<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
--------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-18446
Fairwood Corporation
--------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3472113
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Center
1201 N. Orange St., Suite 790, Wilmington, DE 19801
--------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(302) 884-6749
--------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<CAPTION>
Outstanding at
Class June 29, 1996
----- ----------------
<S> <C>
Class A Voting, $.01 Par Value 500
- ------------------------------ ------------------------
Class B Non-Voting, $.01 Par Value 999,800
- ---------------------------------- ------------------------
</TABLE>
<PAGE> 2
FAIRWOOD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
June 29, December 31,
Assets 1996 1995
------ ------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 876 4,264
-------- --------
Accounts and notes receivable:
Trade 25,150 29,545
Due from affiliate 2,501 1,293
Other 646 1,542
-------- --------
28,297 32,380
Less allowance for discounts and doubtful accounts 1,906 1,857
Less advances from factor 10,346 14,443
-------- --------
16,045 16,080
-------- --------
Inventories 14,171 14,394
Prepaid expenses and other current assets 1,801 2,524
-------- --------
Total current assets 32,893 37,262
-------- --------
Property, plant and equipment, at cost 30,937 30,875
Less accumulated depreciation and amortization 17,844 16,841
-------- --------
13,093 14,034
-------- -------
Other assets 2,147 2,125
-------- -------
$ 48,133 53,421
======== ========
</TABLE>
(Continued)
- 2 -
<PAGE> 3
FAIRWOOD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
June 29, December 31,
Liabilities and Deficit 1996 1995
----------------------- ------------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current Liabilites:
Current maturities of long-term debt:
Revolving credit 182,779 -
Senior subordinated debentures 80,000 -
Senior subordinated pay-in-kind debentures 105,853 105,853
Merger debentures 62,928 62,928
Other 180 170
Overdraft 641 -
Accounts payable 5,977 6,587
Accrued expenses 66,264 46,820
Federal and state income taxes 5,691 5,719
-------- --------
Total current liabilities 510,313 228,077
-------- --------
Long-term debt:
Revolving credit - 171,369
Senior subordinated debentures - 80,000
Senior subordinated pay-in-kind debentures - -
Merger debentures - -
Other 190 370
-------- --------
190 251,739
-------- --------
Deferred income taxes 1,318 1,318
Other liabilities 3,408 3,222
-------- --------
4,726 4,540
-------- --------
Redeemable preferred stock:
Junior preferred, cumulative, par value $.01 per share 100 100
-------- --------
Common stock and other shareowners' deficit:
Common stock and additional paid-in capital 55,948 55,948
Minimum pension liability ( 956) ( 956)
Retained deficit ( 522,188) ( 486,027)
-------- --------
( 467,196) ( 431,035)
-------- --------
$ 48,133 53,421
======== ========
</TABLE>
See accompanying notes to the Unaudited Condensed
Consolidated Financial Statements.
- 3 -
<PAGE> 4
FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $ 37,702 42,361 75,991 97,804
------- ------- ------- -------
Cost of sales 33,807 38,724 69,330 88,485
Selling, administrative and
general expenses 5,612 7,243 11,874 15,078
------- ------- ------- -------
39,419 45,967 81,204 103,563
------- ------- ------- -------
Operating income (loss) ( 1,717) ( 3,606) ( 5,213) ( 5,759)
Interest income 148 13 170 103
Interest on indebtedness ( 14,970) ( 14,646) ( 29,627) ( 29,057)
Other expenses, net ( 607) ( 369) ( 1,464) ( 679)
------- ------- ------- -------
Loss before income taxes ( 17,146) ( 18,608) ( 36,134) ( 35,392)
Provision for income taxes - - - -
------- ------- ------- -------
Net loss $( 17,146) ( 18,608) ( 36,134) ( 35,392)
======= ======= ======= =======
</TABLE>
See accompanying notes to the Unaudited Condensed
Consolidated Financial Statements.
- 4 -
<PAGE> 5
FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 29, July 1,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 36,133) ( 35,392)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,079 1,022
Gain on disposal of property, plant and equipment ( 1) ( 53)
Changes in assets and liabilities:
Accounts receivable 4,132 5,054
Inventories 223 1,457
Prepaid expenses and other current assets 723 ( 274)
Overdraft 641 -
Accounts payable ( 610) ( 783)
Accrued expenses 19,444 12,228
Other, net 136 192
-------- -------
Cash used - operating activities ( 10,366) ( 16,549)
-------- -------
Cash flows from investing activities:
Proceeds from sale of Super Sagless assets - 15,000
Dispostion of property, plant and equipment 24 421
Capital expenditures ( 161) ( 1,664)
------- -------
Cash provided (used) - investing activities ( 137) 13,757
------- --------
Cash flows from financing activities:
Proceeds from long-term debt 11,410 15,451
Repayment of long-term debt ( 170) ( 14,160)
Repayment of proceeds to Factor ( 4,097) -
Dividends ( 28) ( 23)
------- -------
Cash provided - financing activities 7,115 1,268
------- -------
Increase (decrease) in cash and cash equivalents ( 3,388) ( 1,524)
Cash and cash equivalents:
Beginning of period 4,264 4,615
------- -------
End of period $ 876 3,091
======= =======
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $ 11,731 15,451
Income tax refunds (payments), net 712 ( 3)
</TABLE>
Cash and cash equivalents include cash in banks and highly-liquid short-term
investments having a maturity of three months or less on date of purchase.
See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
- 5 -
<PAGE> 6
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring adjustments, to present fairly the results of
operations for the three and six months ended June 29, 1996 and July 1,
1995, the financial position at June 29, 1996 and December 31, 1995 and
the cash flows for the six months ended June 29, 1996 and July 1, 1995.
The results of operations for the three and six month periods ended June
29, 1996 are not necessarily indicative of the results to be expected for
the full year.
2. The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial
statements included in the 1995 annual report on Form 10-K.
3. As of June 29, 1996 and pursuant to the terms of the accounts receivable
Factoring agreement entered into during 1995 by Stratford Company
("Stratford"), a division of a wholly-owned subsidiary of Fairwood,
receivables sold which remain to be collected approximated $18.7 million,
of which approximately $1.7 million were sold with recourse.
4. All inventories (materials, labor and overhead) are valued at the lower
of cost or market using the last-in, first-out (LIFO) method. The
components of inventory, in thousands, are as follows:
<TABLE>
<CAPTION>
June 29, 1995 December 31, 1995
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Raw materials $ 13,444 12,857
In process 4,003 3,532
Finished goods 6,870 8,063
------ ------
Inventories at
first-in, first-out 24,317 24,452
LIFO reserve 10,146 10,058
------ ------
Inventories at LIFO $ 14,171 14,394
====== ======
</TABLE>
5. No provision for income taxes has been provided during the six months
ended June 29, 1996 and July 1, 1995, as the Company is in a net
operating loss carryforward position, and the valuation allowance has
been increased to offset any future benefit from these positions.
6. The Internal Revenue Service ("IRS") has completed an audit examination
of the consolidated Federal income tax returns of Fairwood and its
subsidiaries for the years ended July 11, 1988 through December 31, 1991
and has delivered to Fairwood a "30-day letter" and Revenue Agent's
Report ("RAR") proposing to adjust Fairwood's taxable income in the years
in issue and in prior years to which net operating losses of the
Consolidated Group were carried back. The cumulative proposed deficiency
in Federal
- 6 -
<PAGE> 7
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
income tax arising from the proposed adjustments is approximately $70
million, before applicable statutory interest. Fairwood estimates that
the aggregate proposed liability if all issues were resolved unfavorably
would, together with statutory interest and state income tax, total
approximately $111 million. Fairwood believes that the proposed
adjustments are in error and is vigorously contesting this matter. Under
available administrative procedures, Fairwood had protested the proposed
adjustments and has had a series of conferences with the IRS Appeals
division regarding the issues. Moreover, recent tax legislation passed
by both houses of Congress and awaiting President Clinton's signature
would, on a retroactive basis resolve in the Company's favor one of the
issues in the case. The Company and the IRS are in settlement
negotiations with respect to all the issues and the Company is cautiously
optimistic that any such settlement would be substantially less than the
liability that would result from the proposed adjustments in the RAR.
However, no assurance can be given that any such settlement will be
reached with the Appeals division, and depending on the outcome of the
discussion of the issues with the IRS Appeals division, Fairwood may
litigate on or more of the issues in the case regarding the issues. The
Company cannot predict the ultimate outcome of these issues, nor the
impact on its financial statements.
7. On each of April 1, 1995, October 1, 1995 and April 1, 1996, Fairwood
failed to make the required interest payments due on the senior
subordinated pay-in-kind debentures and merger debentures (collectively,
the "Fairwood Debentures") and Fairwood does not expect to make the cash
interest payments required under the Fairwood Debentures on any future
semi-annual interest payment dates. Accrued interest of $47.3 million on
the Fairwood Debentures, which includes $28.7 million due to CSCL, is
included in accrued expenses on the accompanying unaudited condensed
consolidated balance sheet as of June 29, 1996. An involuntary Chapter 7
petition was filed on January 3, 1996 in the United States Bankruptcy
Court for the Southern District of New York against Fairwood
Corporation by certain bondholders. In response to the bankruptcy
filing, on April 22, 1996, Fairwood and certain other entities filed a
cross-motion seeking the dismissal of the petition. A motion was
presented at a hearing on June 7, 1996 to dismiss the petition and the
judge reserved decision. If Fairwood is unsuccessful in obtaining
dismissal, Fairwood may convert the Chapter 7 case to a Chapter 11 case
or permit a trustee to be appointed as part of a Chapter 7 proceeding.
8. Consolidated Furniture's revolving line of credit and senior subordinated
debentures mature on January 2, 1997 and, accordingly, have been
classified as current liabilities in the accompanying unaudited condensed
consolidated balance sheet of the Company as of June 29, 1996.
Consolidated Furniture expects to negotiate an extension of these
maturity dates or refinance such indebtedness prior to January 2, 1997.
The failure to make the April 1, 1995 interest payment constitutes
an event of default which permits the acceleration of the Fairwood
Debentures by demand of the holders of the requisite aggregate
principal amount of the debentures, subject to a 180-day acceleration
blockage provision. Upon acceleration, the Fairwood Debentures would be
currently due and payable. Accordingly, the Fairwood Debentures have
been classified as current liabilities in the accompanying unaudited
condensed consolidated balance sheet as of June 29, 1996.
- 7 -
<PAGE> 8
Item 2.
FAIRWOOD CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain information set forth or incorporated by reference herein contains
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933 as amended and Section 21E of the Securities Exchange
Act of 1934, as amended.
Liquidity and Capital Resources
At June 29, 1996, the Company had total indebtedness of approximately $431.9
million of which approximately $431.7 million was current. At June 29, 1996,
$368.6 million of the Company's total debt is owed to Court Square Capital
Limited ("CSCL"), an affiliate. Total indebtedness was approximately $420.7
million at December 31, 1995, of which $357.2 is owed to CSCL. The Company's
outstanding indebtedness includes its senior subordinated pay-in-kind
debentures and merger debentures (collectively, the "Fairwood Debentures"). The
Company had the option during the first five years to pay interest on the
Fairwood Debentures either through cash payments or through the distribution of
additional securities.
Fairwood is a holding company with no operations. The Company has effectively
no cash flow from its subsidiaries because the cash produced by the operations
of the subsidiaries is not expected for the foreseeable future to be sufficient
to permit the subsidiaries to transfer funds to Fairwood. Fairwood's sole
asset is the stock of Consolidated Furniture Corporation ("Consolidated
Furniture"), its wholly-owned subsidiary. Fairwood's obligations under the
Fairwood Debentures are secured by Fairwood's pledge of its interest in
Consolidated Furniture's stock. CSCL, as holder of Fairwood's senior
subordinated pay-in-kind debentures, has a first priority security interest in
all of the outstanding stock of Consolidated Furniture, and the holders of the
merger debentures have a second priority security interest in such stock. The
Fairwood Debentures are obligations of Fairwood. Consolidated Furniture is not
an obligor under the Fairwood Debentures. However, Consolidated Furniture is
an obligor under the Credit Agreement with CSCL. The Credit Agreement does not
permit Consolidated Furniture to borrow funds and transfer them to Fairwood to
enable Fairwood to make cash interest payments on the Fairwood Debentures. The
borrowings under the Credit Agreement are secured by substantially all of the
assets of Consolidated Furniture. Consolidated Furniture is also a holding
company without operations. Its primary asset is the outstanding stock of
Furniture Comfort Corporation ("Furniture Comfort"), which has operations that
it conducts through its two divisions, Stratford and Barcalounger. Furniture
Comfort is also a direct obligor under the Credit Agreement and has pledged
substantially all of its assets to secure the obligations under the Credit
Agreement. Furniture Comfort is not an obligor on the Fairwood Debentures.
On each of April 1, 1995, October 1, 1995 and April 1, 1996, the Company failed
to make the required interest payments due on the Fairwood Debentures and
Fairwood does not expect to make the cash interest payments required under the
Fairwood Debentures on any future semi-annual interest payment dates. Accrued
interest of $47.3 million on the Fairwood Debentures, which include $28.7
million due to CSCL, is included in accrued expenses on Bankruptcy Court for
the Southern District of New York against Fairwood by certain
- 8 -
<PAGE> 9
bondholders. In response to the bankruptcy filling, on April 22, 1996,
Fairwood and the accompanying unaudited condensed consolidated balance sheet as
of June 29, 1996. An involuntary Chapter 7 petition was filed on January 3,
1996 in the United States certain other entities filed a cross-motion seeking
the dismissal of the petition. A motion was presented at a hearing on June 7,
1996 to dismiss the petition and the judge reserved decision. If Fairwood is
unsuccessful in obtaining dismissal, Fairwood may convert the Chapter 7 case to
a Chapter 11 case or permit a trustee to be appointed as part of a Chapter 7
proceeding.
The failure to make the April 1, 1995 and subsequent period interest payments
constitutes an event of default which permits the acceleration of the Fairwood
Debentures by the demand of the holders of the requisite aggregate principal
amount of the debentures, subject to a 180-day acceleration blockage provision.
Upon acceleration, the Fairwood Debentures would be due and payable.
Accordingly, the Fairwood Debentures have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance sheet
as of June 29, 1996.
Consolidated Furniture, Fairwood's wholly-owned subsidiary, is expected to
service its interest payment obligations under the Credit Agreement and senior
subordinated debentures from its cash flow from operations and available credit
facilities. Throughout 1995 and the first six months of 1996, Consolidated
Furniture funded interest obligations related to long-term indebtedness on the
revolving line of credit and the senior subordinated debentures through
increased borrowings from CSCL under the Credit Agreement. Borrowings from
CSCL during the first six months of 1996 were approximately $11.4 million.
There were no repayments to CSCL during the first six months of 1996.
Consolidated Furniture is dependent upon CSCL for funding of its debt service
costs. CSCL has in the past increased its revolving credit line to
Consolidated Furniture in order for Consolidated Furniture to meet its debt
service obligations on the revolving line of credit and the senior subordinated
debentures. Under the Credit Agreement, Consolidated Furniture and its
subsidiaries are generally prohibited from transferring moneys to Fairwood with
the exception of amounts for (a) specified administrative expenses of Fairwood
and (b) payment of income taxes. The senior subordinated debentures, senior
subordinated pay-in-kind debentures and merger debentures also have certain
restrictions as to the payment and transfer of moneys. Management believes
that cash flow from operations and funding from CSCL will be adequate to meet
Consolidated Furniture's obligations on the revolving line of credit and the
senior subordinated debentures through December 31, 1996.
Consolidated Furniture's revolving line of credit and senior subordinated
debentures mature on January 2, 1997 and, accordingly, have been classified as
current liabilities in the accompanying unaudited condensed consolidated
balance sheet as of June 29, 1996. Consolidated Furniture expects to negotiate
an extension of these maturity dates with CSCL or refinance such indebtedness
prior to January 2, 1997. However, there can be no assurances that the Company
will be able to negotiate such an extension, or that the terms of such
extension or refinancing will not be on terms less favorable than those
currently in place.
There can be no assurance that Fairwood will be able to continue as a going
concern. A Bankruptcy Petition was filed against Fairwood on January 3, 1996
by certain holders of merger debentures. A motion was presented at a hearing
on June 7, 1996 to dismiss the petition and the judge reserved decision. There
is no way to know what the outcome of the judge's decision will be. At this
time no decision has been made by Fairwood concerning its alternatives should
the Court not dismiss the Petition.
- 9 -
<PAGE> 10
For a discussion of the status of the IRS examination, refer to Fairwood's
audited consolidated financial statements as of December 31, 1995 included in
Fairwood's Form 10-K, and footnote 6 to Fairwood's unaudited condensed
consolidated financial statements included herein.
Results of Operations
Three Months Ended June 29, 1996 Versus Three Months Ended July 1, 1995
The following discussion presents the material changes in results of operations
which have occurred in the second quarter of 1996 in comparison to the same
period in 1995.
Consolidated net sales were approximately $37.7 million in the second quarter
of 1996, a decrease of 11.0% from last year's second quarter consolidated net
sales of approximately $42.4 million, due primarily to a reduction of sales at
Stratford.
Second quarter 1996 net sales (including intercompany sales) by the Stratford
Company decreased 15.4% to approximately $29.3 million as compared to $34.5
million for the comparable period in 1995. Second quarter sales to Simmons
Upholstered Furniture Corporation ("Simmons"), were approximately $3.2 million.
Second quarter sales in 1996 to Stratford's larger national retail chain
customers decreased 27.5%, while sales to smaller retail furniture store
customers decreased 24.6%. Total Stratford volume, excluding sales to Simmons
decreased 26.1% during the second quarter of 1996 as compared to 1995. Volume
to Stratford's larger national retail chain customers decreased 27.9%, while
volume to Stratford's smaller retail furniture store customers decreased 20.7%.
These decreases in sales and volume were due to a carryover from 1995 of
internal and external factors compounded further by industry-wide slow
furniture sales. In 1995 Stratford changed its market strategy by
discontinuing low margin and slow moving styles and by tightening credit and
sales terms. This caused an expected decrease in sales to mainly smaller
retail customers into 1996. Sales to the larger national retail customers
continued to decline into 1996 primarily due to (1) customers' organizational
realignment lowering customers' overall inventory levels, (2) the consolidation
of customers' stores and the subsequent delayed opening of the new consolidated
stores, (3) discontinuance of furniture sales by certain customers, and (4)
Stratford's price increases conflicting with the retailers' pricing policies.
Stratford's average selling prices changed between (20.0%) to 11.2% (excluding
discontinued and new products), depending on the type of product and customer.
Excluding sales to Simmons, who became an affiliate during November 1995, net
sales for the second quarter of 1996 were approximately $26.1 compared to
approximately $34.5 million for the second quarter of 1995, a decrease of
24.3%.
Second quarter 1996 net sales by Barcalounger increased 7.1% to approximately
$9.1 million as compared to $8.5 million for the comparable period in 1995.
This increase in sales reflects a increase in total volume of 1.4%, and a 4.3%
increase in average sales prices.
Consolidated cost of sales decreased 12.0% in the second quarter of 1996 to
$33.8 million, or 89.7% of net sales, as compared to $38.7 million, or 91.4% of
net sales, in 1995. Stratford Company cost of sales decreased to 92.5% of net
sales in the second quarter of 1996, as compared to 93.1% in the second quarter
of 1995. The decrease is the result of a reduction in overhead costs as a
percentage of net sales. Barcalounger cost of sales decreased to 81.3% of net
sales in the second quarter of 1996, as compared to 85.1% of net sales in the
second quarter of 1995. Barcalounger's cost of sales as a percentage of net
sales decreased due to higher sales and greater absorption of fixed overhead
costs.
- 10 -
<PAGE> 11
Consolidated selling, administrative and general expenses for the second
quarters of 1996 and 1995 were approximately $5.6 million and $7.2 million,
respectively, representing a decrease of 22.5%. The decrease was due primarily
to decreases in selling commissions as a result of the lower sales volumes on
smaller retail customers which generally have a higher commission rate, and
continued reduction of the cost of the Company's corporate expenses.
Other expenses, net, were approximately $.6 million and $.4 million for the
second quarters of 1996 and 1995. The increase was primarily due to startup
costs incurred relative to the Simmons contract.
Six Months Ended June 29, 1996 Versus Three Months Ended July 1, 1995
The following discussion presents the material changes in results of operations
which have occurred in the first six months of 1996 in comparison to the same
period in 1995.
Consolidated net sales were approximately $76.0 million in the first six months
of 1996, a decrease of 22.3% from last year's first six months consolidated net
sales of approximately $97.8 million, due primarily to a reduction of sales at
Stratford.
Stratford Company net sales (including intercompany sales) for the first six
months of 1996 decreased 27.5% to approximately $57.9 million as compared to
$79.9 million for the comparable period in 1995. Total volume has decreased
35.0% for the first six months of 1996 as compared to the first six months of
1995. Sales volume to the smaller retail customers has decreased 31.3%, while
national account sales volume has decreased 40.3% in the first six months of
1996 as compared to 1995. These decreases in sales volume are partially offset
by new sales to Simmons. Industry analysts, retailers and competitors have
reported that a general industry wide slowdown occurred in retail sales of
household furniture and downward inventory adjustments during the first six
months of 1996 and that incoming order rates to furniture manufacturers
deteriorated significantly during that same period. As a result of these
circumstances, Stratford sales have declined sharply.
Barcalounger net sales for the first six months of 1996 and 1995 were flat at
approximately $19.2 million, reflective of a 4.5% decrease in the number of
pieces sold and a 3.7% increase in average selling prices.
Consolidated cost of sales decreased 21.7% in first six months of 1996 to
approximately $69.3 million, or 91.2% of net sales, as compared to $88.5
million, or 90.5% of net sales, in 1995. Stratford Company cost of sales
increased to 94.6% of net sales in the first six months of 1996, as compared to
92.5% in the first six months of 1995. The increase in cost of sales as a
percentage of net sales is primarily due to lower sales volume, which was
greater than savings from reductions of fixed overhead costs. Barcalounger's
cost of sales decreased to 81.5% of net sales in the first six months of 1996,
as compared to 82.8% of net sales in the first six months of 1995. The
decrease in cost of sales as a percentage of net sales was the result of
increased second quarter sales and a slight reduction in fixed overhead costs.
- 11 -
<PAGE> 12
Consolidated selling, administrative and general expenses for the first six
months of 1996 and 1995 were approximately $11.9 million and $15.1 million,
respectively, representing a decrease of 21.2%. The decrease was due
primarily to decreases in selling commissions as a result of the lower sales
volumes on smaller retail customers which generally have a higher commission
rate, and continued organization-wide downsizing, where appropriate.
Other expenses, net, were approximately $1.5 million and $.7 million for the
first six months of 1996 and 1995. The increase was primarily due to startup
costs incurred relative to the Simmons contract.
No income taxes have been provided in the first six months of 1996 and 1995,
respectively, as the Company is in a net operating loss carryforward position,
and a valuation allowance has been increased to offset any future benefit from
these positions.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, previously reported in
the Registrant's Form 10-K for the year ended December 31, 1995 for a
description of pending legal action.
There are certain legal proceedings arising out of the normal course
of business, the financial risk of which are not considered material
in relation to the consolidated financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 12 -
<PAGE> 13
FAIRWOOD CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
FAIRWOOD CORPORATION
(Registrant)
/s/ John B. Sganga
--------------------------
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
Date: August 12, 1996
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 876
<SECURITIES> 0
<RECEIVABLES> 28,297
<ALLOWANCES> 12,252
<INVENTORY> 14,171
<CURRENT-ASSETS> 32,893
<PP&E> 30,937
<DEPRECIATION> 17,844
<TOTAL-ASSETS> 48,133
<CURRENT-LIABILITIES> 510,313
<BONDS> 248,781
0
100
<COMMON> 55,948
<OTHER-SE> (523,144)
<TOTAL-LIABILITY-AND-EQUITY> 48,133
<SALES> 37,702
<TOTAL-REVENUES> 37,702
<CGS> 33,807
<TOTAL-COSTS> 39,419
<OTHER-EXPENSES> 459
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