICIALLY OWNED SHARES
<S> <C> <C>
William B. Cash(1)............................................ 7,334 --(13)
Kenneth E. Church............................................. 28,694(2) --(13)
James H. Corrigan, Jr......................................... 8,534(3) --(13)
William S. Creekmuir.......................................... 22,607(4) --(13)
Charles R. Eitel.............................................. -0- --
O. William Fenn, Jr........................................... 318,273(5) 4.1%
Michael P. Haley.............................................. 19,311(6) --(13)
Don A. Hunziker............................................... 238,461(7) 3.1%
Thomas F. Keller.............................................. 7,768(8) --(13)
Zenon S. Nie.................................................. -0- --
Donald L. Mitchell............................................ 14,767(9) --(13)
L. Glenn Orr, Jr.............................................. 1,100(10) --(13)
Fred L. Schuermann, Jr........................................ 41,900(11) --(13)
All executive officers and directors as a group
(12 persons)................................................ 1,496,360(1)(12) 19.1%
</TABLE>
(1) Includes currently exercisable options as to 2,001 shares. Excludes 441
shares owned by Mr. Cash's wife, as to such shares Mr. Cash disclaims
beneficial ownership. Mr. Cash is retiring from the Board of Directors at
the 1997 Annual Meeting and will not be standing for re-election. Mr.
Cash's beneficial ownership is included in the group total.
(2) Includes currently exercisable options as to 21,589 shares and 3,049 shares
of restricted stock.
(3) Includes 76 shares owned jointly by Mr. and Mrs. Corrigan and currently
exercisable options as to 2,001 shares.
(4) Includes currently exercisable options as to 19,691 shares and 2,549 shares
of restricted stock.
(5) Does not include 8,889 shares held by Mr. Fenn's wife, as to such shares
Mr. Fenn disclaims beneficial ownership. Includes currently exercisable
options as to 500 shares.
(6) Includes currently exercisable options as to 16,877 shares and 2,434 shares
of restricted stock.
(7) Does not include 19,556 shares held by Mr. Hunziker's wife, as to such
shares Mr. Hunziker disclaims beneficial ownership. Includes currently
exercisable options as to 500 shares.
(8) Includes currently exercisable options as to 2,001 shares.
(9) Includes currently exercisable options as to 14,767 shares.
(10) Includes currently exercisable options as to 100 shares.
(11) Includes currently exercisable options as to 34,051 shares and 5,550 shares
of restricted stock.
(12) Includes currently exercisable options as to 114,178 shares and 13,582
shares of restricted stock.
(13) Less than 1%.
3
<PAGE>
NOMINEES FOR ELECTION OF DIRECTORS
(PROPOSAL NUMBERED (1) IN THE ACCOMPANYING NOTICE)
At the 1997 Annual Meeting, nine directors will be elected to hold office
until the 1998 Annual Meeting or until their successors have been elected and
qualified. It is proposed to nominate the nine persons listed below with brief
statements of their principal occupations and other biographical information.
All of the nominees except for Charles R. Eitel and Zenon S. Nie are current
directors. It is intended that the Proxyholders named in the Proxy will vote for
the persons listed in the table below. Should any nominee named become unable to
serve as a director, the shares represented by valid proxies will be voted for
the election of such other person as the Board of Directors may recommend in his
place, or the Board may recommend the nomination of only the remaining nominees.
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE DURING PAST FIVE YEARS, DIRECTORSHIPS
NAME AGE SINCE IN PUBLIC COMPANIES AND FAMILY RELATIONS
<S> <C> <C> <C>
Richard R. Allen.................... 56 1981 Chairman of the Board of Directors since October 1991; Chief
Executive Officer from October 1991 to December 1995; President
from October 1991 to January 1995; Vice Chairman of the Board of
Directors from January 1990 to October 1991; currently chairman of
the board of Lighthouse Financial Corporation and Pinnacle Capital
Corporation.
James H. Corrigan, Jr.(1)(3)........ 71 1984 Director of Mebane Packaging Group, Inc. since 1980 and chairman,
president and chief executive officer from 1980 to 1995; currently
a director of Old North State Bank and Norelli & Company
Charles R. Eitel.................... 47 Nominee President and Chief Operating Officer of Interface, Inc. since
February 1997; Executive Vice President of Interface, Inc. from
1994 to February 1997; president and chief executive officer of the
Floorcoverings Group of Interface, Inc. from 1993 to February 1997;
president of Collins & Aikman Floorcoverings from 1987 to 1993;
currently a director of Interface, Inc. and Weeks Corporation.
O. William Fenn, Jr.(1)............. 70 1982 Vice Chairman of the Board of Directors from January 1990 to March
1992; chairman of North Carolina Home Furnishings Export Council,
N.C. Department of Commerce; currently a director of the American
Furniture Hall of Fame and Southern National Corporation.
Don A. Hunziker(1).................. 69 1981 Chairman Emeritus of the Board of Directors from October 1991 to
September 1992; Chairman of the Board of Directors and Chief
Executive Officer of the Company from 1982 to October 1991.
Thomas F. Keller(2)(3).............. 65 1983 Currently R. J. Reynolds Professor and former Dean Fuqua School of
Business, Duke University, from 1974 to 1996; currently a director
of Hatteras Income Securities, Inc., Nations Funds, Inc., Nations
Funds Trust, Nations Government Income Term Trust, 2003, Inc.,
Nations Government Income Term Trust, 2004, Inc., Nations Balanced
Target Maturity Trust, American Business Products, Wendy's
International, Inc., Mentor Series Trust, DIMON Inc., and Biogen,
Inc.
Zenon S. Nie........................ 46 Nominee Chairman of the Board since January 1994 and Chief Executive Officer
since November 1993 of Simmons Company; president of the Consumer
Home Fashions Division of The Bibb Company from October 1991 to
November 1993; currently trustee and member of the executive
committee of the Board of Trustees of the International Sleep
Products Association.
L. Glenn Orr, Jr.(2)(3)............. 56 1996 President and chief executive officer of Orr Management Company since
February 1995; chairman emeritus of Southern National Corporation
since February 1995; chairman, president and chief executive
officer of Southern National Corporation from October 1990 to
February 1995; currently a director of Highwoods Properties, Inc.,
Southern National Corporation, Polymer Group, Inc. and Pleasants
Hardware Company, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Fred L. Schuermann, Jr.............. 51 1991 President and Chief Executive Officer since January 1996; President
and Chief Operating Officer from January 1995 to January 1996;
Executive Vice President from October 1991 to January 1995; Chief
Financial Officer, Secretary and Treasurer from January 1990 to
July 1992; Senior Vice President from January 1990 to October 1991.
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance Committee
In addition to Fred L. Schuermann, Jr., listed above under "Nominees for
Election of Directors," the Company currently has the following executive
officers:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
<S> <C> <C>
Kenneth E. Church.......................................... 45 Executive Vice President of the Company and president of
the Company's Upholstery Group since January 1996; vice
president of the Company from April 1994 to January 1996;
president of Clayton-Marcus Company, Inc., a subsidiary
of the Company, since February 1991.
William S. Creekmuir....................................... 41 Executive Vice President of the Company since January 1996
and Chief Financial Officer, Secretary and Treasurer
since July 1992; Senior Vice President from July 1992 to
December 1995; partner with KPMG Peat Marwick from July
1987 to July 1992; currently a director of Brown Jordan
International, Inc. and the American Furniture
Manufacturers Association -- Finance Division and chair
elect of the Advisory Council to the John A. Walker
College of Business at Appalachian State University.
Michael P. Haley........................................... 46 Executive Vice President of the Company since March 1996;
president of American Furniture Company, Incorporated and
LADD Contract Sales Corporation, subsidiaries of the
Company, since May 1994; president and chief executive
officer of Lowenstein Furniture Group from November 1988
to May 1994.
Donald L. Mitchell......................................... 52 Executive Vice President of the Company and president of
the Company's Casegoods Group since January 1996;
president of Universal Furniture, Inc. from 1992 to 1995.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934 requires the Company's directors, executive
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership (Form 3) and reports of changes in
ownership (Forms 4 and 5) of Common Stock of the Company. Officers, directors
and greater than ten-percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 28, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were met except with respect to Mr.
Church. Due to a clerical error, Kenneth E. Church overreported the number of
shares he beneficially owns. The correct number of shares was reported on a
subsequent report on Form 3.
EXECUTIVE CASH COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives generally are made by
the three-member Compensation Committee of the Board. Each member of the
Compensation Committee is a non-employee director. Recommendations on
5
<PAGE>
compensation for the Company's Senior Executives (as defined below) are made to
the Compensation Committee by the Chief Executive Officer. All decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board, except for decisions about awards under
the Company's incentive stock option plan, which must be made solely by the
Committee in order for the grants under such plan to satisfy Exchange Act Rule
16b-3. Set forth below is a report prepared by Messrs. Cash and Orr and Dr.
Keller in their capacity as the Board's Compensation Committee addressing the
Company's compensation policies for 1996 as they affected Mr. Fred L.
Schuermann, Jr., President and Chief Executive Officer, and Messrs. Church,
Creekmuir, Haley and Mitchell, the four executive officers other than Mr.
Schuermann who, for 1996, were the Company's most highly paid executive officers
(collectively with Mr. Schuermann, the "Senior Executives"). Messrs. Church,
Haley and Mitchell first became executive officers of the Company in 1996.
The following report describes the Company's compensation plans and
policies as they existed and were applied during 1996. The compensation plans of
the Company were adjusted for 1996 by the Compensation Committee following
consultations with Mr. Schuermann to provide for replacement of grants of
restricted stock with an increased emphasis on the granting of stock options in
order to provide further incentives to executives to increase shareholder value.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
The Compensation Committee's executive policies are designed to provide
competitive levels of compensation that integrate pay with the Company's annual
and long-term performance goals, reward above average corporate performance,
recognize individual initiative and achievements, and assist the Company in
attracting and retaining qualified executives. In that regard, the Compensation
Committee has adopted, as revised in 1996, the following Policy on Executive
Compensation:
IT SHALL BE THE POLICY OF LADD FURNITURE, INC. TO MAINTAIN AN
EXECUTIVE COMPENSATION PROGRAM THAT WILL:
(BULLET) SUPPORT A PAY-FOR-PERFORMANCE POLICY THAT DIFFERENTIATES THE
AMOUNT OF COMPENSATION ON THE BASIS OF CORPORATE, BUSINESS
UNIT AND INDIVIDUAL PERFORMANCE;
(BULLET) MOTIVATE SENIOR OFFICERS TO ACHIEVE STRATEGIC BUSINESS
INITIATIVES AND GOALS AND REWARD THEM FOR THEIR ACHIEVEMENT;
(BULLET) PROVIDE COMPENSATION OPPORTUNITIES WHICH ARE COMPARABLE TO
THOSE OFFERED BY OTHER LEADING COMPANIES, THUS ALLOWING THE
COMPANY TO COMPETE FOR AND RETAIN TALENTED EXECUTIVES WHO ARE
CRITICAL TO THE COMPANY'S LONG-TERM SUCCESS; AND
(BULLET) ALIGN THE INTERESTS OF EXECUTIVES WITH THE LONG-TERM
INTERESTS OF SHAREHOLDERS THROUGH AWARD OPPORTUNITIES THAT
CAN RESULT IN OWNERSHIP OF LADD COMMON STOCK.
THE LADD EXECUTIVE COMPENSATION PROGRAM SHALL BE COMPRISED OF BASE
SALARY, ANNUAL CASH INCENTIVE OPPORTUNITIES, LONG-TERM INCENTIVE
OPPORTUNITIES IN THE FORM OF STOCK OPTIONS, LADD COMMON STOCK AND CASH
INCENTIVES, AND OTHER BENEFITS TYPICALLY OFFERED TO EXECUTIVES BY MAJOR
CORPORATIONS.
AS AN EXECUTIVE'S LEVEL OF RESPONSIBILITY INCREASES, A GREATER PORTION
OF HIS OR HER POTENTIAL TOTAL COMPENSATION OPPORTUNITY SHALL BE BASED ON
PERFORMANCE INCENTIVES AND LESS ON SALARY AND EMPLOYEE BENEFITS, CAUSING
GREATER VARIABILITY IN THE INDIVIDUAL'S ABSOLUTE COMPENSATION LEVEL FROM
YEAR-TO-YEAR. IN ADDITION, THE HIGHER ONE RISES IN THE LADD FURNITURE
ORGANIZATION, THE GREATER THE COMPENSATION MIX SHIFTS TO RELY ON THE VALUE
OF LADD'S COMMON STOCK THROUGH STOCK-BASED AWARDS.
SUMMARY OF INCENTIVE COMPENSATION PLANS
While not required by the SEC disclosure rules, the Compensation Committee
believes a brief description of each of the Company's incentive compensation
plans as applicable for years 1994 through 1996 will enable shareholders to
understand better the information presented below.
MANAGEMENT INCENTIVE PLAN. The Company maintains a Management Incentive
Plan designed to compensate officers and key managers for accomplishment of
divisional, Group (Casegoods, Upholstery, and Contract Sales), and Company
annual profit plans, subject to achieving certain specified earnings levels and
the participant achieving specific individual performance objectives. All
amounts earned for fiscal 1994, 1995 and 1996 by the Senior Executives have been
included in the "Bonus" column in the Summary Compensation Table. For fiscal
1997, depending upon an individual's assigned incentive category, participants
can earn incentive compensation payments up to a maximum of 10% to 100% of their
annual
6
<PAGE>
salaries. Payments under the plan, if any, will be made following completion of
the annual audit and after evaluation of the Company's (including separate
business units) and participants' performances. The awards will be paid in cash.
LONG-TERM INCENTIVE PLAN. The Company's Long-Term Incentive Plan ("LTIP")
has been designed to compensate officers for accomplishment of divisional,
Group, and Company long-range (three-year) objectives. The objectives for the
1994-1996 plan (the "1994 LTIP") and the 1995-1997 plan ("1995 LTIP") consisted
of specified levels of return on average shareholders' equity ("ROE"), return on
average divisional invested capital ("ROIC"), and sales growth. Reflecting the
Compensation Committee's decision to place an increased emphasis on tying
incentive compensation to Company profitability and stock performance, the
objective for the 1996-1998 plan (the "1996 LTIP") was specified levels of
aggregate earnings per share for 1997 and 1998. Grants under the 1994 LTIP and
1995 LTIP consisted of performance units, incentive stock option grants and
issuance of restricted stock. Grants under the 1996 LTIP consisted of
performance units and incentive stock options. Payout of the performance units
in the 1994 LTIP and 1995 LTIP, if any, were designated to be made in cash.
Payouts under the 1996 LTIP, if any, will be made in the form of 50% cash and
50% issuance of the Company's Common Stock, consistent with the Compensation
Committee's desire to emphasize overall Company profitability and stock
performance.
Issuances of stock options under the LTIPs were made pursuant to the
Company's incentive stock option plan, which is further described below. The
issuance of restricted stock under the 1994 LTIP and 1995 LTIP were made
pursuant to restricted stock agreements which provide that if the employee
should cease to be employed by the Company for any reason other than death or
disability or ceases to be employed by the Company in an appropriate executive
capacity prior to five years from the date of the agreement, the Company may
repurchase the shares for $.30 per share. The employee may not sell, assign, or
transfer the shares in any way (except to a spouse or a child, and then the
shares are still subject to the Company's right of repurchase) so long as the
shares are subject to the Company's right of repurchase.
Set forth below is a summary of the performance objectives, award
opportunities, valuation of performance units, form of payout and the weighting
of the performance objectives under the 1994, 1995, and 1996 LTIPs.
LONG-TERM INCENTIVE PLAN SUMMARY
<TABLE>
<CAPTION>
1994 LTIP 1995 LTIP
(1994-1996) (1995-1997)
<S> <C> <C>
Types of awards (% of beginning base salary)
Incentive stock options.................................................. 12.5%-30.0% 12.5%-30.0%
Restricted stock awards.................................................. 12.5%-18.8% 12.5%-18.8%
Performance units........................................................ 18.7%-25.0% 18.7%-25.0%
Payout maximum........................................................ 28.1%-37.5% 28.1%-37.5%
Unit payout method.................................................... Cash Cash
Weighting of performance objectives
ROE or ROIC.............................................................. 55% 55%
Sales growth............................................................. 45% 45%
Earnings per share....................................................... N/A N/A
<CAPTION>
1996 LTIP
(1996-1998)
<S> <C>
Types of awards (% of beginning base salary)
Incentive stock options.................................................. 25.0%-40.0%
Restricted stock awards.................................................. N/A
Performance units........................................................ 25.0%
Payout maximum........................................................ 37.5%
Unit payout method.................................................... 50% Cash/
50% Stock
Weighting of performance objectives
ROE or ROIC.............................................................. N/A
Sales growth............................................................. N/A
Earnings per share....................................................... 100%
</TABLE>
Cash incentive payments for the 1994, 1995 and 1996 LTIPs are included in
the "LTIP Payout" column in the Summary Compensation Table. All issuances of
restricted stock and stock options to the Senior Executives during 1994, 1995
and 1996 have been shown under the "Restricted Stock Award" and "Option" columns
in the Summary Compensation Table. Awards in 1996 with respect to the
performance units (cash portion) of the 1996 LTIP to the Senior Executives are
shown in the Long-Term Incentive Plan -- Awards in 1996 Table.
SPECIAL INCENTIVE COMPENSATION. In addition to the Management Incentive
Plan and the Long-Term Incentive Plans, from time to time the Compensation
Committee may provide for special incentive compensation arrangements to
compensate executives, including Senior Executives, for unique circumstances and
performance not captured by the Company's established compensation plans. In
this regard, in 1996, Donald L. Mitchell was awarded a special, one-time bonus
of $165,000 in connection with his recruitment as a senior executive of the
Company. The payment of this bonus is reflected in the "All Other Compensation"
column of the Summary Compensation Table. In addition, Mr. Mitchell's 1996
arrangement included a minimum bonus of $50,000 for addressing turnaround issues
of the Company's Casegoods Group. The payment of this bonus is reflected in the
"Bonus" column of the Summary Compensation Table.
7
<PAGE>
In 1996, the Compensation Committee, consistent with the increased emphasis
on tying incentive compensation for Senior Executives to increased shareholder
value, made one-time grants of non-qualified stock options to the Senior
Executives in the following amounts: Schuermann (75,000); Church (50,000);
Creekmuir (50,000); Haley (50,000); and Mitchell (50,000). The grant of these
options, as well as the grant of options under the 1996 LTIP, are shown in the
"Option" column in the Summary Compensation Table.
1994 INCENTIVE STOCK OPTION PLAN. On February 24, 1994, the Company adopted
the LADD Furniture, Inc. 1994 Incentive Stock Option Plan (the "Plan"). Pursuant
to the Plan, 800,000 shares (as adjusted for the one-for-three reverse stock
split in 1995 and by amendment of the Plan in 1996) of the Company's Common
Stock have been reserved for the issuance of stock options under the Plan.
Incentive stock options are issued by the Administrative Committee of the Plan
(the Compensation Committee of the Board of Directors) at current fair market
prices (based upon the closing price of the Company's Common Stock on the Nasdaq
stock market on the date of grant). Only key employees (as determined by the
Administrative Committee) are eligible to receive options. The Committee does
not consider a participant's current stock ownership or prior stock option or
restricted stock grants when making new stock option grants. The Committee has
considered in the past, however, beneficial ownership of Company Common Stock
when setting the price of incentive stock options for any optionees who own more
than 10% of the Company's Common Stock. For these individuals, the option price
is 110% of fair market value on the date of grant. The Plan also currently
provides for the granting of nonqualified stock options as to 667 shares of the
Company's Common Stock to non-employee directors of the Company upon their
initial election to the Board and additional nonqualified stock options as to
500 shares each year thereafter so long as the non-employee director remains
eligible under the terms of the Plan. As discussed in more detail in the section
of this Proxy Statement entitled "Approval of Amendment of LADD Furniture, Inc.
1994 Incentive Stock Option Plan," it is proposed that the initial grants and
subsequent annual grants to non-employee directors of the Company be increased
to 2,000 shares in each instance. The Plan also provides for the granting of
nonqualified stock options to eligible employees at option prices less than fair
market value. Options granted under the Plan are typically for a term of ten
years, first becoming exercisable in 25% increments over a four-year period
beginning one year after the date of grant.
RELATIONSHIP OF COMPANY PERFORMANCE TO SENIOR EXECUTIVE 1996 COMPENSATION
Compensation paid to the Company's executive officers in 1996, as reflected
in the following tables as to the Senior Executives, consisted of the following
elements: base salary, annual bonus payout under the 1996 Management Incentive
Plan, long-term bonus payout for 1996 under the 1994 LTIP, special incentive
compensation, and various payments associated with employee benefits provided to
Senior Executives. The Compensation Committee's emphasis on tying pay to
performance criteria is demonstrated by the fact that 93.5% of all
performance-based compensation paid to Senior Executives for 1994, 1995 and
1996, in the aggregate for that three-year period, were made to Messrs. Church
and Haley reflecting the performance of their respective operating units being
above the performance objectives established for them.
The measures of performance that were utilized under the Company's
compensation plans for 1996 were as follows: (1) actual versus targeted annual
profit performance, (2) return on average shareholders' equity or return on
average Group or divisional invested capital, both annually and over a
three-year period, (3) sales growth over a three-year period, and (4) for 1996
only, aggregate earnings per share. A portion of the annual incentive
opportunity was also based on specific individual performance objectives
established for each Senior Executive, except for Mr. Schuermann. Subjective
considerations of individual performance were considered only in establishing
base salaries or other special compensation arrangements.
ACTUAL VERSUS TARGETED PROFIT PERFORMANCE. Actual versus targeted profit
performance and, with the exception of Mr. Schuermann, performance against
specific individual objectives were the criteria utilized to determine the
extent to which targeted annual bonuses were paid to the Company's Senior
Executives. The actual versus target profit performance bonus opportunity
represented 35% to 50% of the Senior Executives' beginning base salary for 1996.
Target annual profits utilized for purposes of evaluating annual bonuses were
based on business plans developed by the management teams of the individual
operating companies and the Senior Executives and were approved by the Company's
Board of Directors.
RETURN ON AVERAGE SHAREHOLDERS' EQUITY OR INVESTED CAPITAL. Return on
average shareholders' equity was an important component of the annual bonus for
Messrs. Schuermann and Creekmuir. For 1996, the Company's return on average
shareholders' equity was below the established bonus threshold and, therefore,
there were no payouts to Messrs. Schuermann and Creekmuir based upon this
performance criterion. The return on average equity target is set such that if
it is achieved, the Company would be recognized as a top performer in the
furniture industry. The return on average equity component of the 1996 bonus
opportunity represented 50% and 35%, respectively, of Messrs. Schuermann and
Creekmuir's beginning base salary for 1996 under the Management Incentive Plan.
8
<PAGE>
Return on average Group or divisional invested capital was an important
component of the annual bonus for Messrs. Church, Haley and Mitchell. For 1996,
the return on average Group or divisional invested capital for Messrs. Church
and Haley's operating units was above the established bonus threshold and,
therefore, payouts were made to each of them based upon this performance
criterion. The return on average Group or divisional invested capital target is
set such that if it is achieved, the operating unit would be recognized as a top
performer in the furniture industry. The return on average Group or divisional
invested capital component of the 1996 bonus opportunity represented 20% of
Messrs. Church, Haley and Mitchell's beginning base salary for 1996 under the
Management Incentive Plan.
As discussed above, the 1994 LTIP included as a performance measurement
criterion return on average shareholders equity or return on average divisional
invested capital over the three-year performance cycle. With the exception of
Mr. Church, no payouts based upon return on average shareholders equity or Group
or divisional invested capital were made to Senior Executives because the
Company's performance or the relevant operating unit's performance was below the
return on average equity or invested capital target. All such payments are
included in the "LTIP Payouts" column in the Summary Compensation Table. Awards
with respect to the cash portion of the 1994 LTIP made with respect to 1996 to
Senior Executives are shown in the Long-Term Incentive Plan Awards in 1996
Table.
SALES GROWTH. Under the cash portion of the 1994 LTIP which was paid in
1996, Senior Executives participating in the 1994 LTIP at the beginning of the
three-year performance cycle could earn incentive compensation by exceeding
target goals tied to sales growth for the Company or division relative to the
furniture industry as measured by the U.S. Commerce Department Furniture Growth
Index. No bonuses based upon sales growth were paid for 1996 to Senior
Executives with the exception of Mr. Church. All such payments are included in
the "LTIP Payouts" column in the Summary Compensation Table. Awards with respect
to the cash portion of the 1994 LTIP made in 1996 to Senior Executives are shown
in the Long Term Incentive Plan -- Awards in 1996 Table.
INDIVIDUAL PERFORMANCE OBJECTIVES. Under the 1996 Management Incentive
Plan, a bonus opportunity of 10% of beginning base salary was also based on
specific individual performance objectives ("IPOs") established for each Senior
Executive, with the exception of Mr. Schuermann. Mr. Schuermann's incentive
compensation under the Management Incentive Plan was based entirely upon
attaining profitability and return on average shareholders' equity objectives.
At the beginning of each year, IPOs specific to each Senior Executives' areas of
responsibility are established in consultation with the Chief Executive Officer.
Such IPOs may include sales growth, cost control, balance sheet management, and
quality improvement. The Senior Executives' satisfaction of their respective
IPOs during 1996 was evaluated by Mr. Schuermann and were approved by the
Compensation Committee. Messrs. Church and Haley received IPO payouts in 1996.
Messrs. Creekmuir and Mitchell did not receive IPO payouts because the Company's
and the Casegoods Group's overall performance did not meet the Plan's
requirements. All such payments are included in the "Bonus" Column in the
Summary Compensation Table.
OTHER COMPENSATION PLANS AND ARRANGEMENTS. At various times in the past,
the Company has adopted certain broad-based employee benefit plans in which
Senior Executives, once eligible, have been permitted to participate and has
adopted certain executive officer retirement, life and health insurance plans.
The benefits under these plans are not directly or indirectly tied to an
operating unit's performance. Payments to Senior Executives in 1996 under
special compensation arrangements are discussed in the preceding section,
"Special Incentive Compensation" of the Summary of Incentive Compensation.
CHIEF EXECUTIVE OFFICER'S 1996 COMPENSATION
Mr. Fred L. Schuermann, Jr., President and Chief Executive Officer, was
eligible to participate in the same executive compensation plans available to
other Senior Executives. The Compensation Committee's general approach to
setting Mr. Schuermann's target annual compensation was to seek to be
competitive with other companies in the furniture industry, but have a large
percentage of his target compensation based upon objective short-term and
long-term performance criteria. While this may result in some fluctuations in
the actual level of Mr. Schuermann's annual compensation, the Compensation
Committee believes its objectives appropriately motivate the Company's chief
executive officer toward clearly defined long-term goals, while acknowledging
the importance to the chief executive officer of his having some certainty in
the level of his compensation through its non-performance based elements. Mr.
Schuermann's base salary was designed to be competitive with base salaries paid
other chief executive officers of public companies in the furniture industry and
other corporations of similar size.
In January 1996, the Compensation Committee established Mr. Schuermann's
target annual bonus for 1996 after giving consideration to the Company's
performance in 1995, the then present furniture manufacturing and retail sales
environment,
9
<PAGE>
as well as emphasis which the Compensation Committee places on compensation
being paid under the long-term incentive arrangements provided by the Long-Term
Incentive Plan. Fifty percent of Mr. Schuermann's incentive opportunity under
the annual bonus program was based upon net profit performance and the other 50%
was based upon return on average shareholders' equity of the Company -- both
based upon incentive target ranges. In 1996, Mr. Schuermann did not qualify for
a bonus under the annual bonus program as the Company did not satisfy either of
the performance criteria.
In the first quarter of 1996, the Compensation Committee established target
payout levels and target performance levels for the 1996 through 1998
performance cycle under the 1996 LTIP following a review of Mr. Schuermann's pay
relative to others in similar corporations, expected trends in executive pay,
and the Company's performance goals. The performance criterion utilized by the
Committee for Mr. Schuermann under the 1996 LTIP -- aggregate earnings per share
for 1997 and 1998 -- was designed to reinforce the Committee's increased
emphasis on tying incentive compensation to increases in shareholder value. The
Compensation Committee believes that Company performance at performance
objective levels will indicate that the Company is an industry leader.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
William B. Cash Thomas F. Keller L. Glenn Orr, Jr.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The Summary Compensation Table below indicates the Cash Compensation paid
by the Company, as well as other compensation paid or accrued to the Senior
Executives at the end of fiscal 1996 for services rendered in all capacities
during fiscal years 1996, 1995, and 1994, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Fred L. Schuermann, Jr. 1996 $320,000 $ -0- $-0- $-0- 85,560 $ -0-
President and Chief Executive 1995 259,583 -0- -0- 46,844 4,838 13,230
Officer 1994 235,000 -0- -0- 43,738 7,350 -0-
Kenneth E. Church 1996 $250,000 $200,160 $-0- $-0- 58,250 $75,000
Executive Vice President 1995 210,000 168,140 -0- 25,153 1,628 72,480
1994 200,000 160,000 -0- 24,770 4,168 -0-
William S. Creekmuir 1996 $225,000 $ -0- $-0- $-0- 57,420 $ -0-
Executive Vice President, 1995 183,083 -0- -0- 22,155 1,434 11,830
Chief Financial Officer, 1994 161,250 -0- -0- 19,364 3,986 -0-
Secretary and Treasurer
Michael P. Haley 1996 $225,000 $168,750 $-0- $-0- 54,640 $ -0-
Executive Vice President 1995 190,833 130,845 -0- 22,155 1,434 -0-
1994 113,523 100,000 -0- 21,450 3,334 -0-
Donald L. Mitchell(4) 1996 $275,000 $ 50,000 $-0- $-0- 59,070 $ -0-
Executive Vice President
<CAPTION>
ALL
OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(3)
<S> <C>
Fred L. Schuermann, Jr. $520
President and Chief Executive 1,200
Officer 896
Kenneth E. Church $4,404
Executive Vice President 4,014
3,901
William S. Creekmuir $1,430
Executive Vice President, 2,706
Chief Financial Officer, 2,553
Secretary and Treasurer
Michael P. Haley $451
Executive Vice President 905
149
Donald L. Mitchell(4) $165,508
Executive Vice President
</TABLE>
(1) Perquisites and other personal benefits paid to each of the named executive
officers were less than 10% of the total of their respective annual salary
and bonus in each of 1994, 1995, and 1996.
(2) Dividends are paid on restricted stock awards at the same rate as paid to
all shareholders. See the discussion under "Long-Term Incentive Plan"
included in the preceding Compensation Committee Report on Executive
Compensation for the general terms and conditions of the restricted stock
grants. On December 28, 1996, the above named executive officers held the
number of restricted shares having a then current market value as follows:
Schuermann (5,550/$82,279); Church (3,049/$45,201); Creekmuir
(2,549/$37,789); Haley (2,434/$36,084) and Mitchell (-0-/$-0-).
(3) The Company has made a $400 annual contribution on behalf of each of the
named executives to match pre-tax elective deferral contributions (included
under Salary) made by each under the Company's 401(k) Savings Plan for
Salaried Employees. Mr. Church's totals include payment of medical insurance
premiums of $3,199, $3,086, and $2,993 in 1996, 1995 and 1994, respectively.
Mr. Creekmuir's totals include $2,000 of director fees for subsidiary
corporations in 1994 and 1995 and $1,000 in 1996. Mr. Mitchell's total
includes a $165,000 special incentive bonus upon joining the
10
<PAGE>
Company in 1996. The balance of each of the named executive officer's "all
other compensation" represents premiums paid by the Company on group term
life insurance. The Company provides this benefit for most salaried
employees.
(4) Mr. Mitchell became employed by the Company on January 1, 1996.
STOCK OPTIONS
The following table sets forth information with regard to grants of stock
options during the fiscal year ended December 28, 1996, to each of the named
Senior Executives. All such grants were made under the Company's 1994 Incentive
Stock Option Plan. Additionally, the values assigned to each reported option are
shown assuming five percent and ten percent compounded annual growth rates in
the market value of the Company's Common Stock. In assessing these values it
should be kept in mind that no matter what theoretical value is placed on a
stock option on the date of grant, its ultimate value will be dependent on the
market value of the Company's stock at a future date.
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
% ASSUMED
OF ANNUAL
TOTAL RATES OF
OPTIONS STOCK
NUMBER GRANTED PRICE
OF TO EXERCISE APPRECIATION
SECURITIES EMPLOYEES OR FOR
UNDERLYING IN BASE OPTION
OPTIONS FISCAL PRICE EXPIRATION TERM(3)
NAME (#)(1) YEAR(2) ($/SH) DATE 5%($)
<S> <C> <C> <C> <C> <C>
Fred L. Schuermann, Jr................................ 75,000* 19.3% $12.00 3/01/06 $566,250
2,760* 12.00 3/04/06 20,838
7,800 12.00 3/04/06 58,890
Kenneth E. Church..................................... 50,000* 13.2% 12.00 3/01/06 377,500
8,250 12.00 3/04/06 62,228
William S. Creekmuir.................................. 50,000* 13.0% 12.00 3/01/06 377,500
7,420 12.00 3/04/06 56,021
Michael P. Haley...................................... 50,000* 12.3% 12.00 3/01/06 377,500
4,640 12.00 3/04/06 35,032
Donald L. Mitchell.................................... 50,000* 13.3% 12.00 3/01/06 377,500
9,070 12.00 3/04/06 68,479
<CAPTION>
NAME 10%($)
<S> <C>
Fred L. Schuermann, Jr................................ $1,434,000
52,771
149,136
Kenneth E. Church..................................... 956,000
157,740
William S. Creekmuir.................................. 956,000
141,870
Michael P. Haley...................................... 956,000
88,717
Donald L. Mitchell.................................... 956,000
173,418
</TABLE>
* Nonqualified stock options
(1) The options are for a term of ten years first becoming exercisable in 25%
increments over a four-year period beginning one year after the date of
grant.
(2) In fiscal 1996, 442,510 options were granted to all employees as a group.
The percentage shown is for the aggregate of all options granted to the
optionee in 1996 of all options granted to all employees as a group during
the year.
(3) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. These numbers are
calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
11
<PAGE>
The following table sets forth information with regard to exercises of
stock options during the fiscal year ended December 28, 1996, by each of the
named Senior Executives and the 1996 fiscal year end value of all unexercised
options held by such individuals.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FY-END(#) FY-END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Fred L. Schuermann, Jr................ -0- -0- 10,447 93,281 $-0- $267,375
Kenneth E. Church..................... -0- -0- 6,245 61,702 -0- 182,031
William S. Creekmuir.................. -0- -0- 4,698 60,605 -0- 179,438
Michael P. Haley...................... -0- -0- 2,858 58,217 -0- 170,750
Donald L. Mitchell.................... -0- -0- -0- 59,070 -0- 184,594
</TABLE>
(1) Closing price of Company Common Stock at December 28, 1996 was $15.13.
LONG TERM INCENTIVE PLAN -- AWARDS IN 1996
In February 1996, the Compensation Committee made awards to the Senior
Executives with respect to the cash portion of the Company's 1996 LTIP for the
1996-1998 performance cycle, and such awards are shown in the following table.
All issuances of incentive stock options to the Senior Executives during 1996
pursuant to the 1996 LTIP are shown under the "Securities Underlying Options"
column in the Summary Compensation Table.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER OF SHARES, PERFORMANCE PERIOD OR PRICE-BASED PLANS
UNITS OR OTHER OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME RIGHTS MATURATION OR PAYMENT $ $ $
<S> <C> <C> <C> <C> <C>
Fred L. Schuermann, Jr.......................... 800.0 units 1996-1998 $40,000 $80,000 $120,000
Kenneth E. Church............................... 625.0 units 1996-1998 31,250 62,500 93,750
William S. Creekmuir............................ 562.5 units 1996-1998 28,125 56,250 84,375
Michael P. Haley................................ 562.5 units 1996-1998 28,125 56,250 84,375
Donald L. Mitchell.............................. 687.5 units 1996-1998 34,375 68,250 103,125
</TABLE>
DEFINED BENEFIT PLANS
RETIREMENT PLAN FOR EMPLOYEES OF LADD FURNITURE, INC.
The Retirement Plan for Employees of LADD Furniture, Inc. (the "Retirement
Plan") covers eligible employees who receive compensation from the Company and
certain subsidiaries on an hourly and salaried basis. The Retirement Plan was
amended on December 13, 1996 to provide that no additional benefits would accrue
under the Retirement Plan after December 31, 1996. The Retirement Plan will be
terminated effective March 31, 1997 upon receipt of required regulatory
approvals. Participants will be given the option of receiving the benefits they
have accrued under the Retirement Plan as of December 31, 1996 in the form of a
deferred annuity or in the form of a lump sum cash distribution equal in amount
to the present value of the participant's accrued benefit. The formula for
computing benefits to be paid out of the Retirement Plan is based on average
final compensation and years of service.
The years of credited service as of December 28, 1996, and the estimated
accrued benefit under the Retirement Plan for each of Messrs. Schuermann,
Church, Creekmuir and Haley (Mr. Mitchell is not a participant in the Retirement
Plan) are as follows:
<TABLE>
<CAPTION>
YEARS ESTIMATED
OF ACCRUED
OFFICER/DIRECTOR SERVICE* BENEFIT
<S> <C> <C>
Fred L. Schuermann, Jr....................................... 9.00 $64,036
Kenneth E. Church............................................ 11.92 45,689
William S. Creekmuir......................................... 4.50 13,859
Michael P. Haley............................................. 2.67 10,544
</TABLE>
12
<PAGE>
* Due to the Retirement Plan being terminated, each participant's Years of
Service and average final compensation was fixed as of December 31, 1996, and
will not be increased thereafter. Maximum compensation for any participant
taken into account is fixed by law and was $150,000 in 1996. The estimated
accrued benefit in the foregoing table assumes retirement on December 28,
1996.
NONQUALIFIED SUPPLEMENTAL RETIREMENT PLAN
Effective January 1, 1990, the Company established a nonqualified
supplemental retirement plan known as the LADD Furniture, Inc. Supplemental
Retirement Income Plan (the "SERP") for certain of its salaried employees. The
SERP has a three-fold purpose: (1) to provide "make-up" benefits to certain
salaried employees whose benefits under the Salaried Plan were reduced as a
result of bringing the Retirement Plan into compliance with the Tax Reform Act
of 1986 ("Category One Participants"); (2) to provide supplemental retirement
income for key executive officers ("Category Two Participants"); and (3) to
provide the Company with the necessary flexibility for designing an effective
compensation package to attract new executives ("Category Three Participants").
The SERP also provides supplemental survivor benefits for the designated
beneficiary of each participant. Messrs. Schuermann, Church and Creekmuir are
Category Two Participants under the SERP. Messrs. Haley and Mitchell are not
current participants under the SERP.
In conjunction with termination of the Retirement Plan, the SERP was
amended effective January 1, 1997, to provide that the benefits earned under the
SERP will be computed using the assumption that the Retirement Plan continues to
operate. Participants in the SERP are not vested until attainment of age 55 with
10 years of service.
The following table shows estimated annual benefits payable, after offsets
for the Retirement Plan benefit and Social Security, upon retirement to Category
Two Participants in the SERP at the specified remuneration in the various Years
of Service classifications:
EXECUTIVE CASH COMPENSATION
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE COMPENSATION 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$100,000............................. $ 0 $ 2,633 $ 7,029 $ 1,425 $ 0
$200,000............................. 10,782 18,718 26,654 14,590 2,526
$300,000............................. 35,191 50,797 66,404 52,010 37,617
$400,000............................. 65,191 90,797 116,404 102,010 87,617
$500,000............................. 95,191 130,797 166,404 152,010 137,617
$600,000............................. 125,191 170,797 216,404 202,010 187,617
</TABLE>
The years of credited service and Average Final Compensation as of December
28, 1996 for Messrs. Schuermann, Church and Creekmuir are as follows:
<TABLE>
<CAPTION>
YEARS AVERAGE
OF FINAL
EXECUTIVE OFFICER SERVICE COMPENSATION
<S> <C> <C>
Fred L. Schuermann, Jr.................................... 19.58 $279,688
Kenneth E. Church......................................... 11.92 409,723
William S. Creekmuir...................................... 4.50 206,171
</TABLE>
OTHER COMPENSATION
COMPENSATION OF DIRECTORS
In 1996, the Company compensated each director who was not an employee an
annual fee of $14,000, plus $800 for each meeting of the Board and $400 for each
committee meeting which he attended on the same day as a Board meeting or $800
for each committee meeting he attended if it was held on a day other than a day
of a Board meeting. Directors were compensated $200 for telephone meetings.
Effective January 1, 1997, each director who is not an employee will receive an
annual fee of $16,000, plus $1,200 for each non-telephone meeting of the Board
or $400 for each telephone Board meeting. Such non-employee directors shall also
receive an additional meeting fee of $800 for each committee meeting attended on
the same day as a Board meeting and a $1,200 fee for each committee meeting
attended on a date other than a day of a Board meeting. The Chairman of the
Board, if he is not an employee of the Company, shall receive an additional
annual fee of $10,000. The chairman of each committee of the Board who is not an
employee of the Company shall receive an additional
13
<PAGE>
annual fee of $2,000. Mr. Allen, Chairman of the Board, received no cash
directors fees in 1996 nor will he receive any fees in 1997 under the terms of
his retirement agreement. In addition to such fees, the Company reimburses each
director for travel and other related expenses incurred by him in attending the
meetings.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into executive employment agreements (the
"Executive Agreements") with each of Messrs. Schuermann, Church, Creekmuir,
Haley and Mitchell (collectively the "Executives"). The Executive Agreements
(all of which are substantially similar) have an initial term of two years which
is automatically extended for successive one-year periods until terminated by
either party. The Executive Agreements provide that if the Executive's
employment with the Company is terminated at any time during the term of the
Executive Agreement for any reason other than "for cause" (as defined in the
Executive Agreement), the Executive shall be entitled to receive in 24 equal
monthly payments an amount equal to two times the sum of (i) his then current
base salary and (ii) the average annual incentive payments to the Executive
during the preceding three years, less earned income received by him during the
24-month severance period. The Executive (other than Messrs. Mitchell and Haley
who are not participants in the SERP) shall also be deemed to be 100% vested
with respect to the SERP.
The Executive Agreements are intended to encourage the Executives to remain
in the employ of the Company during periods of uncertainty in the event that the
Company undergoes a change in control. For the purposes of the Executive
Agreements, a "change in control" shall be deemed to have occurred when (i) any
person, corporation, or group of associated persons, excluding affiliates of the
Company, acquires a beneficial ownership of an aggregate of more than 50% of the
then outstanding shares of voting stock of the Company or (ii) a merger or
consolidation to which the Company is a party and where the Company is not a
surviving or continuing entity has been completed. The Executive Agreements
provide for the payment of severance benefits to the Executive if he terminates
his employment for "Good Reason" (as such term is defined in the Executive
Agreement) during the 12 months immediately preceding or following the effective
date of a change in control of the Company. If the Executive terminates his
employment for Good Reason, then the Company shall pay him a lump sum severance
payment in an amount equal to two times the sum of (i) his then current base
salary and (ii) the average annual incentive payments to the Executive during
the preceding three years. Further, the Executive shall immediately become 100%
vested in the SERP, all outstanding stock options shall become immediately
exercisable, and all restrictions under restricted stock agreements shall be
eliminated.
The Company's 1994 Incentive Stock Option Plan also has a change in control
provision similar to that discussed above. In the event of a change of control,
all stock option grants become immediately exercisable for all option holders,
including the Executives, if provision is not made in the change of control
transaction for continuance of the option plan and the assumption of options
previously granted under the Plan.
14
<PAGE>
COMPARATIVE COMPANY PERFORMANCE
The following line graph compares cumulative total shareholder return for
the Company with a performance indicator of the overall stock market, the Nasdaq
Index, and an industry index, the Household Furniture Index, for the preceding
five fiscal years.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG LADD FURNITURE, INC.
NASDAQ INDEX AND PEER INDUSTRY INDEX
(Graph appears here. Plot points appear in table below.)
1991 1992 1993 1994 1995 1996
CRSP NASDAQ MARKET INDEX 100.00 116.38 133.59 130.59 184.67 227.16
PEER INDEX 100.00 137.79 182.18 132.23 165.40 210.23
LADD FURNITURE, INC. 100.00 140.00 134.81 89.02 60.82 67.77
ASSUMES $100 INVESTED ON DECEMBER 28, 1991 IN COMPANY
COMMON STOCK, NASDAQ INDEX1, and HOUSEHOLD FURNITURE INDUSTRY INDEX2
WITH REINVESTMENT OF DIVIDENDS
(1) Nasdaq Index for U.S. Companies prepared for Nasdaq by the Center for
Research in Securities Prices at the University of Chicago.
(2) SIC Code 251 Household Furniture Index as prepared by Media General
Financial Services, Inc., which index includes Ameriwood Industries, Bassett
Furniture, Bush Industries, Chromcraft Revington, DMI Furniture, Ethan Allen
Interiors, Flexsteel Industries, Furniture Brands International, Industrie
Natuzzi, Krause's Furniture, La-Z-Boy Chair, LADD Furniture, Leggett &
Platt, MASCO Corp., O'Sullivan Industries, Pulaski Furniture, River Oaks
Furniture, Rowe Furniture, and Stanley Furniture. The returns of each
company have been weighted according to each company's market
capitalization.
THE BOARD OF DIRECTORS
COMMITTEES AND MEETINGS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established a Compensation Committee currently
consisting of Messrs. Cash and Orr (chairman) and Dr. Keller. The Compensation
Committee acts to review and recommend major changes in policy of various
compensation or benefits programs and salary levels for top management
positions. During 1996, the Compensation Committee met six times.
AUDIT COMMITTEE
The Board of Directors has established an Audit Committee. It provides
general oversight of financial reporting and of the adequacy of the internal
controls of the Company. The Audit Committee functions by meeting with the
independent
15
<PAGE>
auditors and by informal meetings and contact with members of management
concerned with financial and control functions and the Company's internal
auditors. The Audit Committee met four times in 1996. The current members of the
Audit Committee are Messrs. Corrigan (chairman), Fenn and Hunziker.
CORPORATE GOVERNANCE COMMITTEE
In 1995, the Board of Directors established a Corporate Governance
Committee. It acts to review and address governance policy issues such as
management succession planning; composition of the Board of Directors to assure
diversity of business experience, age and background; assessment of Board
performance; and composition of Board committees. The Corporate Governance
Committee met four times in 1996. The current members of the Corporate
Governance Committee are Messrs. Cash, Corrigan and Orr and Dr. Keller
(chairman).
BOARD ATTENDANCE
The Board of Directors held six meetings in person and three telephone
meeting during 1996. All directors attended at least 75% of the Board and
committee meetings they were responsible for attending. The Board has not
established a nominating committee.
APPROVAL OF AMENDMENT OF LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
(PROPOSAL NUMBERED (2) IN THE ACCOMPANYING NOTICE)
GENERAL
At a special meeting of the Board of Directors held on February 24, 1994,
the Board of Directors adopted and shareholders subsequently approved at the
1994 annual meeting, the LADD Furniture, Inc. 1994 Incentive Stock Option Plan
(the "Plan"), pursuant to which 400,000 shares of Common Stock of the Company
(as adjusted for the one-for-three reserve stock split in 1995) were reserved
for issuance of stock options under the Plan. On March 5, 1996, the Board of
Directors adopted, and shareholders subsequently approved at the 1996 annual
meeting, an amendment to the Plan to increase the number of shares reserved
under the Plan from 400,000 shares to 800,000 shares. For the reasons more fully
discussed below, the Board of Directors is recommending to the shareholders the
adoption and approval of an amendment to the Plan to increase the fixed grant of
options to directors upon their initial election to the Board from 667 shares to
2,000 shares, the subsequent annual grants upon their re-election from 500
shares to 2,000 shares, and to increase the term of such options from six years
to ten years. Management and the members of the Board of Directors intend to
vote FOR amendment of the Plan.
Since 1983, the Company has utilized the grant of stock options pursuant to
various stock option plans, including the current Plan, to promote the growth
and profitability of the Company and its subsidiaries and to provide officers
and key employees of the Company and its subsidiaries with an incentive to
achieve long-term corporate objectives, to attract and retain key employees of
outstanding competence, and to provide such key employees with an opportunity to
acquire an equity interest in the Company. The Company believes the granting of
options to non-employee directors ("Director Options") provides similar
incentives and retention benefits with respect to the non-employee members of
the Board. The Plan currently provides that nonqualified stock options may be
for a term of up to ten years, but that Director Options, although also
nonqualified stock options, are for a term of six years. On December 12, 1996
and March 6, 1997, the Board, subject to shareholder approval, amended the Plan
to provide that the initial grant and the subsequent annual grants of Director
Options be increased to 2,000 shares each to provide increased equity based
incentive compensation for directors, and to conform the term of Director
Options to ten years as is the case for all other nonqualified options under the
Plan. These amendments will apply only to future grants of Director Options.
Based on the closing price of the Company's Common Stock on March 6, 1997, the
aggregate market value of the 800,000 shares subject to the Plan (representing
10.4% of the Company's issued and outstanding Common Stock as of such date) was
$12,500,000.
SUMMARY OF THE PLAN
The Plan is briefly described below. Copies of the Plan may be obtained
from the Company and will also be available for inspection at the Annual
Meeting.
PURPOSES. The Plan is designed to encourage and create significant
ownership of Common Stock by key officers, employees and directors of the
Company. Additional purposes of the Plan include providing a meaningful
incentive to participants to make substantial contributions to the Company's
future success, enhancing the Company's ability to attract
16
<PAGE>
and retain persons who will make such contributions, and ensuring that the
Company has competitive compensation opportunities for its key officers and
employees. By meeting these objectives, the Plan is intended to benefit the
interests of shareholders.
ADMINISTRATION. The Plan is administered by a committee of the Board of
Directors composed of non-employee, independent directors (the "Administrative
Committee"). The Compensation Committee of the Board of Directors, currently
consisting of Messrs. Cash and Orr and Dr. Keller, serves as the Administrative
Committee. Except as described below, the Administrative Committee will have
full authority to determine the specific individuals to whom awards may be made
under the Plan, to determine the provisions of such awards (including the number
of shares of Common Stock subject to each award), to interpret the terms of the
Plan and awards made under the Plan, and to adopt, amend and rescind rules and
guidelines for the administration of the Plan. In making awards under the Plan,
the Administrative Committee will consider the participant's level of
responsibility and past contributions to the Company and the participant's
contributions to the future success of the Company. No determination has been
made as to the persons to whom awards may be made in the future or the number of
shares which may be covered by any such awards.
ELIGIBILITY. Eligibility to receive awards under the Plan will be limited
to officers and employees of the Company who, in the opinion of the
Administrative Committee, are in a position to have a significant effect upon
the Company's business and operations. It is estimated that approximately 100
individuals are currently eligible to participate in the Plan. In addition,
non-employee directors will be entitled to receive automatic annual grants of
options under the terms of the Plan so long as they are directors.
SHARES SUBJECT TO THE AMENDED PLAN. The maximum number of shares of Common
Stock which may be issued under the Plan is 800,000 shares, subject to
adjustment in the event of a stock dividend, stock split or other change in
corporate structure or capitalization affecting the Common Stock. If any award
made pursuant to the Plan terminates, expires or is forfeited for any reason,
any shares of Common Stock subject to the award so surrendered will remain
available for issuance under the Plan.
EFFECTIVE DATE AND TERM. The Plan became effective upon its approval by
shareholders at the 1994 annual meeting. The proposed amendment would become
effective upon approval of shareholders at the 1997 Annual Meeting. No awards
may be made under the Plan after February 24, 2004, but awards granted before
then may extend beyond that date.
OPTIONS. Options granted to employees under the Plan may be either
incentive stock options (within the meaning of Section 422 of the Code) or
nonqualified stock options. The Administrative Committee will determine the
frequency of granting options and the number of shares of Common Stock subject
to options granted under the Plan. The aggregate fair market value (determined
as of date of grant) of Common Stock with respect to which incentive stock
options are exercisable for the first time by an employee during any calendar
year cannot exceed $100,000.
GRANTS TO NONEMPLOYEE DIRECTORS. The Plan provides for the grant of
nonqualified stock options to acquire Common Stock to each person who is a
member of the Board of Directors but is not also an employee of the Company or
its subsidiaries (an "Eligible Director"). Assuming shareholder approval of the
proposed amendment, each Eligible Director will automatically receive on the
date of the Annual Meeting of shareholders a grant of nonqualified options to
purchase 2,000 shares of Common Stock at an exercise price equal to fair market
value on the date of grant with a term of ten years. Eligible Directors shall
automatically receive a grant of Director Options as to 2,000 shares of Common
Stock each year following their election of the Board of Directors. Upon a
non-employee director's initial election or appointment to the Board of
Directors, such director shall receive a grant of nonqualified options to
purchase 2,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. The Administrative
Committee shall have no discretion with respect to the number of shares subject
to Director Options, the date of grant of Director Options, or the exercise
price or the term thereof.
TERM OF OPTION. Options granted under the Plan (including Director Options
assuming shareholder approval of the proposed amendment) will not be exercisable
after the expiration of ten years from the date of grant, except that any
incentive stock option granted to an employee who owns more than 10% of the
outstanding Common Stock will be for a term not in excess of five years from
date of grant. Each option will generally become exercisable in cumulative
installments as established by the Administrative Committee at the time of
grant. Such installments are subject to acceleration at any time by the
Administrative Committee as well as under certain circumstances described in the
Plan, including the purchase of Common Stock pursuant to a tender offer or
exchange offer, or a merger in which the Company does not survive as an
independent corporation.
17
<PAGE>
PRICE. Shares of Common Stock purchased on the exercise of an option will
be paid for by the participant at the time of such exercise in cash or, to the
extent permitted by the Administrative Committee, by delivery of shares of
Common Stock or such other lawful consideration as the Administrative Committee
may determine. The proceeds received by the Company upon the exercise of options
granted under the Plan will be used for general corporate purposes. The exercise
price of any incentive stock option granted to an employee will be equal to the
fair market value of the Common Stock at the date of grant, except the exercise
price of any incentive stock option granted to an employee who owns more than
10% of the outstanding Common Stock must be at least 110% of the fair market
value of the Common Stock at the time the incentive stock option is granted.
With respect to nonqualified stock options, the option price may be less than
the fair market value of the Common Stock on the date of grant. The exercise
price of any Director Option will be equal to the fair market value of the
Common Stock on the date of grant.
EXERCISABILITY. If a participant's employment terminates by reason of
death, retirement or disability, certain post-termination exercise periods
generally will apply. If a participant's employment terminates for any other
reason, options will be exercisable only to the extent, if any, approved by the
Administrative Committee and will be treated as nonstatutory stock options.
CASHLESS EXERCISE. Under the Plan, an option may provide for a "cashless
exercise" by allowing the optionee to direct an immediate market sale or margin
loan respecting the shares under the option pursuant to an extension of credit
by the Company. Pursuant to this procedure, the optionee would direct the
delivery of the shares under the option from the Company to a brokerage firm and
the delivery of the option price from the sale or margin loan proceeds from the
brokerage firm to the Company.
TRANSFERABILITY OF AWARDS. No option awarded under the Plan may be
transferred by a participant otherwise than by will or by the laws of descent
and distribution, and during the participant's lifetime, such awards may be
exercised only by the participant or by his or her guardian or legal
representative.
AMENDMENT OR TERMINATION. The Plan may be amended or terminated at any time
by the Board of Directors. The Administrative Committee may make non-material
amendments to the Plan. The Administrative Committee may amend, modify,
terminate or waive any condition or provision of any outstanding award under the
Plan, except that it generally may not increase the number of shares subject to
any outstanding award or decrease the option or exercise price of the award. The
participant's consent to any such action may be required to the extent provided
in the Plan. The Plan may not be amended to increase the number of shares
subject to the Plan, decrease the minimum option price, or extend the term of
the Plan or the maximum period during which an option may be exercised without
shareholder approval.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal Federal income tax consequences
associated with awards under the Plan. It does not describe all Federal income
tax consequences under the Plan, nor does it describe foreign, state or local
income tax consequences.
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option does not
produce ordinary income to the recipient or a deduction to the Company.
Generally, a participant will not recognize ordinary taxable income at the time
of exercise of an incentive stock option, and no deduction will be available to
the participant's employer, provided the option is exercised while the
participant is an employee or within certain time periods in the case of
termination of employment by reason of disability or death. If an incentive
stock option granted under the Plan is exercised after these periods, the
exercise will be treated for tax purposes as the exercise of a nonstatutory
stock option. Also, incentive stock options granted under the Plan will be
treated as nonstatutory stock options to the extent they first become
exercisable in any calendar year for shares having a fair market value,
determined as of the date of grant, in excess of $100,000.
If shares acquired upon exercise of an incentive stock option are sold or
exchanged more than one year after the date of exercise and more than two years
from the date of grant of the option, any gain or loss will be a long-term
capital gain or loss. If shares acquired upon exercise of an incentive stock
option are disposed of prior to the expiration of these one-year or two-year
holding periods (a "disqualifying disposition"), the participant will recognize
ordinary income at time of disposition, and the employer will be able to claim a
deduction, in an amount equal to the excess of the fair market value of the
shares at date of exercise over the exercise price. Any additional gain will be
treated as capital gain, long-term or short-term depending on how long the
shares have been held. Where shares are sold or exchanged (other than in certain
related party transactions) for an amount less than their fair market value at
date of exercise, any ordinary income recognized in
18
<PAGE>
connection with the disqualifying disposition will be limited to the amount of
gain, if any, recognized in the sale or exchange, and any loss will be a
long-term or short-term capital loss, depending on how long the shares have been
held.
Although the exercise of an incentive stock option as described above will
not produce ordinary taxable income to the participant, it may produce an
increase in the participant's alternative minimum taxable income and may result
in an alternative minimum tax liability. The excess of the fair market value of
the shares at the date of exercise over the exercise price is included in the
calculation of the participant's alternative minimum taxable income.
NONSTATUTORY STOCK OPTIONS. Upon the exercise of a nonstatutory stock
option (including Director Options) the participant will recognize ordinary
taxable income equal to the excess of the fair market value of the shares at the
time over the exercise price. The employer will be able to claim a deduction in
an equivalent amount provided it satisfies withholding requirements. Any gain or
loss upon a subsequent sale or exchange of the shares will be a capital gain or
loss, long-term or short-term depending on the holding period for the shares.
PAYMENT OF WITHHOLDING TAXES. The Company may withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy any
federal, state, or local withholding tax requirements associated with awards
under the Plan.
IN GENERAL. Where already owned shares are used to exercise a stock option,
special rules will apply in determining the tax basis of the shares received
upon exercise.
FEDERAL SECURITIES LAW
The 800,000 shares currently reserved for issuance under the Plan have been
registered with the Securities and Exchange Commission pursuant to Registration
Statements on Form S-8 (No. 33-53341 and No. 333-3129). Accordingly all shares
acquired through the exercise of the options granted pursuant to the Plan will
be registered shares within the meaning of the Securities Act of 1933 (the
"Act").
PROPOSED AWARDS UNDER THE PLAN
On March 6, 1997, the Administrative Committee granted incentive stock
options and nonqualified stock options to purchase an aggregate of 66,005 shares
of Common Stock under the Plan. The exercise price for all such options is
$15.63 per share (fair market value on March 6, 1997), and each option will
expire 10 years after the date of grant. Subject to shareholder approval, grants
of Director Options will automatically be made on May 1, 1997 to all
non-employee directors (including the nominees for directors) elected at the
Annual Meeting at an option price equal to the fair market value of the
Company's Common Stock on that date. Such options generally first become
exercisable in 25% increments over a four-year period beginning one year after
date of grant. All such options are subject to the exercisability requirements
of the Plan, all as generally described above.
As discussed in the preceding paragraphs of this section, the terms and
conditions of future option grants are subject to the discretion of the
Administrative Committee and need not be identical to those option agreements
described above.
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<PAGE>
The benefits or amounts that will be received or allocated in the future
under the Plan are not determinable at this time. The table below shows options
granted under the Plan on March 6, 1997 or at the 1997 Annual Meeting, subject
to shareholder approval of the proposed amendment of the Plan, to the
individuals and groups indicated.
PLAN BENEFITS
1994 INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
DOLLAR OPTIONS
NAME VALUE GRANTED
<S> <C> <C>
Fred L. Schuermann, Jr................................................. $146,328(1) 9,365
Kenneth E. Church...................................................... 105,703(1) 6,765
William S. Creekmuir................................................... 95,547(1) 6,115
Michael P. Haley....................................................... 95,547(1) 6,115
Donald L. Mitchell..................................................... 115,859(1) 7,415
All Executive Officers as a Group...................................... 558,984(1) 35,775
All Current Directors who are not executive officers
as a group (2)....................................................... --(3) 12,000(3)
Charles R. Eitel (4)................................................... --(4) 2,000(4)
Zenon S. Nie (4)....................................................... --(4) 2,000(4)
All employees as a group (excluding executive officers)................ 1,031,328(1) 66,005
</TABLE>
(1) Based on the fair market value of the Company's Common Stock on March 6,
1997.
(2) William B. Cash is a current director but is retiring at the 1997 Annual
Meeting. Accordingly, he will not receive a grant of Director Options.
(3) Assuming each of their re-election at the 1997 Annual Meeting and approval
of the proposed amendment to the Plan, each of the current non-employee
directors (except Mr. Cash who is retiring) will receive a grant of Director
Options as to 2,000 shares of Company Common Stock at an option price equal
to the fair market value of the Company's Common Stock on May 1, 1997.
(4) Messrs. Eitel and Nie are nominees to the Board of Directors and will be
voted upon at the 1997 Annual Meeting. Assuming approval of the proposed
amendment to the Plan and their election to the Board, each will receive a
grant of Director Options as to 2,000 shares of Company Common Stock at an
option price equal to the fair market value of the Company's Common Stock on
May 1, 1997.
SHAREHOLDER VOTE
While North Carolina corporate law does not require shareholder approval of
the Plan, shareholder approval of the proposed amendment is necessary under the
terms of the Plan, Federal tax law, and the Federal securities regulations in
order to preserve the Plan's exemption from the Section 16(b) insider trading
provisions of the Act for the granting of options to officers, directors, and
10% shareholders. Accordingly, the Board of Directors submits the proposed
amendment of the Plan to shareholders for their approval. An affirmative vote of
a majority of the shares present, or represented, and entitled to vote at the
meeting is necessary for shareholder approval of the amendment of the LADD
Furniture, Inc. 1994 Incentive Stock Option Plan to increase the number of
shares for Director Options to 2,000 shares per grant and to amend the term of
exercisability of future grants of Director Options to ten years.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
OF THE LADD FURNITURE, INC. 1994 INCENTIVE STOCK OPTION PLAN.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NUMBERED (3) IN THE ACCOMPANYING NOTICE)
The appointment of auditors is approved annually by the Board of Directors
and subsequently submitted to the shareholders for ratification. In recommending
the ratification by the shareholders of the appointment of KPMG Peat Marwick
LLP, the Board of Directors is acting upon the recommendation of the Audit
Committee, which is composed entirely of non-employee Directors and which has
satisfied itself as to the firm's professional competence and standing. In
making its recommendation, the Audit Committee has taken into consideration the
audit scope and audit fees associated with
20
<PAGE>
such retention. A representative of KPMG Peat Marwick LLP will attend the 1997
Annual Meeting of Shareholders to answer appropriate questions and to make any
statement that such representative may desire to make.
The Board of Directors unanimously recommends a vote "FOR" the ratification
of the selection of KPMG Peat Marwick LLP as independent public accountants to
audit the books and accounts of the Company for the 1997 fiscal year. A
favorable vote by the holders of a majority of the Company's outstanding shares
of Common Stock represented at the meeting is required for ratification of
independent auditors. It is intended that, unless otherwise specified by the
shareholders, votes will be cast pursuant to the proxies hereby solicited in
favor of the approval of the selection of KPMG Peat Marwick LLP as independent
public accountants to audit the books and accounts of the Company for the 1997
fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
INDEPENDENT PUBLIC ACCOUNTANTS.
DATE FOR THE RECEIPT OF SHAREHOLDER PROPOSALS
In order for shareholder proposals to be included in the proxy materials
for the 1998 Annual Meeting, any such proposal must be received by the Company
at its executive offices not later than January 1, 1998 and meet all other
applicable requirements for inclusion therein.
OTHER BUSINESS
The Company does not intend to bring any business before the meeting other
than that stated above in this Proxy Statement. However, if any other matters
properly come before the meeting, the Proxyholders named in the enclosed Proxy
will vote on such matters pursuant to the Proxy in accordance with their best
judgment or as instructed by the Board of Directors.
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL REPORT WILL BE PROVIDED
FREE OF CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST DIRECTED TO: LADD FURNITURE,
INC., ONE PLAZA CENTER, BOX HP-3, HIGH POINT, NORTH CAROLINA 27261-1500,
ATTENTION: JOHN J. ONG, DIRECTOR OF CORPORATE COMMUNICATIONS.
A copy of the Company's Summary Annual Report to Shareholders for the year
ended December 28, 1996 accompanies this Proxy Statement. Appendix A to this
Proxy Statement, which contains the Company's Annual Report on Form 10-K, and
the Summary Annual Report are not part of the Company's solicitation materials.
SOLICITATION OF PROXIES
The Company expects to solicit proxies primarily by mail. Proxies may be
solicited personally and by telephone by regular employees of the Company. The
only expenses anticipated are those which are ordinarily incurred in connection
with preparing, assembling and mailing the proxy material, including charges and
expenses of communicating with shareholders. The total amount of such expenses
will be borne by the Company.
If you cannot be present at the meeting, you are requested to SIGN, DATE,
and RETURN the accompanying Proxy in the enclosed envelope.
WILLIAM S. CREEKMUIR
SECRETARY
21
<PAGE>
(This Page Left Blank Intentionally)
22
<PAGE>
LADD FURNITURE, INC.
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Fred L. Schuermann, Jr. and Richard R.
Allen, or either of them, as Proxyholders, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Common Stock of LADD Furniture, Inc. held of record by
the undersigned on March 6, 1997, at the annual meeting of shareholders to be
held on May 1, 1997 at 10:00 a.m. at the Radisson Hotel, 135 S. Main Street,
High Point, N.C. or any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
Richard R. Allen, James H. Corrigan, Jr., Charles R. Eitel, O. William Fenn,
Jr., Don A. Hunziker, Thomas F. Keller, Zenon S. Nie, L. Glenn Orr, Jr., and
Fred L. Schuermann, Jr.,
(INSTRUCTION -- TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),
MARK THE "FOR ALL EXCEPT" BOX
AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW).
2. APPROVAL OF AMENDMENT OF THE COMPANY'S 1994 INCENTIVE STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE 1997 FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
4. In their discretion, the Proxyholders are authorized to vote upon such
other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY, IF EXECUTED AND RETURNED, WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officers. If a
partnership, please sign in partnership name by authorized person.
Dated , 1997
(Be sure to date Proxy)
Signature
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE
<PAGE>
APPENDIX A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 28, 1996
COMMISSION FILE NUMBER 0-11577
LADD FURNITURE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
North Carolina 56-1311320
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
One Plaza Center, Box HP-3, High Point, North Carolina 27261-1500
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: 910-889-0333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock -- $.30 par value
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Market value of 6,337,385 shares held by nonaffiliates as of March 6, 1997,
was $99,021,640.
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.
7,719,567 shares outstanding as of March 6, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1997 Annual Shareholders
Meeting are incorporated by reference into Part III hereof.
A-1
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
LADD Furniture, Inc., incorporated in 1981 under the laws of the State of
North Carolina, is a leading residential furniture manufacturer which sells its
products through diverse retail distribution channels, as well as to the
hospitality and health care industries. The Company produces a wide range of
furniture designed to appeal to a spectrum of customers seeking quality, style,
and value. The Company markets its wide range of residential wood and
upholstered furniture domestically under the major brand names American Drew,
Barclay, Clayton Marcus, Lea, Pennsylvania House and Pilliod, and exports these
same brand name products worldwide through LADD International. Under the
American of Martinsville brand name, LADD is also one of the world's leading
suppliers of guest room furniture to the hotel/motel industry, as well as to
health care facilities, retirement homes and governmental and university
dormitory markets. Based upon industry data published in the trade publication
FURNITURE DESIGN AND MANUFACTURING, LADD is currently the seventh largest U.S.
manufacturer of residential furniture. Unless the context otherwise indicates,
"LADD" and "Company" refer to LADD Furniture, Inc., its divisions, and
consolidated subsidiaries. The executive offices of LADD are located in High
Point, North Carolina.
INDUSTRY SEGMENTS
In accordance with the instructions for this item, LADD is deemed to have
been engaged in only one business segment, manufacture and sale of furniture,
for the three years ended December 28, 1996.
SIGNIFICANT DEVELOPMENTS IN 1996
COMPLETION OF REFINANCING -- On July 12, 1996, the Company completed a new
$190 million secured financing facility underwritten by a bank group led by
NationsBank, N.A. (South). The credit facility originally consisted of a $125
million three-year revolving credit facility and a $65 million term loan and is
secured by a first priority lien on substantially all of the assets of the
Company and its subsidiaries. The credit facility was used to refinance the
Company's existing credit facility and provide additional liquidity. On January
1, 1997, the Company reduced the availability of the revolving credit portion of
the facility to $110 million.
LADD'S BUSINESS GROUPS
The Company has three primary operating groups: (i) residential casegoods,
consisting primarily of bedroom, dining room and living room furniture, wall
units and occasional tables, (ii) residential upholstery, consisting primarily
of sofas, love seats, recliners and chairs, and (iii) contract sales, consisting
of casegoods and upholstery sold to the hospitality and health care industries,
the U.S. government and educational institutions (collectively, contract sales).
The Company distributes its casegoods and upholstery products directly and
through approximately 300 independent sales representatives to more than 8,000
customers, including leading department stores, furniture retailers, mass
merchandisers, catalog merchandisers, major hotel chains, and various specialty
stores and retail companies. The Company also sold its furniture in 1996
internationally to customers in over 50 countries.
CASEGOODS GROUP
American Drew manufactures and sells medium-priced wood residential
furniture. The products include various types of bedroom furniture (beds,
dressers, nightstands, mirrors, armoires, and dressing tables), dining room
furniture (tables, chairs, buffets, chinas, and serving pieces), living room and
family room occasional pieces (desks, end tables, coffee tables, entertainment
units, wall units, and secretaries), and computer furniture for the home (desks,
files and bookshelves). American Drew products are manufactured in three plants
located in North Wilkesboro, NC and are sold primarily to major independent
furniture retailers, department stores, and regional furniture chains.
Lea Industries manufactures and sells wood furniture for the youth and
adult bedroom markets. Lea Industries' products include beds, dressers,
nightstands, mirrors, desks, bookshelves, hutches, armoires, and correlated
modular furniture in a variety of styles, including traditional, transitional
and contemporary. The products are priced in the medium to low-medium price
ranges and are considered high volume, promotional products to major furniture
retailers. The products are marketed under the "Lea" brand name primarily to
national and regional furniture chains, independent furniture retailers,
national general retailers and department stores. Lea Industries' products are
manufactured in four plants located in Waynesville, NC, Marion, VA, and
Morristown, TN.
A-2
<PAGE>
Pennsylvania House manufactures solid wood residential furniture in
American traditional, country and transitional styles. The Pennsylvania House
product line is priced in the upper-medium price range. Pennsylvania House
created and introduced the in-store gallery concept to the furniture retailing
industry in 1975, and currently has established galleries with approximately 220
independent furniture retailers in the United States, Japan and Mexico. In 1996,
the distribution of Pennsylvania House products was expanded to include
furniture retailers without galleries. Pennsylvania House - Casegoods operates
two manufacturing plants located in Lewisburg and White Deer, PA.
Pilliod Furniture manufactures and markets a wide range of
promotionally-priced contemporary and traditional wood residential furniture,
including master bedroom products, occasional tables, home office products,
entertainment centers, wall systems, and casual dining room products. Pilliod
Furniture's products are marketed under the "Pilliod" and "Symmetry" brand
names. The Company's products are sold throughout the United States through
large volume customers, mainly large furniture chains and outlets. Pilliod
Furniture operates three manufacturing facilities in Nichols, SC, Selma, AL, and
Swanton, OH.
UPHOLSTERY GROUP
Barclay Furniture manufactures and sells moderately-priced upholstered
residential furniture, including sofas, love seats, chairs, sleepers, and motion
furniture styled in contemporary and traditional patterns. The products are
considered high volume, promotional items and are sold under the Barclay
Furniture name and various private label names. Barclay sells its products
primarily to retail furniture chains, department stores, membership clubs,
rent-to-own stores, catalog retailers, and national general merchandisers.
Barclay operates two manufacturing plants located in Sherman and Myrtle, MS.
Clayton-Marcus manufactures and sells a full line of upholstered household
furniture, including sofas, love seats, chairs, sleepers, rockers, and other
upholstered living room furniture, which sells in the medium and upper-medium
price ranges. The products are marketed under the "Clayton-Marcus",
"HickoryMark", "American of Martinsville", and "Clayton House" brand names
primarily to retail furniture chains, independent furniture retailers and
department stores. Clayton-Marcus currently has established galleries with
approximately 150 independent furniture stores in the United States, Canada, and
Mexico. Clayton-Marcus operates three manufacturing plants in Hickory, NC.
Pennsylvania House also manufactures a full line of upholstered residential
furniture which sells in the upper-medium price range. Pennsylvania House -
Upholstery operates one leased manufacturing plant located in Monroe, NC.
CONTRACT SALES
American of Martinsville manufactures wood and upholstered residential
furniture which is marketed worldwide to the guest room (hotel/motel) industry
through LADD Contract Sales Corporation. The Contract Sales Group also sells to
the health care furniture market for retirement homes and extended care
facilities, certain agencies of the U.S. government, and university and college
markets. American of Martinsville operates two manufacturing plants located in
Chilhowie and Martinsville, VA and utilizes other LADD manufacturing facilities
to meet capacity constraints.
OTHER
LADD Transportation, Inc. operates a modern fleet of over-the-road tractors
and trailers that are used to provide transportation services to LADD's
casegoods companies to meet the special needs of LADD's customers. LADD
Transportation, together with fleets operated by LADD's Upholstery Group,
provides approximately 30% of LADD's out-bound shipping requirements for
finished products and also hauls a portion of the Company's in-bound raw
materials and supplies. LADD Transportation has received certain contract
carrier rights from the Interstate Commerce Commission and markets its
transportation services to independent customers.
MARKETING AND MAJOR CUSTOMERS
The Company's operating entities generally market under their own trade
names. The general marketing practice followed in the furniture industry and by
the Company is to exhibit products at national and regional furniture markets.
Internationally, the Company markets its products primarily through LADD
International, a corporate marketing unit formed to coordinate the worldwide
marketing efforts of LADD's operating companies.
The Company also sells its furniture products directly and through
approximately 300 independent sales representatives to a broad variety of
customers, including department stores, furniture retailers, mass merchandisers,
catalog merchandisers, major hotel chains, and various specialty stores and
rental companies. The Company currently sells to more than 8,000
A-3
<PAGE>
furniture customers. No single customer accounted for more than 8% of net sales
in 1996. The Company's business is not dependent upon a single customer, the
loss of which would have a material effect on the Company.
PRODUCT DESIGN AND DEVELOPMENT
Each operating entity develops and manages its own product lines. New
product groups are introduced at the national or regional furniture markets,
and, based upon their acceptance at the markets, the products are either placed
into production or withdrawn from the market. Consistent with industry practice,
the Company designs and develops new product groups each year, replacing
collections or items that are discontinued.
RAW MATERIALS
The most important raw materials used by the Company are hardwood lumber,
veneers, upholstery fabrics, leather, plywood, particleboard, hardware,
finishing materials, glass, steel, steel springs, and high pressure laminates.
The wood species include cherry, oak, maple, white pine, poplar, and other
American species, and imports such as rubberwood, guatambue and mahogany. The
Company believes that its sources of supply for these materials are adequate and
that it is not dependent on any one supplier.
The Company's plants are heated by furnaces using gas, fuel oil, wood
waste, and other scrap material as energy sources. The furnaces located at
casegoods manufacturing plants have been adapted so that they use alternate
energy sources, and the Company has been able to fuel these furnaces principally
by wood wastes. The Company's plants use electrical energy purchased from local
utilities. The Company has not experienced a shortage of energy sources and
believes that adequate energy supplies will be available for the foreseeable
future.
PATENTS AND TRADE NAMES
The trade names of the Company's divisions and subsidiaries represent many
years of continued business, and the Company believes such names are well
recognized and associated with quality in the industry. The Company owns
intellectual properties which are considered to be important to the business and
which do not have a limited duration.
INVENTORY PRACTICES, ORDER BACKLOG AND CREDIT PRACTICES
The Company generally schedules production of its various groups based upon
orders on hand. Manufacturing efficiencies and investment in inventories are,
therefore, directly related to the current volume of orders. The Company, and
the industry generally, honors cancellation of orders made prior to shipment.
The Company's backlog of unshipped orders believed to be firm at 1996 fiscal
year end was approximately $75.1 million, as compared to $83.1 million at 1995
fiscal year end. Generally, orders in the backlog are shipped during the
following 12 months. The Company's businesses as a whole are not subject to
significant seasonal variations.
COMPETITION
The residential furniture market is highly competitive and includes a large
number of manufacturers, none of which dominate the market. Industry estimates
indicate that there are over 800 manufacturers of residential furniture in the
United States, some of which include furniture types not manufactured by the
Company. Competition within the market for wood, upholstered and metal furniture
occurs principally in the areas of style or design, quality, price, and service.
In recent years, foreign imports of finished furniture and component parts
have increased. Although some of the imported products compete with products
manufactured and marketed by the Company, its Pilliod Furniture subsidiary is
the only operation to have experienced any significant negative impact. Where
appropriate, the Company has capitalized upon the cost advantages of importing
selected component parts and a limited number of finished products but is not
dependent upon any foreign sources. In 1996, the Company imported approximately
$16.4 million of finished furniture and unfinished furniture parts.
The Company has no facilities located outside the continental United
States.
GOVERNMENTAL REGULATIONS
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, the Resource Conservation and
Recovery Act, the Federal Water Pollution Control Act
A-4
<PAGE>
and the Comprehensive Environmental, Response, Compensation and Liability Act.
Certain of the Company's operations use glues and coating materials that contain
chemicals that are considered hazardous under various environmental laws.
Accordingly, management closely monitors the Company's environmental performance
at all of its facilities. Management believes that the Company is in substantial
compliance with all environmental laws.
Under the provisions of the Clean Air Act, in December 1995, the
Environmental Protection Agency (the "EPA") promulgated air emission standards
for the wood furniture industry. These regulations, known as National Emission
Standards for Hazardous Air Pollutants ("NESHAPs"), govern the levels of
emission of certain designated chemicals into the air and will require that the
Company reduce emissions of certain volatile hazardous air pollutants ("VHAPs")
by November 1997. Management has investigated and evaluated techniques to meet
these standards at all facilities to which the NESHAPs standards will apply.
While the Company may be required to make capital investments at some of its
facilities to ensure compliance, the Company believes that it will meet all
applicable requirements in a timely fashion and that the amount of money
required to meet the NESHAP requirements will not materially affect its
financial condition or its results of operations.
See "Legal Proceedings" regarding the status of environmental proceedings
in which the Company is involved.
EMPLOYEES
The Company had approximately 5,900 employees as of March 1, 1997.
Substantially all of the employees were employed on a full-time basis.
Employees at four Company plants are represented by various labor unions.
The Company considers its relations with its employees to be good.
EXPORT SALES
In 1996, the Company's export sales decreased to $28.4 million
(approximately 5.7% of 1996 net sales), from $37.5 million in 1995
(approximately 6.3% of 1995 net sales). The Company's export sales in 1994 were
$33.8 million, or approximately 5.7% of 1994 net sales. Excluding the operating
companies divested in 1995 and 1996, export sales were 5.7% of net sales in each
year. None of the Company's assets are dedicated solely to export sales.
A-5
<PAGE>
ITEM 2. PROPERTIES
The following table summarizes the real estate, both owned and leased, used
in the primary business operations of the Company as of March 21, 1997.
LADD FACILITIES
<TABLE>
<CAPTION>
APPROX. OWNED LEASE
FACILITY SIZE OR EXPIRATION
OPERATING GROUP LOCATION USE (SQUARE FEET) LEASED DATE
<S> <C> <C> <C> <C> <C>
Casegoods........................ N. Wilkesboro, NC Manufacturing 409,000 Owned
N. Wilkesboro, NC Manufacturing 414,000 Owned
N. Wilkesboro, NC Manufacturing 122,500 Owned
N. Wilkesboro, NC Warehouse/Office 109,500 Owned
Morristown, TN Warehouse 108,000 Leased 10/31/97
Morristown, TN Manufacturing 286,380 Owned
Morristown, TN Manufacturing/Office 139,200 Owned
Morristown, TN Distribution 160,000 Leased 4/01/99
Morristown, TN Distribution 97,500 Leased 10/31/98
Waynesville, NC Manufacturing/Office 447,400 Owned
Marion, VA Manufacturing/Office 204,900 Owned
Lewisburg, PA Manufacturing/Office/Dist. 614,100 Owned
White Deer, PA Manufacturing/Dist. 128,000 Owned
Selma, AL Manufacturing 310,000 Owned
Nichols, SC Manufacturing 350,000 Owned
Swanton, OH Manufacturing 290,000 Owned
Mullins, SC Warehouse 20,000 Leased mo-to-mo
High Point, NC Office 11,100 Leased 4/30/98
Upholstery....................... Sherman, MS Manufacturing/Office 302,650 Owned
Myrtle, MS Manufacturing 152,600 Owned
Hickory, NC Manufacturing/Office/Dist. 359,600 Owned
Hickory, NC Manufacturing 121,800 Owned
Hickory, NC Manufacturing 152,900 Owned
Monroe, NC Manufacturing 258,000 Leased 3/31/04
Contract Sales................... Chilhowie, VA Manufacturing/Office 530,000 Owned
Martinsville, VA Manufacturing 850,000 Owned
Martinsville, VA Office 50,000 Leased 5/31/97
Martinsville, VA Warehouse 135,000 Leased 9/30/97
Corporate........................ High Point, NC Office 38,000 Leased 11/30/97
</TABLE>
The Company believes that its manufacturing, warehouse and office space is
well maintained for its intended purposes and adequately insured. Although the
closure of any particular Company facility may be disruptive to that particular
operating entity's business, it would not be materially adverse to the Company's
operations.
The Company normally operates all of its furniture manufacturing facilities
on a one shift per day, five-day week basis. Increasingly, certain departments
and facilities are operated on a multi-shift basis.
The Company also currently maintains showrooms, the majority of which are
leased, in High Point, NC, Sherman and Tupelo, MS, and Martinsville, VA.
The Company owns and leases substantial quantities of woodworking, sewing
and metalworking equipment located in its various plants. The Company considers
its present equipment to be adequate, well-maintained, generally modern, and
adequately insured.
The Company currently owns and leases approximately 120 tractors and 270
trailers.
A-6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation from time to time in the
regular course of its business. In the opinion of the Company, there are no
material legal proceedings pending or known to be contemplated to which the
Company is a party or of which any of its property is subject.
The Company presently is involved in the following environmental
proceedings:
1. The California manufacturing facility of Brown Jordan Company
("Brown Jordan"), a former subsidiary of the Company, is located in El
Monte, California in the San Gabriel Valley Groundwater Basin. The Basin
has been designated by the United States Environmental Protection Agency
("EPA") and the State of California as a Superfund site. Although no
administrative or judicial enforcement action has been taken by the EPA or
applicable California authorities, the State of California is seeking to
identify potentially responsible parties ("PRPs") and has ordered certain
tests to be conducted by Brown Jordan in connection with their
investigation. In May 1994, the Company joined the Northwest El Monte
Community Task Force, a PRP Group formed to respond to the EPA. In March
1995, the Task Force and the EPA finalized an Administrative Consent Order
pursuant to which the Task Force has begun a remedial investigation and
feasibility study at an approximate cost of $1.3 million. Pursuant to an
interim allocation agreement, Brown Jordan is responsible for 4.86% of all
shared assets of the Task Force.
2. In September 1995, Brown Jordan received a request from the
California Regional Water Quality Board with respect to further assessment
of two areas at the El Monte facility, the Leach Pit Area and the Clarifier
Area. Both of these areas have been the subject of significant previous
investigations (undertaken 1988-1993) which had concluded that it was
unlikely that Brown Jordan was contributing significantly to groundwater
contamination in the area. The Board's investigation program is separate
from the El Monte Superfund group, although both are concerned with whether
Brown Jordan is a source of groundwater contamination. There is some basis
at this time for believing that the Leach Pit and Clarifier Area problems
are limited to soil contamination.
Under the terms of the Asset Purchase Agreement with Maytag Corporation
("Maytag") dated June 1, 1989 ("the Maytag Agreement") under which the Company
acquired Brown Jordan, the Company's liabilities in El Monte matters are limited
to the first $200,000 of costs for off-site liabilities and $1,000,000 of costs
for on-site liabilities. Pursuant to the terms of the Stock Purchase Agreement
between the Company and BJCL, Inc. (now known as Brown Jordan International,
Inc.) ("BJII") dated as of November 7, 1995 under which BJII acquired Brown
Jordan from the Company, BJII may assume up to $400,000 of certain post closing
costs relating to Brown Jordan, including environmental costs relating to the El
Monte site. Through March 1997, approximately $300,000 had been expended by the
Company on the El Monte site and approximately $60,000 of other contractual
indemnification claims had been incurred. Accordingly, if no other claims are
made by BJII under the Brown Jordan Agreement, the next $340,000 of costs
associated with Brown Jordan environmental claims will be paid by BJII.
The Company has also been named as a PRP, along with numerous parties, at
various hazardous waste sites undergoing cleanup or investigation for cleanup.
The Company believes that at each of these sites, it has been improperly named
or will be considered a "de minimis" party. Although the Company believes
adequate accruals have been provided for environmental contingencies, it is
possible, due to uncertainties previously noted, that additional accruals could
be required in the future. However, the ultimate resolution of these
contingencies, to the extent not previously provided for, should not have a
material adverse effect on the Company's financial position.
The Company is cooperating fully with government authorities in each of
these matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No such matters were submitted to security holders of the Company in the
fourth quarter of fiscal year 1996.
A-7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
STOCK TRANSFER AGENT:
Wachovia Bank of North Carolina, N.A.
Winston-Salem, NC
Shareholder Account Information: 1-800-635-4236
STOCK LISTING:
The Company's Common Stock is traded on the Nasdaq Stock Market under the
Nasdaq symbol: LADF. At year end 1996, the Company had approximately 4,000
shareholders based upon approximately 640 shareholders of record at that date
and an estimate of the number of individual shareholders represented by broker
and nominee position listings.
MAJOR MARKET MAKERS:
<TABLE>
<S> <C>
Cantor, Fitzgerald & Co. Mayer & Schweitzer
Dillon, Read & Co. Raymond, James & Associates
Herzog, Heine, Geduld Robinson Humphrey
Huntleigh Securities Corp. Sherwood Securities Corp.
Interstate/Johnson Lane Southwest Securities, Inc.
Jefferies & Company, Inc. Troster Singer Corp.
Legg Mason Wood Walker Wheat First Butcher Singer
</TABLE>
See Item 6, Selected Financial Data, for market and dividend information
regarding the Company's Common Stock.
A-8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
LADD FURNITURE, INC. AND SUBSIDIARIES
SELECTED ANNUAL DATA
DOLLAR AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA
Net sales.................................................... $483,480 507,586 576,549 599,203 497,457
Cost of sales................................................ 388,937 414,730 468,881 502,999 411,697
Gross profit............................................... 94,543 92,856 107,668 96,204 85,760
Selling, general and administrative expenses................. 78,493 81,953 93,911 101,345 74,363
Restructuring expense........................................ -- -- -- 25,120 3,431
Operating income (loss)...................................... 16,050 10,903 13,757 (30,261) 7,966
Other (income) deductions:
Interest expense........................................... 7,502 5,542 8,939 11,798 12,069
Other (net)................................................ 278 (1,046) (199) 1,367 399
Earnings (loss) before income taxes.......................... 8,270 6,407 5,017 (43,426) (4,502)
Income tax expense (benefit)................................. 3,725 2,561 709 (18,236) (2,032)
Net earnings (loss).......................................... $ 4,545 3,846 4,308 (25,190) (2,470)
Depreciation................................................. $ 9,151 10,508 14,143 12,671 10,887
Amortization................................................. 2,848 2,554 3,669 3,758 4,444
Cash dividends paid.......................................... -- 2,767 2,771 2,086 --
Weighted average shares outstanding.......................... 7,148 7,686 7,697 7,721 7,722
PER SHARE DATA
Net sales.................................................... $ 67.64 66.04 74.91 77.61 64.42
Net earnings (loss).......................................... 0.64 0.50 0.56 (3.26) (0.32)
Cash dividends............................................... -- 0.36 0.36 0.27 --
Year-end book value.......................................... 19.38 19.52 19.73 16.20 15.94
BALANCE SHEET DATA
Net working capital.......................................... $117,693 123,004 123,685 79,528 97,916
Net property, plant and equipment............................ 83,609 97,497 109,522 82,586 74,729
Total assets................................................. 315,649 335,737 378,816 312,986 313,595
Total debt................................................... 92,573 111,072 149,271 115,944 130,952
Shareholders' equity......................................... 148,724 150,103 151,906 125,197 123,076
RATIOS, OTHER
Gross profit margin.......................................... 19.6% 18.3 18.7 16.1 17.2
Operating profit (loss) margin............................... 3.3% 2.1 2.4 (5.0) 1.6
Return (loss) on sales....................................... 0.9% 0.8 0.8 (4.2) (0.5)
Effective income tax rate.................................... 45.0% 40.0 14.1 42.0 45.1
Dividend payout ratio........................................ -- 71.9 64.3 N/M --
Return (loss) on beginning assets............................ 1.5% 1.2 1.3 (6.6) (0.8)
Return (loss) on beginning equity............................ 4.1% 2.6 2.9 (16.6) (2.0)
Total debt ratio............................................. 38.4% 42.5 49.6 48.1 51.6
Current ratio................................................ 3.1x 3.1 3.0 2.3 2.6
Inventory turnover ratio..................................... 4.6x 4.2 4.2 4.8 4.7
Asset turnover ratio......................................... 1.5x 1.6 1.6 1.7 1.6
Year-end employees (actual number)........................... 6,940 6,670 7,860 6,880 5,800
Sales per employee (000's)................................... $ 73.4 75.0 75.9 77.0 79.8
STOCK DATA
High......................................................... $ 36.00 44.25 35.25 19.88 15.75
Low.......................................................... 18.75 22.50 14.63 12.25 9.50
Close........................................................ 31.50 30.00 19.50 13.13 14.63
Trading volume (shares)...................................... 6,586 8,260 6,473 9,599 8,000
</TABLE>
NOTES: Total debt ratio is defined as total debt to total debt plus
shareholders' equity. Fiscal year 1992 comprised 53 weeks; all other
years comprised 52 weeks. Stock price data is for calendar years.
N/M = Not meaningful. Sales per employee based on monthly employee
average. Fournier Furniture is included in consolidated results from
its acquisition date of July 2, 1992, and Pilliod Furniture from its
acquisition date of January 31, 1994. Fiscal year 1995 reflects the
sale of Brown Jordan Company and Lea Lumber & Plywood-effective
December 29, 1995. Fiscal 1996 reflects the sale of Fournier
Furniture-effective February 26, 1996; and the liquidation of
Daystrom Furniture beginning June 28, 1996. Fiscal 1994 and 1995
reflect the Company's accounts receivable securitization program
which commenced January 31, 1994 and terminated on March 28, 1996.
A-9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
The table below sets forth the percentage relationship of net sales to
certain items included in the consolidated statements of operations in each of
the last three fiscal years.
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Net sales............................................................................................ 100.0% 100.0% 100.0%
Cost of sales........................................................................................ 81.3 83.9 82.8
Gross profit....................................................................................... 18.7 16.1 17.2
Selling, general and administrative expenses......................................................... 16.3 16.9 14.9
Restructuring expense................................................................................ -- 4.2 0.7
Operating income (loss)............................................................................ 2.4 (5.0) 1.6
Other deductions, net................................................................................ 1.5 2.2 2.5
Earnings (loss) before income taxes................................................................ 0.9 (7.2) (0.9)
Income tax expense (benefit)......................................................................... 0.1 (3.0) (0.4)
Net earnings (loss)................................................................................ 0.8% (4.2)% (0.5)%
</TABLE>
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation, those relating to sales, operating
costs, working capital, liquidity, capital needs and interest costs, are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward looking statements, due to
several important factors herein identified, principally anticipated growth in
sales and decreased interest expense, and other risks and factors identified
from time to time in the Company's reports filed with the Securities Exchange
Commission.
The following paragraphs provide an analysis of the changes in net sales,
selected cost and expense items, and net earnings (loss) over the three-year
period ended December 28, 1996.
FISCAL 1995 AND 1996 RESTRUCTURING OF THE COMPANY
During 1995, the Company recorded a net $25.1 million non-cash
restructuring charge. The restructuring charge resulted from the Company's
decision to divest four operating companies (businesses held for sale -- the
"divestiture companies"), close four Company-owned retail stores, and reorganize
the remaining companies to improve operating performance. The net restructuring
charge consisted of: (a) $17.4 million to write-down businesses sold or held for
sale to their estimated fair value, net of disposition expenses; (b) $3.7
million to increase reserves associated with closing the four retail stores; (c)
$2.6 million to provide for severance and other expenses; and (d) $1.4 million
to write-down selected machinery to estimated fair value because of changes in
manufacturing processes. In December 1995, the Company sold two of the
businesses held for sale for a combination of cash proceeds aggregating $28.0
million, a 12% interest (valued at $2.2 million) in the purchaser of one of the
businesses, and a $1.0 million subordinated note. As part of the 1995
restructuring, the Company's operations were reorganized along its three product
lines: (i) the Casegoods Group; (ii) the Upholstery Group; and (iii) the
Contract Sales Group.
In 1996, the Company recorded aggregate non-cash restructuring charges
(net) of $3.4 million which consisted of: (i) $4.2 million in the first quarter
due to the necessity to liquidate versus sell one of the remaining businesses
and a shortfall in anticipated proceeds on the other business; (ii) $0.9 million
in the first quarter for severance related to continued restructuring of the
Company (of which $130,000 related to restricted stock awards was credited to
shareholders' equity); and (iii) $1.7 million aggregate credits recorded in the
second, third and fourth quarters as a result of proceeds from the liquidation
of idle assets held for sale exceeding earlier estimates. In February 1996, the
Company sold one of its divestiture companies for a combination of approximately
$8.9 million in cash, a subordinated note totalling $1.1 million, and the
purchaser's assumption of $1.9 million of Industrial Revenue Bonds. Effective
June 1996, the Company closed its last
A-10
<PAGE>
divestiture company and subsequently liquidated for cash substantially all the
inventory, machinery and equipment. In December 1996, the Company sold the
manufacturing plant of the business for cash and a note receivable.
Management believes the actions represented by these charges have
repositioned the Company to achieve improved operating performance within the
U.S. residential furniture manufacturing industry.
FISCAL 1996 COMPARED TO 1995
Consolidated net sales for fiscal 1996 decreased $101.7 million, or 17.0%,
to $497.5 million from $599.2 million in 1995. On a pro forma basis, excluding
the four divestiture companies and the company-owned retail stores closed in
1995, fiscal 1996 consolidated net sales would have decreased by 0.3%. Of the
$481.9 million in net sales recorded during fiscal 1996 by the ongoing
businesses, residential casegoods totalled approximately $277.4 million,
residential upholstery totalled approximately $124.3 million, and contract sales
totalled approximately $80.2 million. The Company's total residential upholstery
sales for fiscal 1996 were flat with fiscal 1995, while total residential
casegoods sales for the year decreased $7.0 million, or 2.5 %, from fiscal
1995's level. Net sales of the Company's contract sales business, including the
sale of accessories, rose $11.7 million in 1996, or 17.1%, compared to the prior
year. The Company's residential casegoods and upholstery sales trends in 1996
were below those estimated for the industry, largely due to the Company's
decision to discontinue selling to certain accounts with unsatisfactory margins.
The 1996 sales growth in the contract business exceeded sales trends estimated
in the hospitality sector, where hotels/motels continue to refurbish rooms at an
accelerated pace. The Company anticipates that the 1997 sales growth rate for
its casegoods and upholstery businesses will be more in line with that of the
industry, and that the sales growth rate for its contract business will exceed
that of casegoods and upholstery.
In 1996, the Company's export sales decreased to $28.4 million (5.7% of net
sales), from $37.5 million in 1995 (6.3% of net sales). Excluding the
divestiture companies and the four company-owned retail stores, export sales
would have been 5.7% of net sales in both 1995 and 1996. Export sales will
continue to be a focus of the Company and are expected to increase generally at
a faster rate than domestic sales.
Cost of sales decreased by $91.3 million, or 18.2%, in fiscal 1996 and
represented 82.8% of net sales, down from 83.9% of net sales in fiscal 1995. On
a pro forma basis, excluding the divestiture companies and the company-owned
retail stores, cost of sales decreased to 82.1% of net sales in 1996, from 84.2%
of net sales in 1995. Cost of sales in 1996 was positively impacted by the
Company's decision to curtail health care benefits to retirees and to terminate
its qualified defined benefit pension plan. As more fully discussed in notes 10
and 11 to the consolidated financial statements, these two actions in the
aggregate resulted in a $4.4 million decrease in cost of sales. The Company
estimates that, on an ongoing basis, the elimination of these two employee
benefits will save the Company over $3.0 million annually. Excluding the
divestiture companies and the company-owned retail stores, the above mentioned
nonrecurring 1996 transactions, and non-cash charges totalling $5.3 million
recorded in 1995, cost of sales was 83.1% of net sales in both 1996 and 1995.
Negatively impacting margins in 1996 and 1995 were production decreases of 5.8%
and 7.5%, respectively, to reduce inventory levels of the casegoods group,
resulting in high amounts of unabsorbed fixed overhead costs. The Company
believes that 1997 gross margins will improve over the 1996 pro forma gross
margin of 16.9% as a result of new product introductions, increased sales and
increased production levels.
Selling, general and administrative (SG&A) expenses were 14.9% of net sales
in 1996, compared to 16.9% of net sales in fiscal 1995. On a pro forma basis,
excluding the divestiture companies and the company-owned retail stores, SG&A
expenses were 14.8% of net sales in 1996, compared to 16.2% of net sales in
1995. This decrease was primarily attributable to the second quarter 1995
non-cash charge (totalling $2.3 million) to increase the Company's bad debt
reserves and provide for other miscellaneous expenses, as well as to higher
costs in 1995 associated with the Company's accounts receivable securitization
program, which was in place for all of 1995 and terminated at the end of 1996's
first quarter. SG&A expenses also declined during 1996 as a result of an
approximate 10.0% reduction in the Company's salaried work force, consolidation
of certain administrative functions, and cutbacks in advertising. The Company
anticipates that 1997 SG&A expenses will be in the range of 14.0%-14.5% of net
sales.
Other deductions increased in the aggregate to 2.5% of fiscal 1996's net
sales from 2.2% in the prior year. Interest expense, as a percent of net sales,
was 2.4% in 1996 compared to 2.0% in 1995 due to higher interest rates. Other
deductions in 1996 were positively impacted by a $1.7 million insurance
settlement. Other deductions in 1996 and 1995 included non-cash charges
totalling $0.9 million and $2.2 million, respectively, attributable to the
write-off of unamortized financing costs and other noncurrent assets, and the
recognition of other liabilities. The Company believes its 1997 interest expense
will decrease due to lower outstanding average borrowings and an anticipated
decrease in the Company's effective interest rate, both of which are directly
dependent upon improved profitability and cash flow.
A-11
<PAGE>
The principal reason for the increase in the Company's effective tax
benefit rate to 45.1% in fiscal 1996 from 42.0% in the previous year was the
realization of tax benefits from the utilization of research and experimentation
tax credits. The Company's combined effective Federal and state tax rate for
1997 is expected to approximate 39.0%.
FISCAL 1995 COMPARED TO 1994
Consolidated net sales for fiscal 1995 rose $22.7 million, or 3.9%, to a
record $599.2 million. On a pro forma basis, assuming Pilliod Furniture had been
acquired at the beginning of fiscal 1994, the fiscal 1995 consolidated net sales
increase would have been 2.5%. The reported increase of $22.7 million consisted
of a $22.9 million, or 5.0%, increase in net sales of the ongoing businesses,
partially offset by a cumulative decline of $0.2 million, or 0.2%, in net sales
of the businesses sold or being held for sale in 1995.
Of the $483.4 million in net sales recorded during fiscal 1995 by the
ongoing businesses, approximately $284.4 million represented residential
casegoods volume, approximately $124.5 million represented residential
upholstery volume, and contract volume represented approximately $68.5 million.
The balance of 1995 sales, totalling approximately $6.0 million, represented
"other" business, primarily revenues from the sale of home furnishings
accessories. The Company's 1995 sales trends were in line with the general
industry pattern of stronger upholstery sales than casegoods sales. The
Company's total residential upholstery sales for fiscal 1995 rose by $18.1
million, or 17.0%, while total residential casegoods sales for the year
decreased $14.1 million, or 4.7%, from fiscal 1994's level. Total fiscal 1995
net sales of the Company's contract business, including the sale of accessories,
rose by $13.0 million, or 23.4%, compared to the prior year.
Cost of sales increased by $34.1 million, or 7.3%, in fiscal 1995 and
represented 83.9% of net sales in the most recent year, up from 81.3% in fiscal
1994. Materials, labor and overhead costs all increased as a percentage of net
sales in 1995, with the labor component showing the largest year-over-year
growth. The labor increase resulted largely from the casegoods companies
manufacturing parts that had previously been purchased and machine setup times
not being fully absorbed due to smaller cut quantities. Materials price
increases, which had been a major negative factor in 1994, moderated to a degree
during 1995, particularly in the areas of hardwood lumber and particleboard,
although these costs remained at fairly high levels on a historical basis.
Further negatively impacting 1995 margins was a 7.5% decrease in production to
reduce inventory levels of the casegoods group resulting in unusually high
amounts of unabsorbed fixed overhead costs. An additional depressant on the 1995
gross margin was the non-cash charge (totalling $5.3 million) incurred in the
second quarter to increase reserves for slow-moving and discontinued
inventories. As a result of these factors, the Company's fiscal 1995 gross
margin declined to a historical yearly low of 16.1%, compared to fiscal 1994's
18.7% gross margin.
Selling, general and administrative (SG&A) expenses rose to 16.9% of net
sales, compared to 16.3% in fiscal 1994. This increase was primarily
attributable to the second quarter non-cash charge (totalling $2.3 million) to
increase the Company's bad debt reserves and provide for other miscellaneous
expenses, as well as higher costs associated with the Company's accounts
receivable securitization program, which was in place for all of 1995 and
carried larger average balances and discount rates than in fiscal 1994.
Other deductions increased in the aggregate to 2.2% of fiscal 1995's net
sales from 1.5% of prior year's net sales. Interest expense rose $2.9 million,
despite average outstanding borrowings for fiscal 1995 remaining approximately
the same as in the prior year, due to increases in short-term interest rates and
an amendment to the Company's long-term credit facility, which resulted in a
significantly higher borrowing rate for the Company beginning in August 1995.
The principal reasons for the increase in the Company's fiscal 1995
effective tax rate to 42.0% from 14.1% in the previous year were tax benefits
realized from the utilization of capital loss carryforwards during the year and
various beneficial tax credits.
LIQUIDITY AND CAPITAL RESOURCES
In July 1996, the Company refinanced its long-term and short-term bank
credit facility with a new credit facility (the "Facility") which consisted of a
$125.0 million three-year revolving credit loan and a $65.0 million term loan.
On January 1, 1997, the Facility was amended to reduce the revolving credit loan
to $110.0 million. The Facility is secured by substantially all the assets of
the Company, including equipment, inventory, receivables and real property.
Borrowings under the Facility bear interest at rates selected periodically by
the Company of LIBOR plus 2.75%, or prime plus 1.75%, for the revolving credit
loan, and LIBOR plus 3.00%, or prime plus 2.00%, for the term loan. The interest
rate margin over LIBOR and prime can be reduced upon the Company meeting a
financial ratio related to operating cash flow and debt levels. The term loan is
to be repaid in forty quarterly installments of $1,625,000, of which the first
installment was paid in December 1996. The
A-12
<PAGE>
Facility restricts the amount of the Company's capital spending, lease
obligations, borrowings, and the payment of dividends. Due to the refinancing,
unamortized financing costs of $890,000 were charged to operations in 1996. In
connection with the refinancing, the Company incurred fees and expenses
aggregating approximately $4.0 million which will be amortized over the terms of
the Facility.
Effective March 28, 1996, the Company's trade accounts receivable
securitization program was terminated in anticipation of the above mentioned
refinancing. At December 30, 1995, the Company had generated cash of $36.0
million from the securitization program which was subsequently replaced with
borrowings under the Company's long-term credit facility.
On December 28, 1996, net working capital totalled $97.9 million and the
current ratio was 2.6:1. Both of these financial measures increased over the
prior year primarily due to the above mentioned termination of the accounts
receivable securitization program, offset somewhat by a decrease in inventories
and prepaid expenses aggregating approximately $12.9 million.
During 1996, the Company generated net cash from operating activities of
$25.5 million, an increase of $14.4 million compared to the prior year. During
1996, capital spending totalled $8.3 million (excluding the purchase of leased
equipment relating to a divestiture company) down from the prior year's $11.6
million, as major capital projects initiated during years 1994 and 1995 were
completed in early 1996, and a reduced capital spending program was initiated by
management. Capital expenditures during 1996 and 1995 were funded from the
operations of the Company and borrowings under the Company's existing long-term
credit facility.
Total debt as a percentage of total debt plus shareholders' equity (total
debt ratio) was 51.6% at the end of 1996, compared to 48.1% a year earlier. The
increase was due to termination of the previously mentioned trade accounts
receivable securitization program in March 1996, offset by debt repayments in
the aggregate in the second, third and fourth quarters of 1996 totalling $26.3
million. The Company anticipates spending less than $10.0 million for capital
improvements during 1997, and believes that the unused revolving credit line
available under the Facility ($31.0 million at December 28, 1996) and cash
generated from operations, will be adequate to fund these planned investments,
as well as its lease commitments. The Company anticipates that its cash flow
from operations will exceed its capital expenditures in 1997, enabling the
Company to further reduce its outstanding borrowings and accordingly, its total
debt ratio.
IMPACT OF INFLATION
Although the effects of inflation on the Company cannot be accurately
determined, in 1996 the impact of inflation affected the Company's manufacturing
costs in the areas of manufacturing overhead and raw materials other than
lumber. The price of lumber, like the prices of other commodities, is affected
more by the interaction of supply and demand than by inflation. Although 1996
margins were impacted by inflation, the Company's gross profit margins during
the past several years have, in general, been impacted more by promotional
selling discounts and plant downtime taken to curtail production than by
inflation. The Company believes it will be able to largely offset the effects of
inflation by improving its manufacturing efficiency, increasing employee
productivity, substituting raw materials, and increasing the selling prices of
its products.
A-13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of LADD Furniture, Inc. is responsible for the integrity of
the financial statements of the Company and for ascertaining that the financial
statements accurately reflect the financial position and results of operations
of the Company. The financial statements were prepared in conformity with
generally accepted accounting principles, applying estimates and management's
best judgment, as required. Information presented elsewhere in the Company's
Annual Report on Form 10-K is consistent with the financial statements.
LADD has established and maintains a system of internal controls designed
to provide reasonable assurance, at an appropriate cost, that the Company's
assets are adequately safeguarded and that the accounting records reflect the
transactions of the Company accurately, fairly and in reasonable detail. The
internal control system provides for careful selection and training of
personnel, the delegation of management authority and responsibility, the
dissemination of management control policies and procedures and an internal
audit program.
The Board of Directors, through its Audit Committee consisting of three
directors who are not officers or employees of the Company, is responsible for
reviewing and monitoring the financial statements and accounting practices of
the Company. The Audit Committee meets periodically, either separately or
jointly, with the independent auditors, representatives of management and the
Company's internal auditors to discuss auditing, accounting and financial
statement matters. To ensure complete independence, representatives of KPMG Peat
Marwick LLP, certified public accountants retained by the Company to audit the
financial statements, have full and free access to meet with the Audit Committee
with or without the presence of management representatives.
<TABLE>
<S> <C>
Fred L. Schuermann, Jr. William S. Creekmuir
President & Chief Executive Officer Executive Vice President & CFO
February 7, 1997 February 7, 1997
</TABLE>
A-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
LADD FURNITURE, INC.:
We have audited the accompanying consolidated balance sheets of LADD
Furniture, Inc. and subsidiaries as of December 30, 1995 and December 28, 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 28,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements 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 LADD
Furniture, Inc. and subsidiaries as of December 30, 1995 and December 28, 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 28, 1996 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Greensboro, North Carolina
February 7, 1997
A-15
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA
Net sales.............................................................................. $576,549 599,203 497,457
Cost of sales.......................................................................... 468,881 502,999 411,697
Gross profit...................................................................... 107,668 96,204 85,760
Selling, general and administrative expenses........................................... 93,911 101,345 74,363
Restructuring expense.................................................................. -- 25,120 3,431
Operating income (loss)........................................................... 13,757 (30,261) 7,966
Other deductions:
Interest expense..................................................................... 8,939 11,798 12,069
Other deductions (income), net....................................................... (199 ) 1,367 399
8,740 13,165 12,468
Earnings (loss) before income taxes............................................... 5,017 (43,426) (4,502)
Income tax expense (benefit)........................................................... 709 (18,236) (2,032)
Net earnings (loss)............................................................... $ 4,308 (25,190) (2,470)
Net earnings (loss) per common share................................................... $ 0.56 (3.26) (0.32)
Cash dividends per common share........................................................ $ 0.36 0.27 0.00
Weighted average number of common shares outstanding................................... 7,696,689 7,720,783 7,722,085
</TABLE>
See accompanying notes to consolidated financial statements.
A-16
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA
ASSETS
Current assets:
Cash........................................................................................... $ 1,272 469
Trade accounts receivable, less allowances for doubtful receivables, discounts, returns
and allowances of $4,057 and $3,005, respectively........................................... 38,288 66,730
Inventories.................................................................................... 89,466 84,484
Prepaid expenses and other current assets...................................................... 13,663 5,768
Total current assets...................................................................... 142,689 157,451
Property, plant and equipment, net............................................................... 82,586 74,729
Businesses held for sale, net.................................................................... 8,052 --
Intangible and other assets, net................................................................. 79,659 81,415
$312,986 313,595
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt......................................................... $ 309 5,093
Short-term bank borrowings..................................................................... 3,037 --
Trade accounts payable......................................................................... 28,419 24,358
Accrued expenses and other current liabilities................................................. 31,396 30,084
Total current liabilities................................................................. 63,161 59,535
Long-term debt, excluding current installments................................................... 112,598 125,859
Deferred and other liabilities................................................................... 12,030 5,125
Total liabilities......................................................................... 187,789 190,519
Shareholders' equity
Preferred stock of $100 par value. Authorized 500,000 shares; no shares issued................. -- --
Common stock of $.30 par value. Authorized 50,000,000 shares, issued 7,726,993 shares and
7,719,567 shares, respectively.............................................................. 2,318 2,316
Additional paid-in capital..................................................................... 49,905 49,736
Retained earnings.............................................................................. 73,829 71,359
126,052 123,411
Less unamortized value of restricted stock..................................................... (855) (335)
Total shareholders' equity................................................................ 125,197 123,076
Commitments and contingencies -- NOTE 13
$312,986 313,595
</TABLE>
See accompanying notes to consolidated financial statements.
A-17
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
DOLLAR AMOUNTS IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................................................................ $ 4,308 (25,190) (2,470)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation of property, plant and equipment............................................ 14,143 12,671 10,887
Amortization............................................................................. 3,669 3,758 4,444
Restructuring expense.................................................................... -- 25,120 3,431
Provision for losses on trade accounts receivable........................................ 1,521 2,898 3,308
Gain on sales of property, plant and equipment........................................... (89) (314) (147)
Provision for deferred income taxes...................................................... (1,204) (13,419) 1,873
Increase (decrease) in deferred and other liabilities.................................... 1,388 1,297 (2,564)
Change in assets and liabilities, net of effects from acquisition, divestitures and
classification of businesses held for sale:
(Increase) decrease in trade accounts receivable...................................... (2,517) (7,988) 5,736
(Increase) decrease in inventories.................................................... (10,709) 8,126 5,417
(Increase) decrease in prepaid expenses and other current assets...................... (1,886) (2,084) 5,648
Increase (decrease) in trade accounts payable......................................... (2,496) 3,608 (3,738)
Increase (decrease) in accrued expenses and other current liabilities................. (3,313) 2,607 (6,320)
Total adjustments........................................................................ (1,493) 36,280 27,975
Net cash provided by operating activities............................................. 2,815 11,090 25,505
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Pilliod Furniture, net of cash acquired................................... (23,847) -- --
Additions to property, plant and equipment............................................... (31,825) (11,560) (8,347)
Purchase leased manufacturing equipment.................................................. -- -- (4,648)
Proceeds from sales of property, plant and equipment..................................... 962 191 246
Proceeds from sales of idle assets....................................................... -- -- 1,570
Proceeds from sales of businesses........................................................ -- 28,004 5,284
Additions to intangible and other assets................................................. (1,150) (3,715) (2,759)
Net cash provided by (used in) investing activities................................... (55,860) 12,920 (8,654)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................................................. 136,666 330 127,092
Proceeds from (repayments of) sales of trade accounts receivable......................... 32,485 3,515 (36,000)
Proceeds from sale leaseback of equipment................................................ 14,566 6,691 3,538
Principal payments on borrowings......................................................... (130,020) (31,706) (112,103)
Dividends paid........................................................................... (2,771) (2,086) --
Other.................................................................................... 1,383 8 (171)
Net cash provided by (used in) financing activities................................... 52,309 (23,248) (17,644)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (38) (66) (10)
Net increase (decrease) in cash.......................................................... (774) 696 (803)
Cash at beginning of year.................................................................. 1,350 576 1,272
Cash at end of year........................................................................ $ 576 1,272 469
</TABLE>
See accompanying notes to consolidated financial statements.
A-18
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
UNAMORTIZED
NUMBER ADDITIONAL CURRENCY VALUE OF
OF SHARES COMMON PAID-IN TRANSLATION RETAINED RESTRICTED
ISSUED STOCK CAPITAL ADJUSTMENT EARNINGS STOCK
<S> <C> <C> <C> <C> <C> <C>
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
BALANCE AT JANUARY 1, 1994...................... 7,688,719 $2,306 49,186 (170) 99,568 (787)
Shares issued in connection with incentive
stock option plan.......................... 782 -- 19 -- -- --
Purchase of restricted stock.................. (6,142) (1 ) (170) -- -- 170
Shares issued in connection with and
amortization of employee restricted stock
awards..................................... 16,792 5 481 -- -- (200)
Currency translation adjustment............... -- -- -- (38) -- --
Net earnings.................................. -- -- -- -- 4,308 --
Dividends paid................................ -- -- -- -- (2,771) --
BALANCE AT DECEMBER 31, 1994.................... 7,700,151 2,310 49,516 (208) 101,105 (817)
Purchase of restricted stock.................. (2,452) (1 ) (68) -- -- 68
Shares issued in connection with and
amortization of employee restricted stock
awards..................................... 29,294 9 457 -- -- (106)
Currency translation adjustment............... -- -- -- (66) -- --
Reclassification to businesses held for sale.. -- -- -- 274 -- --
Net loss...................................... -- -- -- -- (25,190) --
Dividends paid................................ -- -- -- -- (2,086) --
BALANCE AT DECEMBER 30, 1995.................... 7,726,993 2,318 49,905 -- 73,829 (855)
Purchase of restricted stock.................. (7,426) (2 ) (169) -- -- 169
Amortization of employee restricted stock
awards..................................... -- -- -- -- -- 351
Net loss...................................... -- -- -- -- (2,470) --
BALANCE AT DECEMBER 28, 1996.................... 7,719,567 $2,316 49,736 -- 71,359 (335)
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
<S> <C>
BALANCE AT JANUARY 1, 1994...................... 150,103
Shares issued in connection with incentive
stock option plan.......................... 19
Purchase of restricted stock.................. (1)
Shares issued in connection with and
amortization of employee restricted stock
awards..................................... 286
Currency translation adjustment............... (38)
Net earnings.................................. 4,308
Dividends paid................................ (2,771)
BALANCE AT DECEMBER 31, 1994.................... 151,906
Purchase of restricted stock.................. (1)
Shares issued in connection with and
amortization of employee restricted stock
awards..................................... 360
Currency translation adjustment............... (66)
Reclassification to businesses held for sale.. 274
Net loss...................................... (25,190)
Dividends paid................................ (2,086)
BALANCE AT DECEMBER 30, 1995.................... 125,197
Purchase of restricted stock.................. (2)
Amortization of employee restricted stock
awards..................................... 351
Net loss...................................... (2,470)
BALANCE AT DECEMBER 28, 1996.................... 123,076
</TABLE>
See accompanying notes to consolidated financial statements.
A-19
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company is one of the largest residential furniture manufacturers in
the United States with 20 manufacturing facilities in eight states. Following a
restructuring of its businesses in 1995, the Company's products consist
principally of casegoods and upholstery furniture in a wide range of styles for
bedrooms, family rooms, dining rooms and living rooms in the low-medium to
high-medium price ranges for the residential and contract (principally
hotel/motel) markets. Residential casegoods, residential upholstery and contract
products comprised approximately 56%, 25% and 16%, respectively, of the
Company's 1996 net sales. The Company currently sells to more than 8,000
customers, including retail furniture chains, national general retailers,
department stores, independent furniture retailers, major hotel chains and
others located throughout the United States and overseas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of LADD
Furniture, Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest the end of December.
Fiscal year 1994 ended December 31, 1994; fiscal year 1995 ended December 30,
1995; and fiscal year 1996 ended December 28, 1996.
REVENUE RECOGNITION
Sales are recognized when products are shipped and invoiced to customers.
Monthly provision is made for doubtful receivables, discounts, returns and
allowances.
Substantially all of the Company's accounts receivable are due from
customers described above. Management periodically performs credit evaluations
of its customers and generally does not require collateral. The Company has no
concentrated credit risk with any individual customer.
INVENTORIES
Approximately 71% in 1995 and 74% in 1996 of the Company's inventories are
valued using the last-in, first-out (LIFO) cost method, which is not in excess
of market. All other inventories in 1995 and 1996 are valued at the lower of
first-in, first-out (FIFO) cost or market (net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets
on the straight-line method. Estimated useful lives are 10 to 35 years for
buildings and improvements and 3 to 13 years for machinery and equipment.
The Company accounts for any impairment of property, plant and equipment
under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. This statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of those assets may not be recoverable.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the temporary
differences between the financial statement carrying amounts and the tax bases
of the Company's assets, liabilities, and loss and tax credit carryforwards at
income tax rates expected to be in effect when such amounts are realized or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date.
A-20
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
EARNINGS PER SHARE
Earnings per share are calculated based upon the weighted average number of
common shares outstanding during each fiscal year. The effect of dilutive stock
options on the calculation is insignificant in each of the fiscal years
presented.
INTANGIBLE ASSETS
Intangible assets consist principally of values assigned to patents,
furniture designs, trade names and the excess of cost over the assigned value of
net assets acquired. These assets are being amortized using the straight-line
method over periods of 15 to 40 years. The Company assesses the recoverability
of the excess of cost over the assigned value of net assets acquired by
determining whether the amortization of the balance over its remaining life can
be recovered through undiscounted future operating cash flows of the acquired
operations. The assessment of the recoverability of the excess of cost over the
assigned value of net assets acquired will be impacted if estimated future
operating cash flows are not achieved.
PENSION AND OTHER POSTRETIREMENT PLANS
The Company and several of its subsidiaries are participants in a defined
benefit pension plan covering qualified salaried and hourly employees. The
benefits are based on years of service or the employee's final average
compensation before retirement. The defined benefit plan was amended on December
13, 1996 to provide that no additional benefits would accrue after December 31,
1996. The Company intends to terminate the defined benefit plan upon receiving
required regulatory approvals.
The Company provided certain health care benefits for certain retired
employees through June 1, 1996, when these benefits were curtailed. Prior to
curtailment, the Company provided for the cost of its obligation over the period
the employees rendered the services necessary to earn the postretirement
benefits.
Prior to their termination, the cost of the above benefit plans was funded
currently.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, trade accounts receivable, prepaid expenses
and other current assets, trade accounts payable and accrued expenses and other
current liabilities approximates fair value because of the short maturity of
these financial instruments.
The fair value of the Company's long-term debt is estimated by discounting
the future cash flows at rates currently offered to the Company for similar debt
instruments of comparable maturities. The fair value of the Company's long-term
debt approximates the face value of the debt due to the variable interest rates
on the majority of long-term debt at December 28, 1996.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense was recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
TRANSPORTATION OPERATIONS
The Company operates trucking fleets for its casegoods and upholstery
operations for the delivery of products to customers and inbound raw materials.
Beginning in the fourth quarter of 1996, the Company began accounting for the
A-21
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
revenues and direct operating expenses of the transportation operations as other
income (net). Accordingly, revenues and direct operating expenses of $14,288,000
and $12,950,000, respectively, previously accounted for as net sales and cost of
sales, were reclassified in 1996. All transportation revenues and direct
operating expenses have similarly been reclassified for all prior periods
included in the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of a foreign subsidiary sold in February 1996 were
translated at year-end rates of exchange, and revenues and expenses were
translated at the average rates of exchange for the year. Gains and losses
resulting from translation were accumulated in a separate component of
shareholders' equity until June 1995, at which time the balance was transferred
to businesses held for sale. Gains and losses resulting from foreign currency
transactions are included in net earnings (loss).
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
NOTE 2: RESTRUCTURING AND DIVESTITURES
In June 1995, the Company recorded a $25,696,000 non-cash restructuring
charge. The restructuring charge resulted from the Company's decision to divest
four operating companies (businesses held for sale), close four Company-owned
retail stores and reorganize the remaining companies to improve operating
performance. During the fourth quarter of 1995, the Company recorded a $576,000
net decrease in restructuring expense as a result of: (i) finalizing sales of
two operating companies; (ii) revising the fair value of the remaining two
operating companies; (iii) recording additional charges for executive severance;
and (iv) other miscellaneous expenses. The net restructuring charge of
$25,120,000 for the year ended December 30, 1995 consisted of: (a) $17,379,000
to write-down businesses sold or held for sale to their estimated fair value,
net of disposition expenses; (b) $3,699,000 to increase reserves for costs
associated with closing four retail stores; (c) $2,614,000 to provide for
severance expense and other costs; and (d) $1,428,000 to write-down selected
machinery to estimated fair value because of changes in manufacturing processes.
In December 1995, the Company sold two of the businesses held for sale for cash
proceeds aggregating $28,004,000, a 12% interest in the purchaser of one of the
businesses valued at $2,200,000, and a $1,000,000 subordinated note.
In 1996, the Company recorded aggregate non-cash restructuring charges of
$3,431,000 which consisted of: (i) $4,200,000 charge in the first quarter due to
the necessity to liquidate versus sell one of the remaining businesses and a
shortfall in anticipated proceeds on the other business; (ii) $945,000 in the
first quarter 1996 for severance related to continuing restructuring of the
Company ($130,000 related to restricted stock awards was credited to
shareholders' equity); and (iii) $1,714,000 aggregate credits recorded in the
second, third and fourth quarters as a result of proceeds from the liquidation
of idle assets held for sale exceeding earlier estimates. In February 1996, the
Company sold one of its businesses for cash and a subordinated note totalling
approximately $10,000,000 and the purchaser's assumption of approximately
$1,900,000 of Industrial Revenue Bonds. The amount of the subordinated note
totalled $1,082,000. Effective June 1996, the Company closed its last business
held for sale and subsequently liquidated for cash substantially all the
inventory, machinery and equipment. In December 1996, the Company sold the
manufacturing plant of the business for cash and a note receivable.
A-22
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2: RESTRUCTURING AND DIVESTITURES -- CONTINUED
The costs charged against restructuring reserves associated with the items
in the footnote above include the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Restructuring reserve, beginning balance......................................................... $ -- 3,964
Additions........................................................................................ 6,313 815
Reclassification from businesses held for sale................................................... -- 2,390
Write-off of excess of cost over the assigned value of net assets acquired....................... (1,037) --
Payments:
Lease termination costs........................................................................ (406) (758)
Severance...................................................................................... (184) (2,528)
Other.......................................................................................... (722) (1,542)
Adjustments...................................................................................... -- (666)
Restructuring reserve, ending balance............................................................ $ 3,964 1,675
</TABLE>
The following unaudited pro forma information shows consolidated operating
results for the periods presented as though the Company had divested the four
operating companies and closed the four company-owned retail stores as of
January 1, 1994, excluding the restructuring expense recorded during 1995 and
1996:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
IN THOUSANDS (UNAUDITED)
Net sales.............................................................................. $460,579 483,449 481,911
Earnings (loss) before interest and income taxes....................................... 11,486 (3,973) 14,476
</TABLE>
NOTE 3: ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
During fiscal year 1994 through March 28, 1996, the Company participated in
a revolving accounts receivable facility which provided for the sale of a
defined pool of trade accounts receivable through a wholly-owned subsidiary to a
third-party purchaser. The Company and the third-party purchaser terminated the
facility on March 28, 1996 in anticipation of the Company's refinancing of its
then existing bank credit facility. The total cost of the program, which
aggregated $1,458,000, $2,585,000 and $454,000 in 1994, 1995 and 1996,
respectively, is included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
At December 30, 1995, the defined pool of trade accounts receivable
totalled approximately $46,430,000 and the purchaser's investment totalled
$36,000,000, and the Company retained an ownership interest of approximately
$10,430,000, of which approximately $9,065,000 was subordinate to that of the
purchaser. The purchaser's average investment for 1994, 1995 and 1996, through
termination of the facility, was approximately $28,969,000, $35,011,000 and
$27,675,000, respectively. The purchaser's investment is reflected as a
reduction of trade accounts receivables in the December 30, 1995 consolidated
balance sheet.
A-23
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4: INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Inventories on the FIFO cost method:
Finished goods..................................................................... $ 50,847 45,459
Work in process.................................................................... 17,165 14,093
Raw materials and supplies......................................................... 33,140 35,613
Total inventories on FIFO cost method........................................... 101,152 95,165
Less adjustments of certain inventories to the LIFO cost method...................... (11,686) (10,681)
$ 89,466 84,484
</TABLE>
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Land and improvements................................................................ $ 4,356 4,888
Buildings and improvements........................................................... 70,780 73,690
Machinery and equipment.............................................................. 69,389 72,923
Construction in progress............................................................. 5,173 1,793
149,698 153,294
Less accumulated depreciation........................................................ (67,112) (78,565)
$ 82,586 74,729
</TABLE>
NOTE 6: INTANGIBLE AND OTHER ASSETS
A summary of intangible and other assets follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Excess of cost over the assigned value of net assets acquired........................ $ 54,879 54,879
Trade names.......................................................................... 21,700 21,700
Furniture designs and patents........................................................ 8,815 8,815
Other................................................................................ 7,460 12,385
92,854 97,779
Less accumulated amortization........................................................ (13,195) (16,364)
$ 79,659 81,415
</TABLE>
A-24
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
A summary of accrued expenses and other current liabilities follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Payrolls, commissions and employee benefits.......................................... $ 16,775 14,281
Other................................................................................ 14,621 15,803
$ 31,396 30,084
</TABLE>
NOTE 8: LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Term loan, due at various dates...................................................... $ -- 63,375
Revolving credit loan, due July 12, 1999............................................. -- 60,336
Term loan, repaid in 1996............................................................ 48,100 --
Revolving credit loan, repaid in 1996................................................ 59,000 --
Other indebtedness, primarily fixed-rate industrial revenue bonds, due through
2009............................................................................... 5,807 7,241
Total long-term debt............................................................... 112,907 130,952
Less current installments of long-term debt.......................................... 309 5,093
Long-term debt, excluding current installments..................................... $112,598 125,859
</TABLE>
On July 12, 1996, the Company entered into a $190,000,000 long-term secured
credit facility (the "Facility") which consisted of a $125,000,000 three-year
revolving credit loan and a $65,000,000 term loan. The term loan portion of the
Facility will be repaid in forty quarterly installments of $1,625,000 commencing
January 1, 1997 of which the first installment was paid in December 1996. On
January 1, 1997, the Company reduced the revolving credit loan to $110,000,000.
Borrowings under the revolving credit loan and the term loan bear interest
at rates selected periodically by the Company of LIBOR plus 2.75% and 3.00%,
respectively, or prime plus 1.75% and 2.00%, respectively. At December 28, 1996,
LIBOR was 5.6172% and the prime rate was 8.25%. Under the Facility, the Company
pays a commitment fee of 1/2% per annum on the unused portion of the revolving
credit facility. In connection with the refinancing, the Company incurred fees
and expenses aggregating approximately $4,000,000 which will be amortized over
the terms of the Facility. The interest rate margin over LIBOR and prime and the
commitment fee can be reduced upon the Company meeting a financial ratio related
to operating cash flow and debt levels.
The Facility is secured by substantially all the existing and hereafter
acquired assets of the Company. Availability on the revolving credit loan is
determined by levels of eligible inventory and eligible trade accounts
receivable of the Company. The Facility contains customary covenants for asset
based loans which restrict future borrowings, dividends and capital spending;
require maintenance of a minimum net worth; and include financial covenant
ratios related to cash flow, earnings and debt. At December 28, 1996, the
Company's availability for future borrowings under its revolving credit loan was
approximately $31,000,000. At December 28, 1996, the Company was in compliance
with all covenants under the Facility.
In connection with amending in 1995 and refinancing in 1996 the Company's
long and short-term bank loans, approximately $525,000 in 1995 and $890,000 in
1996 of unamortized financing fees were charged to operations. At December 30,
1995, borrowings under the previous bank term loan and bank revolving credit
loan bore interest at LIBOR (5.625%) plus 2 1/8%, or prime (8.50%) plus 1 1/8%.
A-25
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8: LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS -- CONTINUED
Short-term bank borrowings totalled $3,037,000 at December 30, 1995. The
average short-term borrowing rate in 1995 and 1996 was 6.70% and 7.62%,
respectively. The facility was repaid in July 1996 in connection with
refinancing the Company's then existing bank credit facility.
The aggregate annual maturities of long-term debt during each of the five
fiscal years subsequent to December 28, 1996 are approximately as follows:
$5,093,000 in 1997; $6,826,000 in 1998; $66,926,000 in 1999; $6,590,000 in 2000;
$11,267,000 in 2001; and $34,250,000 thereafter.
Interest paid by the Company in 1994, 1995 and 1996 amounted to
approximately $8,014,000, $12,218,000 and $12,241,000, respectively.
NOTE 9: EMPLOYEE STOCK PLANS
STOCK OPTION PLAN
Under an incentive stock option plan, the Company grants nontransferable
stock options to officers, key management employees and non-employee directors.
Options are generally granted at fair market value on the dates of the grant.
All optionees were employees or directors of the Company on the date of grant
and throughout the term of the option except in the case of death, retirement,
or disability. The Company applies APB Opinion No. 25, and related
interpretations in accounting for the plan. Accordingly, no compensation expense
has been recognized for its stock-based compensation plans other than for the
restricted stock awards discussed below. Had compensation cost for the Company's
stock option plan been determined based upon the fair value at the grant date
for awards under this plan consistent with the methodology prescribed under SFAS
No. 123, the Company's net losses and loss per share would have increased by
approximately $38,300 or $0.00 per share, for 1995 and $378,000, or $0.05 per
share, for 1996. The weighted average fair value of the options granted during
1995 is estimated as $6.32 and during 1996 is estimated as $4.90 on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: no dividend yield, volatility of 30.5%, risk-free interest rate of
5.5%, assumed forfeiture rate of 17.8%, and an expected life of 6 years.
A total of 1,188,889 shares were reserved for option under the previous and
current plans. At December 28, 1996, approximately 247,000 shares are available
for future option. Options granted prior to 1991 are generally exercisable at
the cumulative rate of 20% per year after one year from the date of grant.
Options granted subsequent to 1990 are generally exercisable at the cumulative
rate of 25% per year after one year from the date of grant. Options expire over
a period not to exceed ten years from the date of grant. Stock option activity
during 1994, 1995 and 1996 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding at January 1, 1994......................................................... 197,461 $ 33.70
Granted in 1994........................................................................ 188,645 $ 19.46
Exercised in 1994...................................................................... (782 ) $ 24.00
Cancelled in 1994...................................................................... (46,670 ) $ 34.63
Outstanding at December 31, 1994....................................................... 338,654 $ 25.58
Granted in 1995........................................................................ 40,882 $ 15.49
Cancelled in 1995...................................................................... (127,358 ) $ 29.07
Outstanding at December 30, 1995....................................................... 252,178 $ 21.90
Granted in 1996........................................................................ 442,510 $ 11.86
Cancelled in 1996...................................................................... (98,533 ) $ 21.76
Outstanding at December 28, 1996....................................................... 596,155 $ 14.63
Exercisable at December 28, 1996....................................................... 92,943 $ 23.71
</TABLE>
The Company had 111,251 and 98,871 shares exercisable at December 31, 1994
and December 30, 1995, respectively, with a weighted average exercise price
totalling $32.46 and $26.31, respectively.
A-26
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9: EMPLOYEE STOCK PLANS -- CONTINUED
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING REMAINING WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG.
RANGE OF AT DEC. 28, CONTRACTUAL EXERCISE AT DEC. 28, EXERCISE
EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE
<S> <C> <C> <C> <C> <C>
$ 10.75-$15.75 455,876 9.2 years $ 12.04 5,847 $ 15.13
$ 17.25-$24.75 95,611 7.3 $ 18.40 55,000 $ 19.11
$ 26.25-$40.50 44,668 6.0 $ 33.03 32,096 $ 33.15
596,155 8.7 $ 14.63 92,943 $ 23.71
</TABLE>
RESTRICTED STOCK AWARDS
The Board of Directors periodically awards restricted Common Stock to key
management employees. Vesting of such awards is subject to future service
requirements of five years from the date of each award. The difference between
cash paid by the employee for the awarded shares, generally par value, and the
market value of the shares as of the award date is amortized over the five-year
service requirement. During 1994 and 1995, the Board of Directors awarded and
issued 16,792 and 29,294 shares, respectively. No shares were awarded during
1996.
NOTE 10: EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
The Company and several of its subsidiaries had noncontributory defined
benefit pension plans covering qualified salaried and hourly employees which
were merged into a common plan on December 31, 1996. The merged plan provides
pension benefits to qualified employees based on the participant's final average
salary before retirement or based on years of service. The Company's policy has
been to fund normal costs and amortization of prior service costs. The defined
benefit plan was amended on December 13, 1996 to provide that no additional
benefits would accrue after December 31, 1996. The Company intends to terminate
the defined benefit plan upon receiving required regulatory approvals.
In addition to the qualified defined benefit plan, the Company has a
nonqualified retirement plan covering certain salaried employees. At December
30, 1995 and December 28, 1996, the Company had approximately $538,000 and
$675,000, respectively, of assets available to fund future obligations of the
nonqualified plan. These assets are included in intangible and other assets, and
the related liability is included in deferred and other liabilities in the
accompanying consolidated balance sheets. The liability for the nonqualified
retirement plan is reflected in the reconciliation of the funded status of the
plans below.
A-27
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10: EMPLOYEE BENEFIT PLANS -- CONTINUED
The following sets forth the funded status of the plans:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 28, 1996
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EQUAL BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
<S> <C> <C> <C> <C>
IN THOUSANDS
Actuarial present value of benefit obligations:
Vested benefit obligation........................................... $ (21,463) (18,623) (49,280) (1,562)
Accumulated benefit obligation...................................... $ (21,797) (19,037) (49,280) (1,794)
Projected benefit obligation for service rendered to date............. $ (27,958) (20,901) (49,280) (2,393)
Less plan assets at fair value, primarily equity and fixed income
investment funds in 1995 and money market equivalents in 1996....... 25,921 17,384 49,280 --
Projected benefit obligation in excess of plan assets................. (2,037) (3,517) -- (2,393)
Unrecognized net obligation (asset) at transition being amortized over
15 years............................................................ 73 (568) -- --
Unrecognized net (gain) loss.......................................... (1,214) 2,315 -- (25)
Unrecognized prior service cost....................................... 1,396 644 -- 593
Adjustment required to recognize minimum liability.................... -- (527) -- --
Pension liability recognized in the consolidated balance sheets....... $ (1,782) (1,653) -- (1,825)
</TABLE>
The accumulated benefit obligation at December 28, 1996 reflects the
expected increase in benefits under the defined benefit plan to fully utilize
all plan assets.
Net pension expense for the plans for 1994, 1995 and 1996 included the
following components:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
IN THOUSANDS
Service costs -- benefits earned during the period............................................... $ 2,374 2,047 2,119
Interest cost on projected obligation............................................................ 3,101 3,186 3,440
Return on assets................................................................................. (121) (9,036) (6,133)
Amortization of unrecognized net obligation (asset) at transition and net deferrals.............. (2,522) 6,038 3,032
Curtailment gain................................................................................. -- -- (738)
Net pension expense.............................................................................. $ 2,832 2,235 1,720
</TABLE>
The Company also recorded in 1995 a net curtailment gain resulting from the
Brown Jordan and Lea Lumber & Plywood divestitures totalling approximately
$692,000, and in 1996 a net curtailment gain resulting from the closing of
Daystrom Furniture totalling approximately $279,000. These curtailment gains
were included in determining restructuring expense in the 1995 and 1996
consolidated statements of operations.
The projected benefit obligation at December 30, 1995 and December 28, 1996
was determined using an assumed discount rate of 7.25% and 7.50%, respectively.
The plan assumes a long-term rate of salary increases of 4.50% to age 60, and
3.00% thereafter. The assumed long-term rate of return on plan assets was 8.50%
for 1994, 1995 and 1996.
DEFINED CONTRIBUTION PLANS
The Company has savings plans for employees which qualify under Section
401(k) of the Internal Revenue Code. The plans allow eligible employees to
contribute up to a fixed percentage of their compensation, with the Company
matching a portion of each employee's contributions. Company contributions under
the plans aggregated approximately $635,000 in 1994, $549,000 in 1995 and
$485,000 in 1996. Effective January 1, 1997, the Company amended its defined
contribution
A-28
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10: EMPLOYEE BENEFIT PLANS -- CONTINUED
plans. The effect of the plan amendment is to increase base Company matching
contributions by approximately $900,000 annually. Further, such contributions
will be in the form of the Company's Common Stock.
NOTE 11: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Prior to 1996, the Company had plans which provided postretirement health
care benefits for certain employees. These benefits included major medical
insurance with deductible and coinsurance provisions. The Company paid all
benefits on a current basis and the plans were not funded.
On May 10, 1996, the Company curtailed the postretirement features of its
health care benefit program, effective July 1, 1996. As a result of this
curtailment, the Company had an aggregate credit of approximately $4,200,000
recognized in 1996's operating income ($3,700,000 in cost of sales and $500,000
in selling, general and administrative expenses).
The components of the net postretirement benefit cost (credit) for 1994,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
IN THOUSANDS
Service costs...................................................................................... $ 286 232 77
Interest costs of benefit obligation............................................................... 1,132 1,252 417
Amortization of transition obligation.............................................................. 759 759 253
Curtailment gain................................................................................... -- -- (4,947)
$2,177 2,243 (4,200)
</TABLE>
The plan's funded status as of December 31, 1995 was as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................................................................... $(10,329)
Active participants eligible to retire........................................................................ (4,191)
Other active participants..................................................................................... (2,480)
(17,000)
Unrecognized net loss........................................................................................... 338
Unrecognized transition obligation being amortized over 20 years................................................ 12,906
Accrued postretirement benefit cost............................................................................. $ (3,756)
</TABLE>
The postretirement benefit obligation was determined by application of the
terms of the various plans using relevant actuarial assumptions. Health care
costs were projected to increase at annual rates ranging from 8.00% in 1995 down
to 5.50% in 1997 and thereafter. The assumed discount rate used in determining
the accumulated postretirement benefit obligation at December 31, 1994 and
December 30, 1995 was 8.50% and 7.25%, respectively.
A-29
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12: INCOME TAXES
Components of income tax expense (benefit) for 1994, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
IN THOUSANDS
Current:
Federal......................................................................................... $ 1,769 (4,650) (4,054)
State........................................................................................... 144 (167) 149
1,913 (4,817) (3,905)
Deferred:
Federal......................................................................................... (1,034) (11,521) 1,309
State........................................................................................... (170) (1,898) 564
(1,204) (13,419) 1,873
$ 709 (18,236) (2,032)
</TABLE>
The effective income tax rate on earnings (loss) before income taxes for
1994, 1995 and 1996 was 14.1%, 42.0% and 45.1%, respectively. The actual income
tax expense (benefit) differs from the "expected" income tax expense (benefit)
computed by applying the Federal income tax rate of 34% to earnings (loss)
before income taxes for 1994, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
IN THOUSANDS
Computed "expected" income tax expense (benefit)................................................ $ 1,706 (14,765) (1,531)
Increases (reductions) due to:
Restructuring and reorganization charges...................................................... -- (1,664) 1,060
State income taxes, net of Federal income tax benefit......................................... 28 53 99
Amortization of the excess of cost over the assigned value of net assets acquired............. 463 587 451
Expenses subject to percentage limitations.................................................... 130 117 81
Utilization of capital loss carryforwards to offset income tax expense of realized
capital gains.............................................................................. (913) (1,655) --
Tax credits, net.............................................................................. (230) (571) (1,316)
Foreign trade income exemptions............................................................... (154) (193) (375)
Restricted stock compensation................................................................. -- -- (204)
Other......................................................................................... (321) (145) (297)
Actual income tax expense (benefit)............................................................. $ 709 (18,236) (2,032)
</TABLE>
During 1994, the Company paid income taxes (net of refunds received)
amounting to approximately $2,030,000. During 1995 and 1996, the Company
received refunds (net of taxes paid) of approximately $188,000 and $8,360,000,
respectively.
A-30
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12: INCOME TAXES -- CONTINUED
The tax effects of temporary differences and net operating loss
carryforwards that give rise to significant portions of deferred tax assets and
liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Deferred tax liabilities:
Inventories.................................................................................... $ (7,092) (6,463)
Property, plant and equipment.................................................................. (1,882) (3,013)
Intangible and other assets.................................................................... (7,201) (6,351)
Lease obligations.............................................................................. (8,422) (5,372)
Other.......................................................................................... (2,249) (159)
Total deferred tax liabilities.............................................................. (26,846) (21,358)
Deferred tax assets:
Accounts receivable............................................................................ 1,854 1,081
Inventories.................................................................................... 3,145 998
Liabilities and reserves....................................................................... 10,465 6,601
Restructuring and reorganization............................................................... 8,064 337
Tax credit carryforwards....................................................................... -- 604
Net operating loss carryforwards............................................................... 1,885 8,468
Other.......................................................................................... 409 372
Gross deferred tax assets................................................................... 25,822 18,461
Valuation allowances........................................................................... (1,885) (1,885)
Total deferred tax assets................................................................... 23,937 16,576
Net deferred tax liability....................................................................... $ (2,909) (4,782)
</TABLE>
Deferred taxes are classified in the accompanying consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
IN THOUSANDS
Prepaid expenses and other current assets........................................................ $ 2,528 --
Accrued expenses and other current liabilities................................................... -- (2,478)
Deferred income taxes............................................................................ (5,437) (2,304)
$ (2,909) (4,782)
</TABLE>
In January 1994, a valuation allowance was provided for the deferred tax
assets related to acquired subsidiary carryforward net operating loss (NOL)
deductions from the stock purchase of Pilliod Furniture. The remaining NOL
carryforward deductions of approximately $4,761,000 were not utilized in 1995 or
1996 and the NOL deductions can be carried forward up to 12 more years to offset
future earnings, subject to normal annual limitations prescribed by tax law. A
valuation allowance of $1,885,000 remains in deferred taxes for these unexpired
future deductions. Tax benefits recognized subsequent to 1996 relating to the
valuation allowance for deferred tax assets at December 28, 1996 will be applied
to reduce the excess cost over the assigned value of Pilliod's net assets
acquired.
The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
remaining deferred tax assets.
A-31
<PAGE>
LADD FURNITURE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13: LEASES AND CONTINGENCIES
The Company leases manufacturing facilities, various warehouses, sales
offices and showrooms, as well as manufacturing, transportation and data
processing equipment under operating leases which expire at various dates
through 2026. Future minimum lease payments under noncancelable operating leases
as of December 28, 1996 are:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Fiscal year:
1997.................................................................................... $ 7,983
1998.................................................................................... 8,241
1999.................................................................................... 7,333
2000.................................................................................... 5,467
2001.................................................................................... 2,344
Thereafter.............................................................................. 7,991
Total................................................................................... $ 39,359
</TABLE>
In 1994, 1995 and 1996, the Company entered into sale leaseback agreements
for certain manufacturing equipment located at several of its manufacturing
facilities. These transactions have been recorded as asset sales. The cash
proceeds from the sales of approximately $14,566,000, $6,691,000 and $3,538,000,
respectively, were used to repay long-term debt. The gains from the sales of
approximately $683,000, $323,000 and $150,000, respectively, have been recorded
in the accompanying consolidated balance sheets as deferred income and are being
amortized into operations over the term of the leases. Under the agreements, the
Company will lease the equipment over 69 months. The Company has the option to
purchase the equipment at the end of the lease terms.
In February 1996, the Company repurchased $4,648,000 of leased equipment
utilizing long-term debt in connection with the divestiture of Fournier
Furniture. Accordingly, approximately $325,000 of the previously mentioned
deferred income was recognized in the 1996 consolidated statement of operations.
Rental expense for cancelable and noncancelable operating leases charged to
operations was as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Fiscal year:
1994.................................................................................... $ 11,459
1995.................................................................................... 14,870
1996.................................................................................... 12,203
</TABLE>
Rental expense includes contingent rentals based upon usage of
transportation equipment under cancelable and noncancelable operating leases
which totalled approximately $762,000 in 1994, $618,000 in 1995, and $719,000 in
1996.
At December 28, 1996, the Company was contingently liable for approximately
$2,490,000 of receivables transferred with recourse under financing arrangements
with two financial institutions. The Company maintains a $704,000 letter of
credit agreement to fund any liabilities which might arise under one of the
arrangements.
NOTE 14: ACQUISITION
On January 31, 1994, the Company acquired The Pilliod Cabinet Company, a
manufacturer of promotionally priced casegoods furniture, by purchasing all of
the Common Stock of its parent company, Pilliod Holding Company (Pilliod), for
$24,259,000 cash (including acquisition expenses), the repayment of Pilliod debt
of $29,893,000, and the assumption of other long-term debt of $247,000. The
excess of cost over the assigned value of net assets acquired was approximately
$32,826,000 and is being amortized using the straight-line method over 40 years.
The acquisition was accounted for as a purchase and accordingly, the net assets
and operations of Pilliod have been included in the Company's consolidated
financial statements beginning on the acquisition date.
A-32
<PAGE>
LADD FURNITURE INC. AND SUBSIDIARIES
SELECTED QUARTERLY DATA
DOLLAR AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA
Net sales............................. $149,386 145,168 155,313 149,336 135,260 123,483 120,447 118,267
Cost of sales......................... 123,251 130,229 127,449 122,070 116,038 100,220 99,369 96,070
Gross profit........................ 26,135 14,939 27,864 27,266 19,222 23,263 21,078 22,197
Selling, general and administrative
expenses............................ 23,816 28,335 23,402 25,792 21,788 19,110 16,852 16,613
Restructuring expense................. -- 25,696 -- (576) 5,149 (279) (892) (547)
Operating income (loss)............. 2,319 (39,092) 4,462 2,050 (7,715) 4,432 5,118 6,131
Other (income) deductions:
Interest expense.................... 2,803 2,846 2,997 3,152 2,660 3,058 3,182 3,169
Other (net)......................... (519) 2,129 (568) 325 1,284 317 (1,343) 141
Earnings (loss) before income taxes... 35 (44,067) 2,033 (1,427) (11,659) 1,057 3,279 2,821
Income tax expense (benefit).......... 11 (16,744) 142 (1,645) (4,664) (108) 1,477 1,263
Net earnings (loss)................. $ 24 (27,323) 1,891 218 (6,995) 1,165 1,802 1,558
Depreciation.......................... $ 3,659 3,555 2,677 2,780 2,837 2,609 2,691 2,750
Amortization.......................... 895 1,304 755 804 1,607 751 1,005 1,081
Cash dividends paid................... 695 695 348 348 -- -- -- --
Weighted average shares outstanding... 7,705 7,725 7,726 7,727 7,725 7,723 7,721 7,720
PER SHARE DATA
Net sales............................. $ 19.39 18.79 20.10 19.33 17.51 15.99 15.60 15.32
Net earnings (loss)................... 0.00 (3.54) 0.24 0.03 (0.91) 0.15 0.23 0.20
Cash dividends........................ 0.09 0.09 0.05 0.05 -- -- -- --
Quarter-end book value................ 19.57 16.00 16.21 16.20 15.33 15.49 15.73 15.94
BALANCE SHEET DATA
Net working capital................... $133,260 89,109 84,929 79,528 123,110 116,690 110,347 97,916
Net property, plant and equipment..... 109,014 83,826 82,567 82,586 82,652 82,633 78,543 74,729
Total assets.......................... 389,056 337,075 336,868 312,986 351,829 347,061 331,845 313,595
Total debt............................ 158,784 147,855 143,190 115,944 157,250 153,148 143,370 130,952
Shareholders' equity.................. 151,176 123,578 125,224 125,197 118,426 119,637 121,486 123,076
RATIOS
Gross profit margin................... 17.5% 10.3 17.9 18.3 14.2 18.8 17.5 18.8
Operating profit (loss) margin........ 1.6 (26.9) 2.9 1.4 (5.7) 3.6 4.2 5.2
Return (loss) on sales................ 0.0 (18.8) 1.2 0.1 (5.2) 0.9 1.5 1.3
Effective income tax rate............. 31.4 38.0 N/M N/M 40.0 10.2 45.0 44.8
Total debt ratio...................... 51.2 54.5 53.3 48.1 57.0 56.1 54.1 51.6
STOCK DATA
High.................................. $ 19.88 16.88 14.13 13.63 14.25 12.00 13.75 15.75
Low................................... 13.88 12.25 12.88 12.88 10.88 9.50 9.75 11.50
Close................................. 14.63 13.00 13.00 13.13 10.88 10.00 13.50 14.63
Trading volume (shares)............... 4,450 2,523 1,423 1,203 2,081 3,012 1,288 1,619
</TABLE>
NOTES: Stock price and volume data for calendar quarters. N/M = Not Meaningful.
Fourth Quarter 1995 and First Quarter 1996 reflect the sale of Brown
Jordan Company and Lea Lumber & Plywood-effective December 29, 1995; the
sale of Fournier Furniture-effective February 26, 1996; Third Quarter
1996 reflects the liquidation of Daystrom Furniture beginning June 28,
1996. Fiscal 1995 and First Quarter 1996 reflect the Company's accounts
receivable securitization program which was terminated on March 28, 1996.
A-33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on accounting
or financial disclosure occurred in fiscal years 1994, 1995 and 1996.
PART III
Part III is omitted as the Company intends to file with the Commission
within 120 days after the end of the Company's fiscal year a definitive proxy
statement pursuant to Regulation 14A which will involve the election of
directors. With the exception of the information specifically required by Items
10, 11, 12 and 13 of this Part III contained in the Company's proxy statement,
the Company's proxy statement is not incorporated by reference nor deemed to be
filed as a part of this report, including without limitation the Board
Compensation Committee Report on Executive Compensation required by Item 402(k)
of Regulation S-K and the Performance Graph required by Item 402(l) of
Regulation S-K.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See reference to definitive proxy statement under Part III. See pages 4-5
and 20 in the Company's definitive proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
See reference to definitive proxy statement under Part III. See pages 5-14
in the Company's definitive proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See reference to definitive proxy statement under Part III. See pages 2-3
in the Company's definitive proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See reference to definitive proxy statement under Part III. See pages 13-14
in the Company's definitive proxy statement.
A-34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE(S) IN THIS
FORM 10-K
<S> <C> <C> <C>
(a) The following documents are filed as part of this report:
(1) Financial Statements
Consolidated Statements of Operations for the years ended December 31, 1994, December 30, 1995, and
December 28, 1996.................................................................................. 16
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996.......................... 17
Consolidated Statements of Cash Flows for the years ended December 31, 1994, December 30, 1995, and
December 28, 1996.................................................................................. 18
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, December 30,
1995, and December 28, 1996........................................................................ 19
Notes to Consolidated Financial Statements......................................................... 20-32
Independent Auditors' Report....................................................................... 15
(2) Index to Financial Statement Schedule:
Independent Auditors' Report....................................................................... F-1
II -- Valuation and Qualifying Accounts and Reserves............................................... F-2
All other schedules are omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
(3) List of Executive Compensation Plans
LADD Furniture, Inc. 1994 Incentive Stock Option Plan
Employee Restricted Stock Purchase Agreements for the named executive officers of the registrant as
required by Item 402(a)(2) of Regulation S-K
Executive Employment Agreements with each of Fred L. Schuermann, Jr., William S. Creekmuir, Kenneth
E. Church, Donald L. Mitchell, and Michael P. Haley
LADD Furniture, Inc. Supplemental Retirement Income Plan
LADD Furniture, Inc. Long-Term Incentive Plan (1994)
LADD Furniture, Inc. Long-Term Incentive Plan (1995)
LADD Furniture, Inc. Long-Term Incentive Plan (1996)
LADD Furniture, Inc. Long-Term Incentive Plan (1997)
LADD Furniture, Inc. 1997 Management Incentive Plan
(b) Reports on Form 8-K filed in the last quarter of fiscal 1996:
Current Report on Form 8-K dated October 17, 1996, filed with the Commission on November 1, 1996
reporting the Company's results of operations for the third fiscal quarter of 1996.
(c) Exhibits
3. Articles of Incorporation and Amendments.
(Previously filed as Exhibit 10 to Item 14 of the Company's Annual Report on Form 10-K for the year
ended December 29, 1990, filed with the Commission on March 28, 1991 and as Exhibit 10.1 to Item 6
of the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995, filed with the
Commission on August 15, 1995)
3.1 Bylaws (as amended March 5, 1996)
(Previously filed as Exhibit 3.1 to Item 14 of the Company's Annual Report on Form 10-K for the
year ended December 30, 1995, filed with the Commission on March 28, 1996)
</TABLE>
A-35
<PAGE>
<TABLE>
<S> <C> <C> <C>
10. LADD Furniture, Inc. 1994 Incentive Stock Option Plan
(Previously filed as Exhibit 10.1 to Item 6 of the Company's Quarterly Report on Form 10-Q for the
quarter ended July 2, 1994, filed with the Commission on August 16, 1994)
Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated
February 25, 1993
Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated
February 25, 1993
(Previously filed as Exhibit 10 to Item 14 to the Company's Annual Report on Form 10-K for the year
ended January 2, 1993, filed with the Commission on March 30, 1993)
Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated
February 24, 1994
Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated
February 24, 1994
(Previously filed as Exhibits 10.3 and 10.4 to the Company's Annual Report on Form 10-K for the
year ended January 1, 1994, filed with the Commission on March 31, 1994)
Employee Restricted Stock Purchase Agreement between the Company and Fred L. Schuermann, Jr. dated
March 2, 1995
Employee Restricted Stock Purchase Agreement between the Company and William S. Creekmuir dated
March 2, 1995
(Previously filed as Exhibits 10.2 and 10.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, filed with the Commission on March 30, 1995.)
Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated
February 25, 1993
Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated
February 24, 1994.
Employee Restricted Stock Purchase Agreement between the Company and Kenneth E. Church dated March
2, 1995.
Employee Restricted Stock Purchase Agreement between the Company and Michael P. Haley dated June
23, 1994.
Employee Restricted Stock Purchase Agreement between the Company and Michael P. Haley dated March
2, 1995.
(Previously filed as Exhibits 10.2-10.6 to Item 14 of the Company's Annual Report on Form 10-K for
the year ended December 30, 1995, filed with the Commission on March 28, 1996)
Executive Employment Agreement between the Company and Fred L. Schuermann, Jr. dated October 28,
1994.
(Previously filed as Exhibit 10.2 to Item 6 of the Company's Quarterly Report on Form 10-Q for the
quarter ended October 1, 1994, filed with the Commission on November 15, 1994)
Executive Employment Agreement between the Company and William S. Creekmuir dated December 1, 1995.
Executive Employment Agreement between the Company and Kenneth E. Church dated May 22, 1995.
Executive Employment Agreement between the Company and Donald L. Mitchell dated January 1, 1996.
Executive Employment Agreement between the Company and Michael P. Haley dated March 5, 1996.
(Previously filed as Exhibits 10.7-10.10 to Item 14 of the Company's Annual Report on Form 10-K for
the year ended December 30, 1995, filed with the Commission on March 28, 1996)
Asset Purchase Agreement, dated as of June 1, 1989, among the Company, Maytag Corporation, The BJC
Company and The Gunlocke Company.
(Previously filed as Exhibit 10(a) to the Company's Current Report on Form 8-K, dated as of June 1,
1989, filed with the Commission on June 2, 1989)
</TABLE>
A-36
<PAGE>
<TABLE>
<S> <C> <C>
First Amendment and Waiver to Asset Purchase Agreement, dated as of July 7, 1989, by and among the
Company, Pennsylvania House, Inc., The McGuire Furniture Company, The Kittinger Company, Charter
Furniture, Inc., Brown Jordan Company and The Gunlocke Company, a North Carolina corporation, and
Maytag Corporation, The Gunlocke Company, a Delaware corporation, and The BJC Company.
(Previously filed as Exhibit 10 to the Company's Current Report on Form 8-K, filed with the
Commission on July 21, 1989, as amended by Form 8 filed with the Commission on September 18, 1989)
Enclosed as Exhibit 10.1 to this Annual Report on Form 10-K for the year ended December 28, 1996
10.1 LADD Furniture, Inc. Supplemental Retirement Income Plan, as amended and restated effective
January 1, 1994, and as further amended effective January 1, 1997
LADD Furniture, Inc. Long-Term Incentive Plan (1994)
LADD Furniture, Inc. Long-Term Incentive Plan (1995)
LADD Furniture, Inc. Long-Term Incentive Plan (1996)
(Previously filed as Exhibits 10.11-10.13 to the Company's Annual Report on Form 10-K for the year
ended December 30, 1995, filed with Commission on March 28, 1996)
Enclosed as Exhibit 10.2 to this Annual Report on Form 10-K for the year ended December 28, 1996
10.2 LADD Furniture, Inc. Long-Term Incentive Plan (1997)
Loan and Security Agreement dated as of July 12, 1996, between the Company, NationsBank, N.A.
(South) as Agent, and each of the bank's signatory to the Loan and Security Agreement.
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, dated July 18, 1996,
filed with the Commission on July 24, 1996)
Amendment No. 1 (dated as of August 15, 1996) to Loan and Security Agreement dated as of July 12,
1996 among the Company, NationsBank, N.A. (South) as Agent and each of the bank's signatory
thereto.
Amendment No. 2 (dated as of October 10, 1996) to Loan and Security Agreement dated as of July 12,
1996 among the Company, NationsBank, N.A. (South) as Agent, and each of the bank's signatory
thereto.
Equipment Leasing Agreement dated as of September 19, 1996 between BTM Financial & Leasing
Corporation B-4 and the Company
(Previously filed as Exhibits 10.1-10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 28, 1996, filed with the Commission on November 12, 1996)
Enclosed as Exhibit 10.3 to this Annual Report on Form 10-K for the year ended December 28, 1996
10.3 Amendment No. 3 (dated December 23, 1996) to Loan and Security Agreement dated as of July 12,
1996 among the Company, NationsBank, N.A. (South), as Agent and each of the bank's signatory
thereto.
Equipment Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the
Company
Equipment Leasing Agreement dated as of December 15, 1994 between UnionBanc Leasing Corporation and
the Company
(Previously filed as Exhibits 10.1 and 10.2 to Item 7 of the Company's Current Report on Form 8-K,
dated December 28, 1994, filed with the Commission on January 15, 1995)
Amendment No. 1 dated as of June 7, 1995 to the Equipment Leasing Agreement dated as of December
15, 1994 between Unionbanc Leasing Corporation and the Company.
Amendment No. 1 dated as of June 7, 1995 to the Equipment Leasing Agreement dated as of December
15, 1994 between BOT Financial Corporation and the Company.
Amendment No. 1 dated as of June 15, 1995 amending Lease Supplement No. One to the Equipment
Leasing Agreement dated as of December 15, 1994 between BOT Financial Corporation and the Company.
</TABLE>
A-37
<PAGE>
<TABLE>
<S> <C> <C>
(Previously filed as Exhibits 10.2-10.4 to Item 6 of the Company's Quarterly Report on Form 10-Q
for the quarter ended July 1, 1995, filed with the Commission on August 15, 1995)
Stock Purchase Agreement dated January 5, 1996 among LADD Furniture, Inc., Fournier Furniture, Inc.
and Fournier Acquisition Co.
(Previously filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended
December 30, 1995, filed with the Commission on March 28, 1996)
First Amendment to Stock Purchase Agreement dated February 26, 1996 among LADD Furniture, Inc.,
Fournier Furniture, Inc., Fournier Acquisition Co., and Furniture Acquisition Co.
(Previously filed as Exhibit 2.1 and 2.2 to the Company's Current Report on Form 8-K dated February
26, 1996, filed with the Commission on March 12, 1996)
Stock Purchase Agreement dated November 7, 1995 between LADD Furniture, Inc. and BJCL, Inc.
First Amendment to Stock Purchase Agreement dated December 29, 1995 among LADD Furniture, Inc.,
BJCL, Inc. and BJ Acquisition Corp.
Agreement of Sale between BJIP, Inc. and Cherry Grove, Inc. dated December 29, 1995.
Asset Purchase Agreement dated November 6, 1995 between LADD Furniture, Inc. and Lea Lumber &
Plywood, L.L.C.
First Amendment to Asset Purchase Agreement dated December 29, 1995 between LADD Furniture, Inc.
and Lea Lumber & Plywood, L.L.C.
(Previously filed as Exhibits 2.1-2.5 to the Company's Current Report on Form 8-K dated December
29, 1995 filed with the Commission on January 16, 1996)
Enclosed as Exhibit 10.4 to this Annual Report on Form 10-K for the year ended December 28, 1996
10.4 1997 Management Incentive Plan
22. Subsidiaries of Registrant
American Drew, Inc., a North Carolina corporation
American Furniture Company, Incorporated, a Virginia corporation
Barclay Furniture Co., a Mississippi corporation
Clayton-Marcus Company, Inc., a North Carolina corporation
Kenbridge Furniture, Inc., a North Carolina corporation
LFI Capital Management, Inc., a Delaware corporation
LADD Contract Sales Corporation, a North Carolina corporation
LADD International Sales Corp., a Barbados corporation
LADD Transportation, Inc., a North Carolina corporation
Lea Industries, Inc., a Tennessee corporation
Lea Industries of Virginia, Inc., a Virginia corporation
Pennsylvania House, Inc., a North Carolina corporation
Pilliod Furniture, Inc., a North Carolina corporation
Enclosed as Exhibit 24.1 to this Annual Report on Form 10-K for the year ended December 28, 1996
24.1 Consent of KPMG Peat Marwick LLP
Enclosed as Exhibit 27.1 to this Annual Report on Form 10-K for the year ended December 28, 1996
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
A-38
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
LADD FURNITURE, INC.
(Registrant)
By: /s/ WILLIAM S. CREEKMUIR 3/26/97
WILLIAM S. CREEKMUIR (DATE)
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER, SECRETARY, AND
TREASURER (PRINCIPAL FINANCIAL
OFFICER)
Pursuant to the requirements 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 and on the dates indicated.
<TABLE>
<S> <C>
/S/ DON A. HUNZIKER 3/26/97 /S/ RICHARD R. ALLEN 3/26/97
DON A. HUNZIKER (DATE) RICHARD R. ALLEN (DATE)
DIRECTOR CHAIRMAN OF THE BOARD AND DIRECTOR
/S/ O. WILLIAM FENN, JR. 3/26/97 /S/ DARYL B. ADAMS 3/26/97
O. WILLIAM FENN, JR. (DATE) DARYL B. ADAMS (DATE)
DIRECTOR VICE PRESIDENT, CORPORATE CONTROLLER,
ASSISTANT SECRETARY, AND ASSISTANT
TREASURER (PRINCIPAL ACCOUNTING OFFICER)
/S/ THOMAS F. KELLER 3/26/97 /S/ JAMES H. CORRIGAN, JR. 3/26/97
THOMAS F. KELLER (DATE) JAMES H. CORRIGAN, JR. (DATE)
DIRECTOR DIRECTOR
/S/ WILLIAM B. CASH 3/26/97 /S/ L. GLENN ORR, JR. 3/26/97
WILLIAM B. CASH (DATE) L. GLENN ORR, JR. (DATE)
DIRECTOR DIRECTOR
/S/ FRED L. SCHUERMANN, JR. 3/26/97 /S/ WILLIAM S. CREEKMUIR 3/26/97
FRED L. SCHUERMANN, JR. (DATE) WILLIAM S. CREEKMUIR (DATE)
PRESIDENT, CHIEF EXECUTIVE OFFICER AND EXECUTIVE VICE PRESIDENT, CHIEF
DIRECTOR FINANCIAL OFFICER, SECRETARY, AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
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A-40
<PAGE>
LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
As Amended Effective March 6, 1997
<PAGE>
LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
TABLE OF CONTENTS
Section 1. Purpose . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Administration. . . . . . . . . . . . . . . . . . 1
Section 3. Stock Available for Options . . . . . . . . . . . 2
Section 4. Eligibility. . . . . . . . . . . . . . . . . . . .2
Section 5. Option Price. . . . . . . . . . . . . . . . . . . 3
Section 6. Director Options. . . . . . . . . . . . . . . . . 4
Section 7. Expiration of Options . . . . . . . . . . . . . . 4
Section 8. Terms and Conditions of Options . . . . . . . . . 5
Section 9. Exercise of Options . . . . . . . . . . . . . . . 5
Section 10. Termination of Employment-Except by Death
or Retirement. . . . . . . . . . . . . . . . . . 6
Section 11. Termination of Employment-Retirement. . . . . . . 6
Section 12. Termination of Employment-Death . . . . . . . . . 6
Section 13. Restrictions on Transfer. . . . . . . . . . . . . 7
Section 14. Capital Adjustments Affecting Common Stock. . . . 7
Section 15. Application of Funds. . . . . . . . . . . . . . . 8
Section 16. No Obligation to Exercise Option. . . . . . . . . 8
Section 17. Term of Plan. . . . . . . . . . . . . . . . . . . 8
Section 18. Effective Date of Plan. . . . . . . . . . . . . . 8
Section 19. Time of Granting of Options . . . . . . . . . . . 8
<PAGE>
Section 20. Termination and Amendment . . . . . . . . . . . . 8
Section 21. Other Provisions. . . . . . . . . . . . . . . . . 9
<PAGE>
LADD FURNITURE, INC.
1994 INCENTIVE STOCK OPTION PLAN
THIS IS THE 1994 INCENTIVE STOCK OPTION PLAN ("Plan") of LADD
Furniture, Inc. ("LADD"), a North Carolina corporation, with its principal
office in High Point, Guilford County, North Carolina, effective on February 24,
1994, with two subsequent amendments effective on March 5, 1996 and March 6,
1997, respectively, under which options may be granted from time to time to
eligible employees and directors of LADD and LADD's divisions and subsidiaries
to purchase shares of common stock of LADD, subject to the provisions set forth
as follows:
Section 1. Purpose
The purpose of this Plan is to aid LADD in attracting capable
executives and directors and to provide a long range inducement for key
employees and directors to remain in the management of LADD, to perform at
increasing levels of effectiveness and to acquire a permanent stake in LADD with
the interest and outlook of an owner. These objectives will be promoted through
the granting to key employees and directors of options to acquire shares of
common stock of LADD pursuant to the terms of this Plan.
Section 2. Administration
The Plan shall be administered by a committee to be appointed from time
to time by the Board of Directors of LADD and shall serve at the pleasure of the
directors (the "Committee"). Any or all of the members of the Committee may be
members of the Board of Directors. The Committee shall consist of not less than
three (3) persons, all of whom shall be "disinterested persons" within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended from
time to time. The Committee, from time to time, may adopt rules and regulations
for carrying out the Plan.
Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be
granted, the number of shares to be subject to each option, the option price,
the manner of exercise of the options, and the determination of leaves of
absence which may be granted to participants without constituting a termination
of their employment for the purposes of the Plan; (e) to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any option
granted under the Plan;
<PAGE>
and (f) to make all other determinations necessary or advisable for the
administration of the Plan.
It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options" (as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended) or which will be given tax
treatment as "nonqualified stock options" (herein referred to collectively as
"options"; however, whenever reference is specifically made only to "incentive
stock options" or "nonqualified stock options," such reference shall be deemed
to be made to the exclusion of the other). Nonqualified stock options granted to
nonemployee directors pursuant to the terms of the Plan shall be referred to as
"Director Options."
Any action of the Committee with respect to the Plan shall be taken by
a majority vote at a meeting of the Committee or by written consent of all of
the members of the Committee without a meeting.
Section 3. Stock Available for Options
The stock to be subject to options under the Plan shall be authorized
but unissued shares of common stock of LADD or, in the discretion of the
Committee, issued shares which have been reac- quired by LADD. The total amount
of stock for which options may be granted under the Plan shall not exceed Eight
Hundred Thousand (800,000) shares (as adjusted for the one-for-three reverse
stock split effective May 16, 1995). Such number of shares is subject to any
capital adjustments as provided in Section 14. In the event that an option
granted under the Plan expires or is terminated unexercised as to any shares
covered thereby, such shares thereafter shall be available for the granting of
options under the Plan; however, if the expiration or termination date of an
option is beyond the term of existence of the Plan as described in Section 17,
then any shares covered by unexercised or terminated options shall not
reactivate the existence of this Plan and therefore may not be available for
additional grants under the Plan.
Section 4. Eligibility
Options shall be granted only to individuals who meet the following
eligibility requirements:
(a) Such individual must be an employee of LADD or a division or
subsidiary of LADD or a director of LADD. An individual shall be considered to
be an "employee" only if there exists between LADD or a division or subsidiary
of LADD and the individual the legal and bona fide relationship of employer and
employee. In determining whether such relationship exists, the regulations of
the United States Treasury Department relating to the determination of such
relationship for the purpose of collection of income tax at the source on wages
shall be applied.
2
<PAGE>
(b) Such employees must be "key employees" of LADD or a division or
subsidiary of LADD. For this purpose, "key employees" shall be considered to be
those employees who, in the judgment of the Committee, are in a position
materially to affect the operations and profitability of LADD or a division or
subsidiary of LADD by reason of the nature and extent of their duties and
responsibilities.
(c) A director of LADD who is not also an employee of LADD is eligible
for an automatic grant of options pursuant to Section 6 hereof. A director of
LADD who is not also an employee of LADD will not be eligible to receive
incentive stock options and will only be eligible to receive Director Options.
(d) Such individual, being otherwise eligible under this Section 4,
shall have been selected by the Committee as a person to whom an option shall be
granted under the Plan.
(e) In determining the individuals to whom options shall be granted and
the number of shares to be covered by each option, the Committee shall take into
account the nature of the services rendered by the respective individuals, their
present and potential contributions to the success of LADD and such other
factors as the Committee shall deem relevant. An employee who has been granted
an option under the Plan may be granted an additional option or options under
the Plan if the Committee shall so determine.
Section 5. Option Price
(a) (i) Except in the case where incentive stock options are granted to
an individual who owns stock possessing more than 10 percent (10%) of the total
combined voting power of all classes of stock of LADD or its subsidiary
corporations ("ten percent shareholder"), the option price of each incentive
stock option granted under the Plan shall be not less than one hundred percent
(100%) of the market value of the stock on the date of grant of the incentive
stock option. In the case of incentive stock options granted to a ten percent
shareholder, the option price of each incentive stock option granted under the
Plan shall not be less than one hundred ten percent (110%) of the market value
of the stock on the date of grant of the incentive stock option. "Market value"
shall be determined by taking the closing price of the stock on the
over-the-counter market on that date. The option price is subject to any capital
adjustment as provided in Section 14.
(ii) The option price for nonqualified stock options granted to
employees shall be established by the Committee in its discretion and may be
less than market value of the stock on date of grant.
(iii) The option price for Director Options shall be not less than
the market value of the stock on date of grant. Market value shall be determined
as set forth in Section 5(a) (i) above.
3
<PAGE>
(b) The option price shall be payable to LADD either (i) in cash or by
check, bank draft or money order payable to the order of LADD, or (ii) at the
discretion of the Committee, through the delivery of shares of the common stock
of LADD owned by the optionee with a value equal to the option price, or (iii)
at the discretion of the Committee by a combination of (i) and (ii) above. An
option agreement may, in the discretion of the Committee, provide for a
"cashless exercise" of an incentive stock option or a nonqualified stock option
by establishing procedures whereby the optionee, by a properly executed written
notice, directs (1) an immediate market sale or margin loan respecting all or a
part of the shares of common stock to which he is entitled upon exercise
pursuant to an extension of credit by LADD to the optionee of the option price,
(2) delivery of the shares of common stock from LADD directly to a brokerage
firm and (3) the delivery of the option price from sale or margin loan proceeds
from the brokerage firm directly to LADD. Except as provided in the preceding
sentence, no shares shall be delivered until full payment has been made. The
Committee may not approve a reduction of such purchase price in any such option,
or the cancellation of any such option and the regranting thereof to the same
optionee at a lower purchase price, at a time when the market value of the
shares is lower than it was when such option was granted.
Section 6. Director Options
All eligible nonemployee directors of LADD will automatically receive
without any action required on the part of the Committee the following grants of
options ("Director Options"): 1) upon initial election to office, nonqualified
stock options to purchase two thousand (2,000) shares of LADD common stock and
2) upon subsequent elections to office each year, beginning with the election of
directors at the 1997 Annual Meeting of Shareholders, nonqualified stock options
to purchase two thousand (2,000) shares of LADD common stock. All
characteristics of the Director Options, including option price, shall be
established as provided in the Plan. The Committee shall exercise no discretion
with respect to the granting of Director Options.
Section 7. Expiration of Options
The Committee shall determine the expiration date or dates of each
option, but such expiration date shall be not later than ten (10) years after
the date such option is granted; provided, however, that in the case where
incentive stock options are granted to a ten percent shareholder, as defined in
Section 5(a) (i) hereof, such expiration date shall be not later than five (5)
years after the date such option is granted. The Committee, in its discretion,
may extend the expiration date or dates of an option after such date was
originally set; however, such expiration date may not exceed the maximum
expiration date described above. Notwithstanding the foregoing, all Director
Options shall be for a term of ten (10) years, and such term may not be extended
or modified by the Committee.
4
<PAGE>
Section 8. Terms and Conditions of Options
(a) All options must be granted within ten (10) years of the Effective
Date of this Plan as provided in Section 18.
(b) The grant of options shall be evidenced by a written instrument
containing terms and conditions established by the Committee consistent with the
provisions of this Plan.
(c) Not less than one hundred (100) shares may be purchased at any one
time unless the number purchased is the total number at that time purchasable
under the Plan.
(d) The Committee may grant an option or options and stipulate that a
portion of such option expires or becomes exercisable at a stated interval or
that portions of such option expire or become exercisable at several stated
intervals. Director Options shall be exercisable in installments of twenty
percent (20%) per year, cumulative, beginning one year after the date of grant.
(e) An optionee shall have no rights as a stockholder with respect to
any shares covered by his option until payment in full by him for the shares
being purchased. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock is
fully paid for, except as provided in Section 14 hereof.
(f) Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined at the time the option is granted) of the stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (including incentive stock options granted
under all option plans of LADD or any of its subsidiary corporations) shall not
exceed $100,000.
(g) Notwithstanding any other provision of the Plan, the total number
of shares of common stock of LADD with respect to which incentive stock options,
nonqualifying options and Director Options are granted to an optionee during any
calendar year shall not exceed ten percent (10%) of the total number of shares
reserved for grant under the Plan as provided in Section 3.
Section 9. Exercise of Options
(a) An optionee must have been continuously employed by LADD or a
division or subsidiary of LADD or be a director of LADD for 12 months before the
right to exercise any part of the option granted to such optionee shall accrue.
Each option granted under the Plan shall be exercisable in such annual
installments as may be determined by the Committee at the time of the grant, or
with respect to Director Options as provided in the Plan. The right to exercise
options in annual installments may be cumulative. Except as
5
<PAGE>
provided in Sections 11 and 12, no option may be exercised at any time unless
the holder thereof is then an employee of LADD or a division or subsidiary of
LADD or a director of LADD. The exercise of any stock option must be evidenced
by written notice to LADD that the optionee intends to exercise his option. In
no event shall an option granted pursuant to the terms of the Plan as amended be
exercised until the Plan, as amended, has been approved by the shareholders of
LADD.
(b) No option may be exercised and no shares may be acquired under the
Plan prior to the timely filing by both the optionee and LADD of all appropriate
documents that may be required by applicable federal and state securities laws
and state corporate laws.
Section 10. Termination of Employment-Except by Death or Retirement
If any optionee ceases to be employed by LADD or a division or
subsidiary of LADD or ceases to be a director of LADD for any reason other than
his death (Section 12), disability retirement (Section 11), or normal retirement
(Section 11), his option shall immediately terminate. Whether a leave of absence
shall constitute a termination of employment or termination of the directorship
shall be determined by the Committee, whose decision shall be final and
conclusive.
Section 11. Termination of Employment-Retirement
If any optionee ceases to be employed by LADD or a division or
subsidiary of LADD or ceases to be a director of LADD due to his retirement upon
attaining normal retirement age (age 65) or he ceases to be employed prior to
age 65 due to early retirement and such early retirement is acceptable to the
Committee for the purposes of this Section 11, he may, at any time within three
(3) months after his date of retirement, but not later than the date of
expiration of the option, exercise the option to the extent he was entitled to
do so on his date of retirement. If any optionee ceases to be employed by LADD
or a division or subsidiary of LADD or ceases to be a director of LADD due to
his becoming disabled for purposes of LADD's Disability Plan, he may, at any
time within twelve (12) months after his date of disability retirement, but not
later than the date of expiration of the option, exercise the option to the same
extent he was entitled to do so on his date of disability retirement. Any
options or portions of options of retired optionees not so exercised shall
terminate.
Section 12. Termination of Employment-Death
If an optionee dies while in the employment of LADD or a division or
subsidiary of LADD or while serving as a director of LADD, the person or persons
to whom the option is transferred by will or by the laws of descent and
distribution may exercise the same option to the same extent and upon the same
terms and conditions the optionee would have been entitled to do so had he lived
until the term of the option had expired. Any options or portions of options of
deceased optionees not so exercised shall terminate.
6
<PAGE>
Section 13. Restrictions on Transfer
An option granted under this Plan may not be transferred except by will
or the laws of descent and distribution and, during the lifetime of the optionee
to whom it was granted, may be exercised only by such optionee.
Section 14. Capital Adjustments Affecting Common Stock
(a) If the outstanding shares of the common stock of LADD are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of LADD or shares of a different par value or without
par value through recapitalization, reclassification, stock dividend, stock
split, amendment to LADD's Articles of Incorporation or reverse stock split, an
appropriate adjustment shall be made in the number and/or kind of securities
allocated to the options previously and subsequently granted under the Plan,
without change in the aggregate purchase price applicable to the unexercised
portion of the outstanding options but with a corresponding adjustment in the
price for each share or other unit of any security covered by the options.
(b) Upon the effective date of the dissolution or liquidation of LADD,
or of a reorganization, merger or consolidation of LADD with one or more
corporations in which LADD is not the surviving corporation, or of a transfer of
substantially all the property or more than eighty percent (80%) of the then
outstanding shares of LADD to another corporation, the Plan and any option
previously granted hereunder shall terminate unless provision is made in writing
in connection with such transaction for the continuance of the Plan and for the
assumption of options previously granted, or the substitution for such options
of new options covering the shares of a successor employer corporation, or of a
parent or subsidiary thereof, with appropriate adjustments as to number and kind
of shares and prices in which event the Plan and the options previously granted
or the new options substituted therefor, shall continue in the manner and under
the terms so provided. Nevertheless, in the event of such dissolution,
liquidation, reorganization, merger, consolidation, transfer of assets or
transfer of shares, and if provision is not made in such transaction for the
continuance of the Plan and for the assumption of options previously granted or
for the substitution of such options or new options covering the shares of a
successor employer corporation or a parent or subsidiary thereof, then such
optionee under the Plan shall be entitled, prior to the effective date of any
such transaction, to purchase the full number of shares under his option which
he would otherwise have been entitled to purchase during the remaining term of
such option.
(c) To the extent that the foregoing adjustments relate to particular
stock or securities of LADD subject to option under this Plan, such adjustments
shall be made by the Committee, whose determination in that respect shall be
final and conclusive.
(d) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of LADD to make adjustments, reclassifications,
reorganizations or changes
7
<PAGE>
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
(e) No fractional shares of stock shall be issued under the Plan for
any such adjustment.
Section 15. Application of Funds
The proceeds received by LADD from the sale of common stock pursuant to
options will be used for general corporate purposes.
Section 16. No Obligation to Exercise Option
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
Section 17. Term of Plan
Options may be granted pursuant to this Plan from time to time within a
period of ten (10) years from February 24, 1994.
Section 18. Effective Date of Plan
This Plan was originally effective February 24, 1994, following
approval thereof by the Board of Directors and shareholders, with two subsequent
amendments effective on March 5, 1996 and March 6, 1997, respectively.
Section 19. Time of Granting of Options
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Committee or the shareholders of LADD and no action taken by the
Committee shall constitute the granting of any option hereunder. The granting of
an option pursuant to the Plan shall take place only when a written option
agreement shall have been duly executed and delivered by and on behalf of LADD.
Section 20. Termination and Amendment
The Committee may at any time alter, suspend, terminate or discontinue
the Plan, but may not, without the consent of the holder of an option previously
granted, make any alteration which would deprive him of his rights with respect
thereto or, without the approval of the stockholders, make any alteration which
would (a) increase the number of aggregate shares subject to the option under
this Plan or decrease the minimum option price except as provided in Section 14;
or (b) extend the term of this Plan as provided in
8
<PAGE>
Section 17 or the maximum period during which any option may be exercised as
provided in Section 7.
Section 21. Other Provisions
The option agreements authorized under this Plan shall contain such
other provisions not inconsistent with the foregoing, including, without
limitation, increased restrictions upon the exercise of the option, as the
Committee may deem advisable.
9
<PAGE>
(Pictures of various pieces of furniture appear on the cover.)
LADD
Furniture, Inc.
1996
Summary
Annual Report,
Form 10-K
and 1997
Proxy Statement
<PAGE>
We at LADD are proud of the fine furniture we produce. We invite
you to visit our website on the Internet at www.laddfurniture.com for a sampling
of some of our products, along with dealer locator information on selected
lines.
(Picture of bedroom furniture appears here.)
(Picture of a desk appears here.)
(Picture of den furniture appears here.)
(Picture of dinning room furniture appears here.)
<PAGE>
CORPORATE DESCRIPTION
LADD is one of North America's largest residential furniture manufacturers and,
through its American of Martinsville subsidiary, a leading supplier of furniture
to the guest room (hotel/motel), health care (assisted-living), governmental and
university markets. Following the divestiture of four of its subsidiary
companies between December 1995 and year-end 1996, LADD's net sales currently
approximate $500 million annually. The company operates 20 manufacturing
facilities in eight states and employs a total of 5,800 people. LADD markets its
broad range of residential and contract furniture products under the major brand
names American Drew, American of Martinsville, Barclay, Clayton Marcus, Lea,
Pennsylvania House and Pilliod. These products are sold domestically and,
through LADD International, in over 50 countries throughout the world. The
company's common stock trades on the Nasdaq Stock Market under the symbol LADF.
FINANCIAL HIGHLIGHTS
In thousands, except per share data and ratios
1994(r) 1995(r) 1996
Operating Statement
Net sales $576,549 599,203 497,457
Gross profit 107,668 96,204 85,760
Operating income (loss)* 13,757 (5,141) 11,397
Net earnings (loss) 4,308 (25,190)
Average shares outstanding 7,697 7,721 7,722
Per Share
Net sales $ 74.91 77.61 64.42
Net earnings (loss) 0.56 (3.26) (0.32)
Cash dividends 0.36 0.27 --
Year-end book value 19.73 16.20 15.94
Balance Sheet
Net working capital $123,685 79,528 97,916
Total assets 378,816 312,986 313,595
Total financing** 181,771 151,944 130,952
Shareholders' equity 151,906 125,197 123,076
Ratios
Gross margin 18.7% 16.1 17.2
Operating profit (loss) margin* 2.4% (0.9) 2.3
Return (loss) on sales 0.8% (4.2) (0.5)
Return (loss) on beginning equity 2.9% (16.6) (2.0)
Financing ratio*** 54.5% 54.8 51.6
Current ratio 3.0x 2.3 2.6
Other
Capital spending $ 31,825 11,560 8,347
Depreciation and amortization 17,812 16,429 15,331
Year-end employees (actual number) 7,860 6,190**** 5,800
Year-end shareholders (approximate) 5,500 5,000 4,000
*Before pretax restructuring charges of $25.1 million in 1995 and $3.4 million
in 1996. **Includes $32.5 million at year-end 1994 and $36.0 million at year-end
1995 from the company's accounts receivable securitization program, which was
terminated on March 28, 1996. ***Total financing as percent of total financing
plus shareholders' equity. (r) Restated to reclassify transportation operations
as other income (net). ****Adjusted for divestitures and businesses held for
sale at year-end.
1
<PAGE>
FELLOW SHAREHOLDER
"I am very
excited about where we are
today at LADD."
(Picture of Fred Schuermann appears here.)
Fred Schuermann
LADD's management team remained focused throughout 1996 on several primary
objectives: completing the divestiture program begun in mid-1995, rationalizing
the new corporate organizational structure put into place during 1996,
increasing both the value and the appeal of LADD's residential and contract
furniture products, and strengthening the company's operating performance and
financial condition. We made good progress in each area during 1996.
As the first quarter of 1996 ended, two things were apparent: that further
restructuring of several core business units was required and that LADD's fourth
divestiture company, Daystrom Furniture, was going to have to be liquidated
rather than sold as a "going concern." Accordingly, a pretax restructuring
charge of $5.1 million was recorded against first quarter operating results. In
combination with $2.1 million of continuing losses from the divestiture
companies, this contributed to a first quarter 1996 net loss of $7.0 million, or
$0.91 per share. While LADD was profitable in each of the next three quarters of
1996, we were unable to fully overcome this first quarter loss. Accordingly, we
incurred a full-year 1996 net loss of $2.5 million, or $0.32 per share. Adjusted
to exclude the divestiture companies, net sales for all of 1996 were $481.9
million, down slightly from $483.4 million in the prior year.
The progress achieved within our newly-formed operating groups is discussed in
more detail later in this report. The three groups, established at the beginning
of 1996, are headed by three very capable, experienced and highly-respected
executives. The groups are: casegoods (wood furniture), headed by Don Mitchell;
upholstery, headed by Ken Church; and contract sales, headed by Mike Haley. I
believe the actions we have taken during 1996 and thus far in 1997 have
positioned each of these three operating groups to achieve its full potential as
part of a "new"
revitalized LADD.
While we realize that substantial further improvement must be achieved over
the next several years, we did reach a number of significant milestones last
year. We reduced inventories to $84.5 million at the end of 1996 from a mid-year
peak of $94.4 million. The year-end level represented 76 inventory days, which
was better than our objective for the year. Early in 1996, we established
inventory management as one of the critical areas for our company, and LADD's
business unit managers have done an outstanding job of achieving their inventory
targets.
As a result of reducing working capital and other actions, we lowered
LADD's debt by $12.4 million in the final quarter of 1996. And I'm pleased to
report that, during the last three quarters of last year, we
2
cut outstanding debt by $26.3 million. Debt reduction has been, and remains, one
of our primary goals in the overall process of returning LADD to a strong
financial position. We have substantially strengthened the company's balance
sheet since early 1996.
As a result of some of the operational moves we made last year, LADD's margins
widened from quarter to quarter as 1996 progressed. Gross margin, adjusted to
exclude the divestiture companies and various other nonrecurring items recorded
during 1996, reached 18.1% in the fourth quarter of the year, up almost three
full percentage points from the first quarter low point of 15.2%. Our 1996 SG&A
costs were well-controlled, and adjusted* earnings before interest and taxes
("EBIT") increased from a negative 1.4% of adjusted sales in the first quarter
to a positive 4.0% by quarter four.
Looking back on 1996, I feel we accomplished what we set out to do. We completed
a major restructuring of the company. We formed three operating groups to
sharpen management focus. Our casegoods, upholstery and contract groups were all
profitable in the fourth quarter on an operating basis, as was each of our
individual operating companies. We have a strong management team in place. We
have substantially reduced our debt. Our inventories and receivables are in
excellent shape. Looking ahead to 1997 and beyond, I believe our issues are
threefold: continuing to improve our gross margins, growing our top line sales,
and further reducing our debt.
Contract furniture demand remains very buoyant early in 1997. However,
residential furniture demand has been surprisingly lethargic, in apparent
contradiction to such currently positive macro-economic influences as interest
rates, housing turnover and consumer confidence. Except for this one broad
caveat, I am very excited about where we are today at LADD and where I think we
are capable of being tomorrow.
Mr. William B. ("Bill") Cash, who has been a valued advisor and member of LADD's
Board of Directors since 1983, has announced that he will retire from the board
effective at the May 1, 1997 annual shareholders' meeting. We will miss Bill's
wisdom and counsel and wish him well. The board cordially invites you to attend
our 1997 annual meeting, details on which are presented elsewhere in this
report. On behalf of the board and LADD's 5,800 employees, I want to express my
thanks for your continuing support and confidence.
/s/ Fred L. Schuermann, Jr.
Fred L. Schuermann, Jr.,
President and Chief
Executive Officer
Total Financing
(Total debt plus A/R securitization)
(Millions)
$182 $152 $157 $153 $143 $131
12/94 12/95 3/96 6/96 9/96 12/96
1996 Adjusted*
Gross Margin
(% of adjusted net sales)
15.2% 16.7% 17.7% 18.1%
1st Q 2nd Q 3rd Q 4th Q
* Adjusted for transportation reclassification, restructuring,
divestiture companies, and various nonrecurring items.
1996 Adjusted* EBIT
(% of adjusted net sales)
(1.4)% 0.5% 3.6% 4.0%
1st Q 2nd Q 3rd Q 4th Q
* Adjusted for transportation reclassification, restructuring,
divestiture companies, and various nonrecurring items.
3
<PAGE>
LADD CASEGOODS GROUP
(Picture of bedroom furniture.)
"We are looking forward to a successful year
in 1997."
(Picture of Don Mitchell)
Don Mitchell
President
LADD Casegoods
LADD's four residential casegoods (wood furniture) manufacturing companies --
American Drew, Lea Industries, Pennsylvania House and Pilliod Furniture --
produce a broad assortment of products. Their offerings range from
promotionally-priced adult and youth bedrooms to medium-priced bedroom, dining
room and occasional furniture, as well as higher-priced solid wood furniture in
all three categories. The group operates 12 manufacturing facilities located in
seven states. Sales totaled $277.4 million in 1996, down from $284.4 million in
the prior year, as a result of consciously paring back unprofitable products and
customer accounts throughout the year.
Despite the sales performance, a number of very significant accomplishments were
recorded last year in the casegoods area. Several major new customers were added
late in the year, which should translate into enhanced sales growth for the
group in 1997 and beyond. This was largely the result of strong product
development activities at all four of the casegoods companies. In particular,
American Drew introduced a substantial number of successful new products,
including HomeTechTM -- a popular line of home computer furniture -- while
Pennsylvania House introduced its MedallionTM series, three value-engineered
solid wood casegoods groups. Key management changes were selectively undertaken
at each company to strengthen their respective management teams and significant
cost reduction actions were completed during 1996, reinforcing LADD's culture
towards being a value-oriented producer.
With these structural changes now complete, substantial initial
progress is already observable in terms of LADD's casegoods group as a whole.
During 1997, management will focus the group's efforts on developing a steady
stream of new products aimed at the "heart" of the marketplace, marketing those
products more effectively, and significantly improving the profitability of each
individual company and the group overall. We are excited about the direction in
which LADD is heading and are looking forward to a successful year in 1997.
4
<PAGE>
LADD UPHOLSTERY GROUP
(Picture of den furniture.)
"Materials cost reductions were also achieved last year."
(Picture of Ken Church)
Ken Church
President
LADD Upholstery
LADD's upholstery group manufactures and markets promotionally-priced to upper
medium-priced residential upholstery products, primarily under the Barclay,
Clayton Marcus, HickoryMark and Pennsylvania House brand names, and operates six
manufacturing facilities in North Carolina and Mississippi. Group sales for 1996
totaled $124.3 million, unchanged from the prior year level, as a direct result
of dropping certain less profitable products and customer accounts.
One of LADD upholstery group's major accomplishments of 1996 was the
consolidation of sales management, marketing administration, purchasing and
accounting functions into a single location in Hickory, North Carolina. In
addition to substantially reducing personnel and overhead costs, this
reorganization improved the group's efficiency and enhanced its ability to meet
customer needs quickly and effectively. Materials cost reductions were also
achieved last year through a combination of improved product engineering and the
establishment of new vendor partnership arrangements. On the product side, the
group's existing leather upholstery program was augmented with the introduction
of medium-priced to upper-end leather sofas, love seats, chairs and ottomans
under the Clayton Marcus and Pennsylvania House brands.
During 1997, management's attention will be focused on consolidating our
upholstery information systems, using our technology leadership position as a
competitive edge, and further leveraging synergistic opportunities in the sales,
merchandising and marketing areas.
It is the intention of LADD's upholstery management team to broaden the group's
dealer base in the promotionally-priced market segment, and expand distribution
among major retailers in the better-end product niches. In so doing, while
continuously refining and adding value to the product line, we hope to be able
to grow the group's top line sales at greater than industry rates and
simultaneously improve profit margins from current levels.
5
<PAGE>
LADD CONTRACT SALES GROUP
(Picture of hotel bedroom furniture.)
"Further growth
is envisioned for 1997 in the contract sector of LADD's business."
(Picture of Mike Haley.)
Mike Haley
President
LADD Contract
Sales
American of Martinsville ("AOM"), LADD's contract (or "commercial") furniture
manufacturing company, operates two manufacturing locations in Virginia and
enjoyed another strong year in 1996. For the second consecutive year, the
company received the (1997) LADD Chairman's Award, which annually recognizes the
most outstanding LADD operating company for the preceding year. Net sales for
1996 totaled $80.2 million, up 17% over 1995 levels, and the company's
profitability also increased as a result of the volume gains and continued close
management attention to all aspects of the business.
One of the strongest indicators of American of Martinsville's solidly-entrenched
and highly-respected industry position is the significant number of supplier
agreements the company signed with its customers during late 1996 and early
1997. In addition to contracts naming it as the exclusive casegoods supplier to
more than 1,100 Marriott corporate properties with over 220,000 rooms, American
of Martinsville has also signed supplier agreements with Holiday Inn, Choice
Hotels, Best Western, Sheraton, Carlson Hospitality (Radisson) and Prime
Hospitality (AmeriSuites). In the health care (assisted-living) market, AOM
signed a contract to supply the room furniture for all 600 of Beverly
Enterprises' long-term nursing care facilities.
Among the more noteworthy hotel projects for which AOM supplied guest room
furniture in 1996 were: San Francisco's Hotel Nikko; the Sheraton Warsaw in
Poland; New York's Marriott Marquis; Disney's Swan & Dolphin and the Buena Vista
Palace Hotel, both in Orlando, Florida; the Marriott Kauai in Hawaii; Guam's
Westin Hotel; the Holiday Inn Crowne Plaza in Tampa, Florida; the Doubletree in
Arlington, Virginia; Dallas' Westin Galleria; and the Mystic Hilton in Mystic,
Connecticut.
Further sales growth is envisioned for 1997 in the contract sector of LADD's
business. Major opportunities continue to exist in the hospitality markets both
domestically and abroad, in the fast-growing assisted-living sector and in the
government market, where American of Martinsville is a contract supplier of the
"Packaged Room" concept of furniture and furnishings for major U.S. military
housing projects.
6
<PAGE>
LADD CORPORATE GROUP
(Picture of a map of the world.)
"LADD products were shipped to 52 foreign countries last year."
(Picture of Bill Creekmuir.)
Bill Creekmuir
Chief Financial
Officer
LADD's organizational structure consolidates under one corporate "umbrella" a
number of basic business services and activities which each of the individual
LADD operating companies would otherwise have to perform for itself in a less
efficient, more costly manner. These shared services include management
information systems ("MIS"); accounting and treasury functions; insurance, audit
and legal services; customer credit; international marketing; tax planning and
management activities; human resources and benefits management; and
transportation/logistics services. Each of LADD's departments contributes to the
corporation's financial strength or to its bottom line results, through
increasing the efficiency of a particular operation beyond what could be
accomplished in a totally decentralized environment.
Some of the more specific achievements of the corporate group in 1996 were the
refinancing of LADD's outstanding debt with a $190 million secured credit
facility which allows lower debt interest rates as LADD's financial performance
improves; the consolidation of the company's casegoods trucking fleets and
logistics management activities to produce substantial cost savings; the
combining of the Pennsylvania House credit functions with those of all the other
LADD residential furniture units; and the reorientation of the company's
employee benefit programs to bring LADD's benefit cost structure into better
competitive alignment. On the international front, exports for 1996 totaled
$28.4 million, or 5.7% of sales, with LADD products being shipped to 52 foreign
countries during the year.
Major projects in the coming year include the continuing consolidation of many
LADD MIS functions, the installation of an Intranet system to improve
communications among LADD's 5,800 employees at 20 separate manufacturing
locations, and further refinement of our accounts payable system to link LADD
more closely with its primary vendors and reduce payables costs. Finally,
ongoing emphasis will be placed on international marketing, with an objective of
increasing LADD's export business to 10% of the company-wide total by the year
2000.
7
<PAGE>
DIRECTORS, OFFICERS & CORPORATE DATA
Board of Directors
Richard R. Allen
Chairman
Retired Chief Executive Officer, LADD
William B. Cash 2,3
Former Chairman, Turnpike Properties, Inc.
James H. Corrigan, Jr. 1,3
Former Chairman and Chief Executive Officer,
Mebane Packaging Group, Inc.
O. William Fenn, Jr. 1
Retired Vice Chairman, LADD
Don A. Hunziker 1
Retired Chairman, LADD
Thomas F. Keller, Ph.D. 2,3
R.J. Reynolds Professor and Former Dean
Fuqua School of Business, Duke University
L. Glenn Orr, Jr. 2,3
President and Chief Executive Officer
Orr Management Company
Fred L. Schuermann, Jr.
President and Chief Executive Officer, LADD
1 Audit Committee 2 Compensation Committee 3 Corporate Governance Committee
Corporate Executive Officers
Kenneth E. Church
President, LADD Upholstery Group
William S. Creekmuir
Executive Vice President, Chief Financial Officer,
Secretary and Treasurer, LADD
Michael P. Haley
President, LADD Contract Sales Group
Donald L. Mitchell
President, LADD Casegoods Group
Fred L. Schuermann, Jr.
President and Chief Executive Officer, LADD
Other Executives
Daryl B. Adams
Vice President, Corporate Controller and
Chief Accounting Officer, LADD
Jesse A. Brinkley
President, Lea Industries
Victor D. Dyer
Vice President, Human Resources, LADD
Kenneth B. Fonville
President, Pennsylvania House Casegoods
Greg P. Noe
President, Pilliod Furniture
David C. Ogren
Vice President, LADD International
Jeffrey R. Scheffer
President, American Drew
Corporate Headquarters
One Plaza Center, Box HP-3
High Point, NC 27261-1500
Phone: (910) 889-0333
U.S. FAX: (910) 888-6446
International FAX: (910) 888-6445
Internet Address: www.laddfurniture.com
Stock Transfer Agent
Wachovia Bank of North Carolina, N.A.
Winston-Salem, NC
Shareholder Account Information: 1-800-633-4236
Legal Counsel
Kilpatrick Stockton, L.L.P.
Winston-Salem, NC
Independent Auditors
KPMG Peat Marwick LLP
Greensboro, NC
Other Information
For other information on LADD, please contact:
John J. Ong, CFA
Director, Corporate Communications
Phone: (910) 888-6353 or E-Mail: [email protected]
Stock Listing
LADD's common stock is traded on the Nasdaq Stock Market under the Nasdaq
symbol: LADF. At year-end 1996, LADD had an estimated 4,000 shareholders, based
upon the actual number of shareholders.
Annual Meeting
Stockholders are cordially invited to attend LADD's 1997 Annual Meeting, to be
held Thursday, May 1st, at 10:00 a.m. at the Radisson Hotel in High Point, NC.
8
<PAGE>
(HomeTech logo)(Lea logo)(Pilliod logo)(Pennsylvania House logo)(American logo)
LADD'S PRODUCTS
We at LADD are proud of the fine furniture
we produce. We invite you to visit our website
on the Internet at www.laddfurniture.com for
a sampling of some of our products, along with
dealer locator information on selected lines.
LADD'S MANUFACTURING
FACILITIES
Casegoods
Alabama
Selma
North Carolina
North Wilkesboro
Waynesville
Ohio
Swanton
Pennsylvania
Lewisburg
White Deer
South Carolina
Nichols
Tennessee
Morristown
Virginia
Marion
Upholstery
Mississippi
Myrtle
Sherman
North Carolina
Hickory
Monroe
Contract
Virginia
Chilhowie
Martinsville
(Hin logo)(Ladd International logo)(American Drew logo)(Clayton Marcus logo)
(Barclay logo)
(Picture of bedroom furniture.)
(Picture of den furniture.)
(Picture of bedroom furniture.)
<PAGE>
(Picture of various pieces of furniture appear on the cover.)
AMERICAN DREW
P.O. Box HP-3
High Point, NC 27261
Ph (910) 889-0333
Fax (910) 888-6546
www.americandrew.com
AMERICAN OF MARTINSVILLE
P.O. Box 5071
Martinsville, VA 24115
Ph (540) 632-2061
Fax (540) 638-8810
www.amerofmartinsville.com
BARCLAY FURNITURE
P.O. Box 399
Sherman, MS 38869
Ph (601) 844-6003
Fax (601) 841-5015
www.barclayfurniture.com
CLAYTON MARCUS
166 Teaguetown Rd.
Hickory, NC 28601
Ph (704) 495-2200
Fax (704) 495-2260
www.claytonmarcus.com
LADD INTERNATIONAL
P.O. Box HP-3
High Point, NC 27261
Ph (910) 889-0333
Fax (910) 888-6445
www.laddinternational.com
LADD TRANSPORTATION
P.O. Box HP-3
High Point, NC 27261
Ph (910) 889-0333
Fax (910) 888-6443
www.laddtrans.com
LEA INDUSTRIES
P.O. Box HP-3
High Point, NC 27261
Ph (910) 889-0333
Fax (910) 410-6629
www.leaindustries.com
PENNSYLVANIA HOUSE
137 N. 10th St.
Lewisburg, PA 17837
Ph (717) 523-1285
Fax (717) 523-6278
www.pennsylvaniahouse.com
PILLIOD FURNITURE
1403 Eastchester Dr.
High Point, NC 27265
Ph (910) 884-3929
Fax (910) 410-6732
www.pilliodfurniture.com
LADD FURNITURE, INC.
One Plaza Center -- Box HP3
High Point, NC 27261-1500
Ph (910) 889-0333
U.S. Fax (910) 888-6446
www.laddfurniture.com
<PAGE>
