<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1994
---------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
--------------------- ---------------------
Commission file number 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 Street, Suite 790
Wilmington, DE 19801
- ------------------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-884-6749
--------------------------
Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- -------------------------
<S> <C>
None Not Applicable
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act:
Warrants to Purchase Common Stock
---------------------------------
(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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant was zero as of February 28, 1995.
On February 28, 1995, the registrant had outstanding 500 shares of Class A
Voting common stock, $.01 par value and 999,800 shares of Class B Non-Voting
common stock, $.01 par value.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Fairwood Corporation ("Fairwood"), is a privately-held Delaware
corporation organized in 1988 by investors including Citicorp Venture Capital
Limited ("CVCL") for the purpose of acquiring all of the common stock of
Consolidated Furniture Corporation, formerly named Mohasco Corporation
("Consolidated Furniture"). At the date of acquisition, Consolidated
Furniture's operations were diversified to include the manufacture of
residential furniture and carpet, and the rental of residential and office
furniture. Consolidated Furniture sold its carpet and rental operations in
1988.
The principal executive offices of Fairwood are located at One Commerce
Center, 1201 Orange St., Suite 790, Wilmington, Delaware 19801. Fairwood is a
holding company with no independent operations: its primary asset is all of the
common stock of Consolidated Furniture.
On March 10, 1992, Consolidated Furniture entered into two Agreements and
Plans of Merger, which provided for the disposition of two wholly-owned
subsidiaries, Chromcraft Corporation ("Chromcraft") and Peters-Revington
Corporation ("Peters-Revington") to Chromcraft Revington, Inc., an affiliate.
The mergers were consummated on April 23, 1992 and the proceeds of the
disposition were used by Consolidated Furniture to repay long-term debt owed to
Court Square Capital Limited ("CSCL"), an affiliate of CVCL, under Consolidated
Furniture's Credit Agreement with CSCL (the "Credit Agreement").
On July 29, 1994, substantially all of the assets and liabilities of Super
Sagless Corporation ("Super Sagless"), a wholly-owned subsidiary of
Consolidated Furniture, were sold to a third party for $40 million cash. Of
the total sales price, $24.25 million was received in cash upon closing and
$15 million was received six months after closing. The remaining $.75 million
was placed in escrow for a period of one year to secure certain of Super
Sagless's post-closing obligations and representations. After considering the
estimated costs of disposition, Super Sagless has recognized a gain before
income taxes of approximately $21 million. The net proceeds from the sale were
used to repay long-term debt owed to CSCL under the Credit Agreement.
Through its subsidiaries, Fairwood manufactures upholstered stationary and
motion furniture, such as modular living room groups, recliners, rockers and
sleepers.
Operations
Fairwood, through its subsidiary, Consolidated Furniture, and Furniture
Comfort Corporation ("Furniture Comfort"), formerly named Mohasco Upholstered
Furniture Corporation, Consolidated Furniture's primary operating subsidiary,
serves selected segments of the highly diversified $19+ billion residential
furniture market. Consolidated Furniture entered the furniture industry through
a series of acquisitions commencing in 1964. Furniture Comfort's current
operations engage in the manufacture and sales of a diversified line of
upholstered furniture under several brand names. While most of its pro-
- 2 -
<PAGE> 3
ducts are moderately priced and designed to appeal to a wide range of furniture
buyers, certain products have been successfully targeted to a more selective,
higher priced market. The products are sold nationally to furniture retailers
and department stores mainly through commissioned sales forces.
Furniture Comfort has two divisions operating as separate independent
companies. Each company markets and manufactures one or more specific brands of
furniture. The Stratford Company ("Stratford") makes and sells mid-priced
upholstered stationary and motion furniture under the brand names of Stratford,
Stratolounger, Stratopedic and Avon. The Barcalounger Company ("Barcalounger")
manufactures and sells higher-priced motion furniture and is well known for its
high-quality recliners.
The furniture industry is affected to a substantial degree by style, value
and fashion. Stratford and Barcalounger participate in important furnishings
market showings held during the year in a number of larger cities to acquaint
retailers with the significant number of new products introduced each year.
Each Division frequently reviews their product lines to evaluate whether minor
or major restyling of such lines is warranted. To generate new product and
style ideas based upon consumer and retailer response, the divisions maintain
in-house design staffs and contract with outside designers. The designers
consult with manufacturing management to analyze the economic feasibility of
producing new products based on their designs.
Stratford and Barcalounger operate in a highly competitive segment of the
motion furniture business. Many new competitors and existing stationary
manufacturers have entered this particular market, as well as existing
competitors which have expanded their lines. New entrants at mid price points
have eroded the companies' market share. In many cases this increased
competitive activity has led to a lowering of selling prices and the extension
of liberal credit terms in order to maintain market share. Despite the inroads
of these competitors over the past five years, Stratford and Barcalounger
remain positioned among the largest manufacturers of upholstered stationary and
motion furniture in the United States. For the years ended December 31, 1994,
1993, and 1992, net sales by Stratford were $176.6 million, $178.2 million and
$154.7 million, respectively.
The furniture market is highly competitive and includes a large number of
manufacturers, none of which dominates the market. Certain of these
manufacturers produce a broader range of furniture than Stratford and
Barcalounger, and many of them have greater financial and other resources. In
addition, there are relatively few barriers to entry into the industry.
Competition could require Stratford and Barcalounger to reduce prices, offer
better credit terms, or increase spending on product development, marketing or
sales, which could adversely affect the Company.
Barcalounger targets a selected market for its high-end recliner chair and
living room motion furniture. Barcalounger sells mainly to furniture stores
that carry more expensive products and provide interior design services
directly or indirectly. Barcalounger gives extensive warranties for its
products. The value and fine quality of its furniture is apparent as hardwood
frames are emphasized and only the finest leather and fabric coverings are
offered. Barcalounger has significant brand recognition and has a reputation
of having one of the best product lines in terms of value, quality, design and
- 3 -
<PAGE> 4
service in the higher priced segment of the motion furniture industry. For the
years ended December 31, 1994, 1993 and 1992, net sales by Barcalounger were
$36.5 million, $35.4 million and $31.9 million, respectively.
Stratford and Barcalounger are well known in the furniture industry which
is characterized by a large number of relatively small manufacturers. The
following are among the Company's larger competitors: Masco Corporation,
Interco Industries, La-Z-Boy, Klausner, Natuzzi, and Bassett, many of which
have greater financial resources than the Company. Competition is intense at
all levels, stressing price, style, fabric and product finish.
Factors Affecting the Home Furnishings Industry
The furniture industry as a whole is affected by demographics, household
formations, the level of personal discretionary income, household mobility and
the rate of new home construction. There exists a substantial replacement
market that is relatively less affected by these factors.
Research and Development
Since the furniture industry is characterized by active competition among
a large number of companies, many of which also have substantial facilities and
resources, Comfort believes that the maintenance of high product quality and
the development of new products are essential to maintaining its competitive
position. In support of these goals, Comfort conducts research and development
activities which are decentralized and directed by its individual operating
divisions.
The Stratford and Barcalounger operating divisions expended a total of
$13,600,000 in the past five years for research and development programs of
which $2,467,000, $2,623,000, and $2,403,000 was expended in 1994, 1993 and
1992, respectively.
Employees
Consolidated Furniture and its subsidiaries employed 2,388 persons at
December 31, 1994. Consolidated Furniture has a long record of generally
harmonious relations with employees.
Backlog
The backlog of orders among Furniture Comfort's furniture operations was
approximately $ 21,306,000 at December 31, 1994 and approximately $22,643,000
at December 31, 1993. It is expected that the backlog at December 31, 1994
will be filled in the current year. Furniture Comfort does not consider
backlog to be a significant indicator of the sales outlook for its products
beyond the period of a few months.
- 4 -
<PAGE> 5
Seasonality, Major Customers and Export Sales
There are seasonal factors which affect Furniture Comfort's business.
Spring and fall are generally considered periods of increased interest by
consumers in interior furnishings since these are periods of increased real
estate activity involving relocation of families. The Christmas holiday season
and other special occasions usually generate increased sales of some of
Furniture Comfort's furniture lines. On the other hand, inclement weather in
mid-winter generally discourages the purchase of interior furnishings.
Similarly, the closedown of a portion of the Furniture Comfort's activities for
vacation periods of one or two weeks in July has a limiting effect on
production as well as sales. Furniture Comfort maintains adequate levels of
inventory to meet seasonal demands.
Sears, Roebuck & Co. accounted for approximately twenty, sixteen and
thirteen percent of Furniture Comfort's furniture sales during the years 1994,
1993 and 1992, respectively. Export sales for 1994 were approximately one
percent of sales and were not significant in prior years.
Environmental and Raw Materials
In 1994, there were no significant effects upon the capital expenditures,
earnings and competitive position of Furniture Comfort and its divisions
occasioned by compliance with provisions of federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment.
Raw materials purchased by the Furniture Comfort are all procured in the
open market from a number of suppliers. In general, no major difficulties have
been experienced in obtaining raw materials.
Patents
Patents are not a significant consideration in the manufacture of most of
Furniture Comfort's products. Furniture Comfort does not believe that its
operating income is materially dependent on any one patent or license or group
of related patents or licenses.
ITEM 2. PROPERTIES
The furniture manufacturing activities of the Company are conducted in
modern facilities of suitable construction. These facilities are in good
operating condition, reasonably maintained and contain reasonably modern
equipment. All of the principal items of machinery and equipment located in
these facilities are owned by the primary operating subsidiary of Consolidated
Furniture.
Furniture Comfort's divisions also lease showroom and warehouse space
throughout the United States for display and storage of products. Until March,
1993 Consolidated Furniture owned an office building located in Fairfax,
Virginia. Office space is now leased.
- 5 -
<PAGE> 6
Furniture Comfort believes that its plants and facilities, in the
aggregate, are adequate, suitable and of sufficient capacity for purposes of
conducting its current business.
As of December 31, 1994, Furniture Comfort's divisions have furniture
facilities as follows:
<TABLE>
<CAPTION>
Location Use Square Footage
-------- --- --------------
<S> <C> <C>
Stratford
- ---------
Leased
- ------
New Albany, MS Manufacturing plant 1,060,786
Okolona, MS Manufacturing plant 613,233
Eupora, MS Manufacturing plant 314,693
Ontario, CA Manufacturing plant 185,000
Guntown, MS Warehouse 216,000
High Point, NC Showroom 27,386
San Francisco, CA Showroom 10,390
---------
2,427,488
---------
Owned
- -----
Pontotoc, MS Manufacturing plant 10,000
New Albany, MS Manufacturing plant 32,463
---------
42,463
---------
Barcalounger
- ------------
Leased
- ------
Rocky Mount, NC Manufacturing plant 364,000
High Point, NC Showroom 5,725
San Francisco, CA Showroom 2,945
---------
372,670
---------
2,842,621
---------
</TABLE>
Substantially all of the assets of Consolidated Furniture and its
subsidiaries are subject to a lien in favor of CSCL granted in connection with
the Credit Agreement (See Note 4 to the Company's Consolidated Financial
Statements set forth in item 8).
Furniture Comfort believes that its properties are adequate to serve the
current and anticipated needs of Stratford and Barcalounger without making
capital expenditures materially higher than historical levels.
- 6 -
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed the audit examination
of the consolidated Federal income tax returns of Fairwood and its
subsidiaries, including Consolidated Furniture (the "Consolidated Group"), for
the years ended July 11, 1988 through December 31, 1991, and has delivered to
the Company 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 income tax arising from the proposed
adjustments is approximately $66 million, before applicable statutory interest.
Fairwood estimates that the aggregate proposed liability would, together with
statutory interest through the year ended December 31, 1994, and net of any
applicable deduction for such interest, total approximately $100 million. The
principal issues addressed in the RAR are (i) the proposed disallowance of
approximately $164 million of interest expense claimed by the Consolidated
Group with respect to debt incurred in connection with the 1988 acquisition of
Consolidated Furniture by Fairwood under the theory that such debt should be
recharacterized as equity for tax purposes, (ii) the proposed disallowance of
approximately $19 million of investment banking, legal and other fees incurred
by the Consolidated Group and deducted in the years in issue under the theory
that such expenses are capital in nature and related theories, and (iii) the
proposed disallowance of approximately $5 million of compensation expense
deducted by the Consolidated Group under the theory that such expense
constitutes non-deductible "golden parachute" payments. Fairwood believes that
the proposed adjustments are in error and intends to contest vigorously this
matter. Under available administrative procedures, Fairwood has protested the
proposed adjustments and has had an initial conference with IRS Appeals
division and expects to have additional conferences with the IRS Appeals
division. Depending upon the outcome of discussions of the issues with the IRS
Appeals division, Fairwood may litigate one or more of the issues.
On October 14, 1993, Consolidated Furniture was served with a complaint
filed in U.S. District Court in Philadelphia by third party plaintiffs against
Consolidated Furniture and its former subsidiary, Sloane Blabon Corporation,
which engaged in the linoleum business, U.S. vs. Berks Associates, et al., Civ.
No. 91-4868, E.D. PA. The original complaint in the case was filed by the
Environmental Protection Agency against Berks Associates and others to recover
over $200 million from twelve defendants (not including Consolidated Furniture)
for costs incurred or to be incurred in connection with the investigation and
remediation of a Super Fund site in Douglasville, Pennsylvania. The original
defendants then sued over 600 third party defendants to share in the liability,
if any. Sloane Blabon is alleged to have disposed of benzine at the site from
1949 through May, 1953, when Sloane Blabon sold its relevant assets to
Congoleum Corporation. During the period in question, Sloane Blabon disposed
of substantial quantities of benzine to Berks Associates at the Douglasville
site. However, Fairwood does not believe its disposals were toxic as alleged.
The damages sought from Sloane Blabon and Consolidated Furniture are
unspecified. On November 1, 1993, Fairwood filed a Notice and Certification
denying the charges. Fairwood believes the charges are without merit and that
it has valid defenses to the claims. At present, no trial date has been set.
- 7 -
<PAGE> 8
As of the date hereof, there are certain other legal proceedings pending,
which arise out of the normal course of the Fairwood's business, the financial
risk of which is not considered material in relation to the consolidated
financial position of Fairwood.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER
MATTERS
Fairwood's common stock is privately held. At December 31, 1994 and 1993,
there were three shareowners of Fairwood's common stock. No dividends were
declared on Fairwood's common stock in 1994 and 1993. The ability of Fairwood
to pay dividends and make distributions in respect of its common stock is
restricted by instruments relating to the Fairwood's debt. Furthermore, the
ability of Consolidated Furniture and its subsidiaries to transfer monies to
Fairwood (including without limitation by dividend or distribution) is
restricted by instruments relating to Consolidated Furniture's and its
subsidiaries' debt, including the Credit Agreement. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" and Note 4 to Fairwood's
Consolidated Financial Statements set forth in Item 8.
Common stock purchase warrants issued by Fairwood in connection with the
1989 Fairwood merger are held by the public. The common stock purchase
warrants became exercisable in September 1994. See Note 4 to Fairwood's
Consolidated Financial Statements set forth in Item 8. The warrant exercise
price is $1 per share (subject to adjustment). In October 1994, Fairwood
notified the holders of the warrants that the warrants may be exercised at any
time before the close of business on September 21, 1995. Fairwood's notice
also stated that the fair value of the shares appeared to be significantly less
than the exercise price of the warrants and that therefore a registration
statement had not been filed with the Securities and Exchange Commission
covering the issuance of the shares upon exercise of the warrants. Fairwood
noted that in the event that holders of the warrants do exercise them, issuance
of the shares may be delayed pending the filing of a registration statement
covering the issuance and its effectiveness under the Securities Act of 1933,
as amended. There is no established public trading market for the Fairwood
warrants. Information concerning historical trading prices for the Fairwood
warrants is not published by nationally recognized independent sources. As of
December 31, 1994, there were 1036 record holders of the Fairwood warrants.
- 8 -
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
FAIRWOOD CORPORATION AND SUBSIDIARIES
Five Year Summary of Consolidated Financial Data
(Dollar Amounts in Millions)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 244.9 261.5 267.0 341.4 335.2
Loss from continuing
operations ( 39.4) ( 46.9) (159.1) ( 49.9) ( 37.5)
Loss from discontinued
operations - - - - ( 28.5)
Loss before extraordinary
items ( 39.4) ( 46.9) (159.1) ( 49.9) ( 66.0)
Extraordinary items - - 1.9 - -
Net loss ( 39.4) ( 46.9) (157.2) ( 49.9) ( 66.0)
Total assets 95.6 113.6 105.1 277.8 291.4
Long-term debt, including
current maturities 415.4 386.0 330.8 370.8 330.4
Redeemable preferred stock .1 .1 .1 .1 .1
</TABLE>
Fairwood acquired Consolidated Furniture in a purchase transaction deemed
to be effective as of July 3, 1988. In 1992, the excess of purchase cost over
fair value of assets acquired in the purchase of Consolidated Furniture was
written off due to the determined unrecoverability of these costs. Also in
1992, operations data includes the activities of Chromcraft and
Peters-Revington for the period from January 1 through April 23, 1992. In
1994, operations data includes the activities of Super Sagless for the period
from January 1 through July 29, 1994. Accordingly, the data presented for 1994,
1993 and 1992 is not comparable with one another or prior periods.
The provision for income taxes associated with the 1990 prepayment of
promissory notes by the acquirer of Consolidated Furniture's former rental
operations are reflected as discontinued operations.
For additional information, see the Company's Consolidated Financial
Statements included with this report, including Notes 3 and 11 thereto
regarding certain tax and liquidity matters.
- 9 -
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
1994 vs 1993 Results of Operations
Consolidated net sales of approximately $244.9 million for 1994 decreased
6.3% from 1993 net sales of approximately $261.4 million, due to the
disposition of Super Sagless in July 1994. Excluding Super Sagless, net sales
for 1994 were flat at approximately $213.1 million as compared to approximately
$213.6 million for 1993.
Net sales (including intercompany sales) for 1994 by the Stratford Company
decreased 0.9% to approximately $176.6 million as compared to $178.2 million
for 1993. Total volume was flat in 1994, while average selling prices
increased by approximately 1%. Sales in 1994 to Stratford's larger, national
retail customers increased 19.7%, while sales to smaller retail customers
decreased 13.3%. Stratford is concentrating on sales to these national
retailers which will result in a greater volume of similar products and styles,
reducing Stratford's design and production costs. The increased volume during
1994 for the products is reflective of Stratford's strategy to increase its mix
towards the national retailers.
Net sales for 1994 by Barcalounger increased 3.0% to approximately $36.5
million as compared to $35.4 million for 1993. This increase in sales reflects
an increase of 0.8% in the number of pieces sold in 1994 versus 1993, and a
2.5% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994, Barcalounger added to their product offerings of higher-priced
recliner and motion upholstered furniture through an emphasis on more expensive
leather and fabric coverings. Concurrent with these new offerings,
Barcalounger discontinued certain lower-priced products. By offering a finer,
more exclusive product, Barcalounger was able to increase sales in 1994 with
those retail furniture store customers who specialize in higher-priced, better
quality furniture. This change led to a sales mix which resulted in both
increases in sales and average prices.
Consolidated cost of sales decreased 2.1% in 1994 to approximately $216.8
million, or 88.6% of net sales as compared to $221.5 million, or 87.6% of net
sales, in 1993. Excluding Super Sagless, cost of sales were approximately
$191.1 million and $182.7 million for 1994 and 1993, respectively, or 89.7% and
85.6% of net sales, respectively.
Stratford Company cost of sales increased to 91.3% of net sales in 1994,
as compared to 86.1% in 1993. Barcalounger cost of sales decreased to 81.4% of
net sales in 1994 from 82.7% of net sales in 1993. The Stratford Company's
cost of sales as a percentage of net sales increased as a result of increased
raw materials costs due to design changes which resulted in an upgraded product
content; however, the implementation of most price increases for Stratford's
product lines in 1994 were delayed. Barcalounger cost of sales as a percentage
of net sales continued to decrease in 1994 due to the continued impact of the
cost reduction and quality improvement programs implemented during 1993.
- 10 -
<PAGE> 11
Consolidated selling, administrative and general expenses decreased 4.6%
to approximately $36.2 million in 1994 from approximately $38.0 million in
1993. Excluding Super Sagless, selling, administrative and general expenses
were approximately $30.0 million and $31.4 million for 1994 and 1993,
respectively, a decrease of approximately 4.5%, primarily due to the continued
organization-wide downsizing, where appropriate, and the decentralization and
transfer of corporate functions to the operating companies.
Other income (expenses), net, increased approximately $6.2 million, or
143.3% to approximately $1.9 million in 1994 from approximately $(4.3) million
in 1993. During 1994, the Company recognized a gain of approximately $1.4
million on the sale of its Clinton, NC plant. The other expenses, net, in 1993
reflects certain losses on the sales of property and costs incurred associated
with divested operations.
A gain of approximately $20.8 million was recognized in 1994 as a result
of the sale of substantially all of the assets of Super Sagless.
1993 vs 1992 Results of Operations
Consolidated net sales of approximately $261.4 million for 1993 decreased
2.1% from 1992 net sales of approximately $267.0 million, due to the
disposition of Chromcraft and Peters-Revington in April 1992. Excluding
Chromcraft and Peters-Revington in the 1992 results, net sales for 1993 were
approximately $261.4 million compared to approximately $231.5 million for 1992,
representing an increase of approximately 13%.
Net sales (including intercompany sales) for 1993 by the Stratford Company
increased 11.3% to approximately $178.2 million as compared to $154.7 million
for 1992. Total volume increased 2.9%, while average selling prices increased
8.2%. These increases were reflective of a strengthening economy and the
increase in new home building. Sales in 1993 to Stratford's larger, national
retail customers increased 27.6%, while sales to smaller retail customers
increased 1.4%. Net sales for 1993 by Barcalounger increased 11.1% to
approximately $35.4 million as compared to $31.9 million for 1992. This
increase in sales reflects an increase of 6.1% in the number of pieces sold in
1993 versus 1992, and a 4.8% increase in average selling prices. During 1992,
the entire furniture industry suffered from weak economic conditions, as
evidenced by very low consumer confidence and weak housing sales, both of which
are factors which directly reduce retail furniture sales and create consumer
resistance to price increases. During 1993, these conditions improved and
retail furniture sales increased dramatically, which led to opportunities for
Stratford and Barcalounger to increase prices.
Net sales for 1993 by Super Sagless (including intercompany sales)
increased 13.3% to approximately $67.9 million as compared to $59.9 million in
1992. The improved economic conditions also positively impacted Super Sagless'
sales during 1993 due to the increase in sales of motion furniture. During
1993, Super Sagless also successfully re-engineered many of their products to
reduce product cost and weight, which resulted in increased market share.
- 11 -
<PAGE> 12
Consolidated cost of sales decreased 5.3% in 1993 to approximately $221.5
million, or 84.7% of net sales, as compared to $233.8 million, or 87.6% of net
sales, in 1992. Excluding Chromcraft and Peters-Revington in the 1992 results,
cost of sales were approximately $221.5 million and $206.9 million for 1993 and
1992, respectively, or 84.7% and 89.4% of net sales, respectively.
Stratford Company cost of sales decreased to 86.1% of net sales in 1993,
as compared to 89.5% in 1992. Barcalounger cost of sales decreased to 82.7% of
net sales in 1993 from 85.6% of net sales in 1992. Super Sagless cost of sales
decreased to 86.6% of net sales in 1993 as compared to 88.3% of net sales in
1992. The Operating Divisions implemented cost reduction and quality
improvement programs at all of their plant locations which, when coupled with
the higher production volume in 1993, resulted in favorable manufacturing cost
absorption and lower costs on a per product basis. The programs implemented by
the operating companies included work flow streamlining, the utilization of
cellular production techniques, and the establishment of focused factory
systems and benchmarking methods, all designed to lower and control product and
factory overhead costs.
Consolidated selling, administrative and general expenses decreased 26.5%
to approximately $38.0 million in 1993 from approximately $51.7 million in
1992, in part due to the disposition of Chromcraft and Peters-Revington.
Excluding Chromcraft and Peters-Revington, selling, administrative and general
expenses were approximately $38.0 million and $46.5 million in 1993 and 1992,
respectively, a decrease of approximately 18.2%. This decrease was primarily
due to the reduction of personnel associated with the consolidation of certain
administrative functions, which resulted in the elimination of many corporate
functions and better utilization of resources.
Other expenses, net, decreased approximately $2.4 million, or 36.0% to
approximately $4.3 million in 1993 from approximately $6.7 million in 1992,
primarily due to recording in 1992 anticipated losses in connection with the
sale, completed in March 1993, of the Company's Fairfax, Virginia corporate
office building, partially offset by losses on sales of property and certain
costs associated with divested operations recognized in 1993. Many of the
corporate functions were transferred to the operating companies beginning in
1992 and continuing into 1993.
A restructuring charge of approximately $85.9 million in 1992 was due to
the write-off of the excess of purchase cost over fair value of assets acquired
in the 1988 purchase of Consolidated Furniture due to the unrecoverability of
these costs. Fairwood determined that the write-up in assets resulting from
the 1988 purchase was unrecoverable due to the continuing significant losses of
the operating companies, and a lower of cost or market analysis of Fairwood's
assets.
- 12 -
<PAGE> 13
Provision for Income Taxes
A cumulative effect of change in accounting principle of $2.1 million was
recorded in 1993, which is described in Note 1, Summary of Significant
Accounting Policies, in the Notes to Consolidated Financial Statements. Due to
the taxable income generated as a result of the disposition of Chromcraft and
Peters-Revington, Fairwood provided for taxes of approximately $4.5 million in
1992, which were partially offset by the utilization of a net operating loss
carry-forward of approximately $1.9 million, shown as an extraordinary item on
the Consolidated Statements of Operations, yielding a net provision of
approximately $2.6 million. Please refer to Note 3, Income Taxes, in the Notes
to Company's Consolidated Financial Statements.
Liquidity and Capital Resources
Capital requirements for operations during 1994 and 1993 were provided by
financing channels and operating cash flow.
Fairwood had working capital of approximately $43.5 million and $43.3
million at December 31, 1994 and 1993, respectively. At December 31, 1994,
Fairwood had long-term debt of approximately $415.4 million of which $.2
million was current. Long-term debt at December 31, 1993 was approximately
$386.0 million of which $.2 million was current.
In conjunction with Fairwood's acquistion by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with
loans under a credit agreement with CSCL (the "Credit Agreement") and senior
subordinated pay-in-kind debentures due to CSCL. In exchange for the
approximately 6.85% of Consolidated Furniture common stock then outstanding,
Fairwood issued $33.5 million of subordinated pay-in-kind merger debentures and
918,170 warrants to purchase, in the aggregate, 142,900 shares of
Fairwood's Class A common stock. The assets of Consolidated Furniture and its
subsidiaries are pledged as security for the amounts due under the Credit
Agreement. Certain instruments related to the Credit Agreement have been
amended at various times through March 1994. During 1994, Consolidated
Furniture entered into the Eleventh Amendment to the Credit Agreement which,
among other things, increased the maximum amount that could be outstanding
under the revolving credit facility from $167.0 million to $200.0 million,
established a sub-line limitation on revolving credit loan advances to be used
by Consolidated Furniture in its Stratford division, and revised in a manner
favorable to Consolidated Furniture the financial covenants related to current
ratio, consolidated net worth, working capital and total debt. CSCL also
waived compliance by Consolidated Furniture with the consolidated net worth
covenant of the Credit Agreement for the months of April through June, 1994. In
April, 1995, CSCL waived provisions of the Credit Agreement prohibiting sale by
Consolidated Furniture of certain real property that had been operated as, and
related equipment located on, a saw mill in Pontotoc, Mississippi.
- 13 -
<PAGE> 14
Throughout 1994, 1993 and 1992, Consolidated Furniture funded interest
obligations related to long-term indebtedness through increased borrowings from
CSCL. Borrowings from CSCL during the years ended December 31, 1994, 1993 and
1992 were approximately $31.2 million, $48.2 million and $36.0 million,
respectively. However, during 1992 and 1994 the proceeds to Consolidated
Furniture from the disposition of Chromcraft and Peters-Revington and the sale
of substantially all of the assets of Super Sagless of approximately $83
million and $24.25 million were used to repay debt of Consolidated Furniture
and its subsidiaries. All outstanding debt at December 31, 1994 and 1993,
excluding the $62.9 million of outstanding merger debentures and $0.7 million
of capitalized lease obligations, is payable to CSCL, which is an indirect
subsidiary of Citicorp, a bank holding company, and an affiliate of CVCL.
Consolidated Furniture will attempt either to refinance, or negotiate an
extension of, the debt payable to CSCL when due in January 1996, although there
can be no assurance that such attempts will be successful. Interest on the
revolving credit loan of Consolidated Furniture and its subsidiaries is payable
quarterly at 1-1/2% above the applicable prime rate, which prime rate was 8.5%
at December 31, 1994. Interest on the senior subordinated debentures of
Consolidated Furniture is payable semi-annually at 18%. Interest on the senior
subordinated pay-in-kind debentures and merger debentures of Fairwood is
payable semi-annually at 15-1/2% and 16-7/8%, respectively.
In July 1994, a portion of the proceeds to Consolidated Furniture from the
disposition of Super Sagless were used to repay secured, senior debt of
Consolidated Furniture and its subsidiaries in the approximate amount of
$24.25 million. The remainder of the total sales consideration of $40 million
for the assets of Super Sagless was placed in escrow to secure certain of the
Company's post-closing obligations and representations. In January 1995, $15
million was received which was primarily used to repay additional amounts of
secured, senior debt of Consolidated Furniture. The remaining $0.75 million of
proceeds are expected to be received in mid-1995.
Interest payments during the years ended December 31, 1994, 1993 and 1992
of approximately $52.9 million, $46.0 million and $43.0 million, respectively
were primarily made through increased borrowings and the issue of additional
pay-in-kind debentures. Cash interest payments during the years ended December
31, 1994, 1993 and 1992 were approximately $28.8 million, $25.4 million and
$25.3 million, respectively. Principal payments of approximately $25.9
million, $13.7 million and $61.0 million were made during the years ended
December 31, 1994, 1993 and 1992, respectively.
Annual maturities on debt for the years ended December 31, 1995, 1996,
1997, 1998 and 1999 are approximately $.2 million, $246.0 million, $.2 million,
$.2 million and $0.0 million, respectively. Interest payments for the years
ended December 31, 1995, 1996, 1997, 1998 and 1999 are estimated to be
approximately $32.6 million, $36.0 million, $39.7 million, $43.9 million and
$48.5 million.
- 14 -
<PAGE> 15
Fairwood has the option until April 1, 1995 to pay interest on its senior
subordinated pay-in-kind debentures and merger debentures either by cash or by
the distribution of additional securities. Additional securities were issued in
lieu of the cash payments of interest due April 1, 1994 and October 1, 1994 on
both the senior subordinated pay-in-kind debentures and merger debentures.
Accordingly, the principal amount of Fairwood's senior subordinated pay-in-kind
debentures and merger debentures increased by $14.7 million and $9.4 million,
respectively, since December 31, 1993. For further details on financing and
debt see Note 4 to Consolidated Financial Statements.
As described above, on October 1, 1994, Fairwood tendered additional
debentures in payment of interest on its senior subordinated pay-in-kind
debentures and merger debentures. On October 3, 1994, the trustee for the
merger debentures informed Fairwood that it would notify holders of the merger
debentures of its decision to decline to accept the additional merger
debentures in satisfaction of the October 1, 1994 installment of interest and
that Fairwood failed to make payment of interest in cash. Fairwood informed
the trustee that they disputes the trustee's view that the October 1, 1994
interest payment was required by the indenture governing the merger debentures
to be made entirely in cash.
Capital additions were approximately $3.4 million, $4.2 million and $3.2
million for the years 1994, 1993 and 1992, respectively. The Company
anticipates making capital expenditures of approximately $3.1 million during
1995, primarily for the purpose of maintaining and upgrading the Company's
manufacturing equipment, machinery and facilities. The Company has no firm
commitments for the purchase of capital equipment or facilities. It is
anticipated that necessary capital expenditures will be funded through cash
flow generated from operations, available credit facilities under the Company's
revolving credit agreement with CSCL, and other financing arrangements. During
January 1995, the Company received a partial payment of $15 million from the
July, 1994 sale of Super Sagless, of which a portion (after repayment of
long-term debt) is available for capital expenditures and other operating cash
flow needs. The Company intends to pursue other sources of financing through
accounts receivable factoring arrangements to the extent available and cost
effective.
Fairwood's cash flow from operations will not be sufficient to permit
Fairwood to make cash interest payments on its senior subordinated pay-in-kind
debentures and merger debentures. In addition, Consolidated Furniture's credit
facilities do not permit it to transfer funds to Fairwood to enable Fairwood to
make cash interest payments on the senior subordinated pay-in-kind debentures
and merger debentures. Accordingly, depending on the interpretation of the
indentures governing the senior subordinated pay-in-kind debentures and merger
debentures, Fairwood may have failed to make the interest payments required on
October 1, 1994 and will probably fail to make the cash interest payments on
April 1, 1995.
- 15 -
<PAGE> 16
Fairwood's operating companies are dependent upon CSCL for funding of its
debt service costs. Instruments relating to the revolving credit facility and
senior subordinated debentures have been amended and certain provisions thereof
waived at various times through April 1994 to provide more favorable terms to
Consolidated Furniture and, in certain instances, to avoid defaults thereunder.
Under the Credit Agreement, Consolidated Furniture and its subsidiaries are
generally restricted from transferring moneys to Fairwood (including without
limitation by dividend or distribution) with the exception of amounts for (a)
specified administrative expenses of the Company not exceeding $275,000 per
year and (b) payment of income taxes. Furthermore, Consolidated Furniture is
subject to additional restrictions on transferring moneys to Fairwood
(including without limitation by dividend or distribution) under the indenture
for its senior subordinated debentures, which generally requires the
satisfaction of certain financial conditions for such transfers. Fairwood is
subject to additional restrictions on payment or transfer of moneys (including
without limitation by dividend or distribution) under the indentures for its
senior subordinated pay-in-kind debentures and merger debentures, which
generally require the satisfaction of certain financial conditions for such
transfers.
Consolidated Furniture anticipates that funds provided by operations and
available credit facilities under the Credit Agreement will be adequate in 1995
to support the operations of Stratford and Barcalounger. However, as discussed
above, funds provided by operations and available credit facilities cannot be
expected to be adequate to make cash interest payments due in 1995 on the
Fairwood senior subordinated pay-in-kind debentures and merger debentures.
Consolidated Furniture's obligations under the Credit Agreement are secured by
substantially all of the assets of Consolidated Furniture and its subsidiaries.
- 16 -
<PAGE> 17
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a
part of this report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Operations for the Years ended December 31, 1994,
1993 and 1992
Consolidated Statements of Shareowners' Equity (Deficit) for the Years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the Years ended December 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements
- 17 -
<PAGE> 18
Independent Auditors' Report
The Shareowners and Board of Directors
Fairwood Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Fairwood
Corporation and subsidiaries ("Fairwood") as of December 31, 1994 and 1993, and
the related consolidated statements of operations, shareowners' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1994. We also have audited the financial statement schedule as
listed in the index for Item 14(a)2 on page 46. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fairwood
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 3 to the consolidated financial statements, the Company
has been notified by the Internal Revenue Service of proposed adjustments to
its Federal income tax returns for the years 1988 through 1991. Such
adjustments would result in a net tax cost of approximately $100 million,
including interest through the year ended December 31, 1994. The Company has
indicated that it disagrees with the proposed adjustments and is vigorously
contesting the positions taken by the Internal Revenue Service. The ultimate
outcome of these proposed adjustments cannot presently be determined.
Accordingly, no provision for any liability that may result upon ultimate
resolution of these proposed adjustments has been recognized in the
accompanying consolidated financial statements.
- 18 -
<PAGE> 19
The accompanying consolidated financial statements have been prepared assuming
that Fairwood will continue as a going concern. As discussed in Note 11 to the
consolidated financial statements, Fairwood expects that it will be unable to
meet certain required interest payments on its senior subordinated pay-in-kind
and merger debentures when due in 1995 and beyond. Further, as discussed in
Note 4 to the consolidated financial statements, Fairwood has been notified by
the trustee for the merger debentures that it would decline to accept the
additional merger debentures in satisfaction of the October 1, 1994 installment
of interest and that Fairwood failed to make the required payment of interest
in cash at that date. These matters, along with the tax matter discussed in
the previous paragraph, raise substantial doubt about the ability of Fairwood
to continue as a going concern. Management's plans in regard to these matters
are discussed in Notes 3 and 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Notes 1 and 3 to the consolidated financial statements,
Fairwood adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, as of January 1, 1993.
KPMG Peat Marwick, LLP
Washington, D.C.
February 10, 1995
- 19 -
<PAGE> 20
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
(In thousands except share data)
<TABLE>
<CAPTION>
Assets (note 4) 1994 1993
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,615 3,968
------- -------
Accounts and notes receivable:
Trade 38,034 47,734
Escrows receivable from sale of subsidiary (note 2) 15,750 -
Other 1,812 1,718
------- -------
55,596 49,452
Less allowance for discounts and doubtful accounts 2,756 4,062
------- -------
52,840 45,390
------- -------
Inventories (note1) 18,813 31,175
Prepaid expenses and other current assets (note 3) 2,499 3,678
------- -------
Total current assets 78,767 84,211
------- -------
Property, plant and equipment, at cost:
Land 137 233
Buildings and improvements 12,799 20,685
Machinery and equipment 4,418 28,916
Leasehold improvements 2,120 2,633
Construction in progress 539 1,961
------- -------
20,013 54,428
Less accumulated depreciation and amortization 5,948 28,685
------- -------
14,065 25,743
------- -------
Other assets 2,732 3,601
------- -------
$ 95,564 113,555
======= =======
<CAPTION>
Liabilities and Shareowners' equity (deficit) 1994 1993
- --------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (notes 4 and 8) $ 160 150
Accounts payable:
Trade 6,084 9,135
Other (includes claims payable of $1,991 in
1994 and $2,263 in 1993) 2,537 4,810
Accrued expenses (includes interest of $10,357 in
1994 and $9,431 in 1993) 20,740 21,070
Federal and state income taxes 5,725 5,709
------- -------
Total current liabilities 35,246 40,874
------- -------
Long-term debt, less current maturities (notes 4 and 8):
Revolving credit 165,870 160,427
Senior subordinated debentures 80,000 80,000
Senior subordinated pay-in-kind debentures 105,853 91,173
Merger debentures 62,928 53,517
Capitalized lease obligations 540 700
------- -------
415,191 385,817
------- -------
Deferred Federal income taxes (note 3) 1,359 2,827
Other liabilities (note 7) 4,346 3,816
------ -------
5,705 6,643
------- -------
Redeemable preferred stock (note 5):
Par value $.01 per share, authorized 100,000 shares:
Junior preferred, cumulative, issued and outstanding
1,000 shares. Liquidation value $100 per share. 100 100
------- -------
Shareowners' equity (deficit):
Common stock, par value $.01 per share (notes 4 and 6):
Class A voting, authorized 3,000,000 shares; issued
and outstanding 500 shares. - -
Class B non-voting, authorized 3,000,000 shares;
issued and outstanding 999,800 shares. 10 10
Additional paid-in capital 55,938 55,938
Minimum pension liability ( 1,367) -
Retained deficit (415,259) (375,827)
------- -------
(360,678) (319,879)
------- -------
Commitments and contingencies (notes 3, 4, 8, 10
and 11)
$ 95,564 113,555
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 20 -
<PAGE> 21
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net sales $ 244,869 261,451 267,043
------- ------- -------
Cost of sales 216,834 221,519 233,824
Selling, administrative
and general expenses 36,247 37,985 51,652
Restructuring charge (note 1) - - 85,945
------- ------- -------
253,081 259,504 371,421
------- ------- -------
Operating income (loss) ( 8,212) 1,947 (104,378)
Interest income 498 205 225
Interest on indebtedness (note 4) ( 53,852) ( 46,846) ( 43,781)
Gain on sale of subsidiary (note 2) 20,847 - -
Other income (expenses), net 1,859 ( 4,296) ( 6,711)
------- ------- -------
Loss before income taxes,
cumulative effect of change
in accounting principle and
extraordinary item ( 38,860) ( 48,990) (154,645)
Provision for income
taxes (note 3) 532 - 4,512
------- ------- -------
Loss before cumulative
effect of change in accounting
principle and extraordinary item ( 39,392) ( 48,990) (159,157)
Cumulative effect of change in
accounting principle (note 3) - 2,100 -
Extraordinary item (note 3):
Reduction of income taxes
arising from carryforward of
prior year operating losses - - 1,925
------- ------- -------
Net loss $ ( 39,392) ( 46,890) (157,232)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 21 -
<PAGE> 22
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareowners' Equity (Deficit)
Years Ended December 31, 1994, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Minimum Shareowners'
---------------- Paid-in Pension Retained Equity
Class A Class B Capital Liability deficit (Deficit)
------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ - 10 24,990 - (171,644) (146,644)
Capital contribution (note 2) 30,948 30,948
Net loss (157,232) (157,232)
Preferred stock dividends ( 28) ( 28)
----- ----- ------ ------ ------- -------
Balance, December 31, 1992 - 10 55,938 - (328,904) (272,956)
Net loss ( 46,890) ( 46,890)
Preferred stock dividends ( 33) ( 33)
----- ----- ------ ------ ------- -------
Balance, December 31, 1993 - 10 55,938 - (375,827) (319,879)
Net loss ( 39,392) ( 39,392)
Adjustment to minimum
pension liability (note 7) ( 1,367) ( 1,367)
Preferred stock dividends ( 40) ( 40)
----- ----- ------ ------ ------- -------
Balance, December 31, 1994 - 10 55,938 ( 1,367) (415,259) (360,678)
===== ===== ====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 22 -
<PAGE> 23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item and cumulative effect of
accounting change $ ( 39,392) ( 48,990) (159,157)
Gain from extraordinary item - - 1,925
Cumulative effect of change in accounting principle - 2,100 -
------- ------- -------
Net loss ( 39,392) ( 46,890) (157,232)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,974 3,905 8,417
Amortization of goodwill - - 1,956
Restructuring charge - - 85,945
Gain on sale of Super Sagless assets ( 20,847) - -
Loss (gain) on sale of property, plant and equipment ( 1,636) 431 87
Loss, recognized in 1992, on sale of property - 4,562 -
Deferred income taxes ( 1,468) 2,827 -
Proceeds from pension plan reversion - - 69
Current period conversions of PIK debentures 18,300 15,686 13,433
Changes in assets and liabilities:
Accounts receivable 3,079 ( 9,490) 10,884
Inventories 5,700 ( 7,217) ( 636)
Prepaid expenses and other current assets 849 ( 3,280) ( 12)
Accounts payable ( 1,646) ( 323) 1,958
Accrued expenses 5,119 ( 847) 4,560
Federal and state income taxes 16 3,789 1,920
Other, net 1,399 496 ( 229)
------- ------- -------
Cash used - operating activities ( 27,553) ( 36,351) ( 28,824)
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment ( 3,401) ( 4,206) ( 3,223)
Proceeds from disposition of property,
plant and equipment 3,929 3,980 398
Proceeds from sale of Super Sagless assets 22,379 - -
Proceeds from disposition of Chromcraft and
Peters-Revington - - 50,525
------- ------- -------
Cash provided (used) - investing activities 22,907 ( 226) 47,700
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt 31,193 48,202 36,022
Repayment of long-term debt ( 25,900) ( 13,650) ( 61,039)
------- ------- -------
Cash provided (used) - financing activities 5,293 34,552 ( 25,017)
------- ------- -------
Increase (decrease) in cash and cash equivalents 647 ( 2,025) ( 6,197)
Cash and cash equivalents:
Beginning of period 3,968 5,993 12,190
------- ------- -------
End of period $ 4,615 3,968 5,993
======= ======= =======
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $ 28,835 25,372 25,273
Income taxes 506 978 2,185
Non-cash portion of proceeds from sale
of Super Sagless assets 15,750 - -
Conversion of accrued interest to PIK debentures 24,091 20,649 17,697
Adjustment to minimum pension liability 1,367 - -
Non-cash portion of proceeds from disposition of
Chromcraft and Peters-Revington and debt repayment - - 32,579
</TABLE>
See accompanying notes to consolidated financial statements.
- 23 -
<PAGE> 24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements represent a consolidation of the
financial statements of Fairwood Corporation ("Fairwood" or the "Company"), and
Consolidated Furniture Corporation ("Consolidated Furniture", formerly named
Mohasco Corporation) and all of its subsidiaries. All significant intercompany
balances, transactions and profits have been eliminated in consolidation.
Inventories
All inventories (materials, labor and overhead) are valued at the
lower of cost or market using the last-in, first-out (LIFO) method.
A LIFO liquidation occurred during 1992 but did not result in any
significant reduction of cost of sales.
The components of inventory at December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Raw materials $ 14,696 20,371
In process 4,193 9,487
Finished goods 11,914 14,346
------- -------
Inventories at first-in, first-out 30,803 44,204
LIFO reserve 11,990 13,029
------- -------
Inventories at LIFO $ 18,813 31,175
======= =======
</TABLE>
Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is
provided principally on a straight-line basis over the estimated useful lives
as follows: buildings and buildings capitalized under long-term leases from 30
to 45 years; machinery and equipment from 3 to 14 years; and leasehold
improvements over the term of the related leases.
Manufacturing and warehousing facilities under long-term leases which
were constructed by various local governmental bodies have been capitalized.
- 24 -
<PAGE> 25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Statements of Cash Flows
Cash and cash equivalents include cash in banks and highly liquid
short-term investments having a maturity of three months or less on the date of
purchase.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, ("Statement 109"). Statement 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method. Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date of the change in tax rates.
Effective January 1, 1993, the Company adopted Statement 109. The
adoption of Statement 109 resulted in a cumulative effect adjustment of
$2,100,000 which reduced the net loss for 1993, and which is reflected in the
1993 statement of operations. Financial statements for 1992 and prior years
have not been restated.
Under the deferred method, which was applied in 1992 and prior years,
deferred income taxes are recognized for income and expense items that are
reported in different years for financial reporting and tax purposes using the
tax rate applicable for the year of the calculation. Under the deferred
method, deferred taxes are not adjusted for subsequent changes in tax rates.
Restructuring Charge
In December 1992, the excess of purchase cost over the fair value of
assets acquired in the 1988 and 1989 purchase of Consolidated Furniture was
written off due to the unrecoverability of these costs.
- 25 -
<PAGE> 26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restructuring Charge (continued)
The charge includes the following costs:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Inventories $ 13,633
Property, plant and equipment 9,618
Tradenames and goodwill 62,694
------
$ 85,945
======
</TABLE>
The Company determined that the write up in assets resulting from the
purchase was unrecoverable due to the continuing significant losses of the
operating companies, and a lower of cost or market analysis of the Company's
assets.
(2) Divestitures
Super Sagless Corporation
On July 29, 1994, substantially all of the assets and liabilities of
Super Sagless Corporation ("Super Sagless"), a wholly-owned subsidiary of
Consolidated Furniture, were sold to a third party for $40 million cash. Of
the total sales price, $24.25 million was received upon closing and $15 million
was received six months after closing. The remaining $0.75 million was placed
in escrow for a period of one year to secure certain of the Company's
post-closing obligations and representations. After considering the estimated
costs of disposition, the Company has recognized a gain before income taxes of
approximately $21 million. The net proceeds from the sale were used to pay
existing debt owed CSCL.
During the period January 1 through July 29, 1994, Super Sagless
generated operating earnings before income taxes, exclusive of the gain on
sale, of approximately $2,300,000. During 1993 and 1992, Super Sagless
generated operating earnings (loss) before income taxes of approximately
$2,400,000 and ($883,000), respectively.
Chromcraft and Peters-Revington Corporations
The Company disposed of Chromcraft Corporation ("Chromcraft") and
Peters-Revington Corporation ("Peters-Revington") to Chromcraft Revington,
Inc., an affiliate, in April 1992. The proceeds from the disposition amounted
to approximately $83.1 million, approximately $30.9 million greater than the
book value of the net assets of Chromcraft and Peters-Revington. Due to the
affiliated nature of the transaction, the $30.9 million was accounted for as
- 26 -
<PAGE> 27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Divestitures (continued)
for as contributed capital. The proceeds were used to repay long-term debt
owed to Court Square Capital Limited ("CSCL"), an affiliate of the Company.
the disposition generated taxable income which resulted in a tax provision for
the year 1992.
During the period January 1 through April 23, 1992, Chromcraft and
Peters-Revington generated operating earnings before income taxes of
approximately $700,000.
(3) Income Taxes
As discussed in note 1, the Company adopted Statement 109 as of
January 1, 1993, which resulted in a cumulative effect adjustment of $2,100,000
which decreased the net loss for the year 1993. The effect of Statement 109 on
the provision for income taxes for the years ended December 31, 1994 and 1993
was not material.
Components of the provision for income taxes are summarized, in
thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ - - 3,225
State and local 532 - 1,287
------ ------ ------
532 - 4,512
Deferred - - -
------ ------ ------
Total provision for income
taxes before utilization
of net operating
loss carryforward 532 - 4,512
Net operating loss
carryforward - - ( 1,925)
------ ------ ------
Total provision for income
taxes $ 532 - 2,587
====== ====== ======
</TABLE>
- 27 -
<PAGE> 28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
The differences between the actual taxes and taxes computed at the
U.S. Federal Income tax rate of 34% are summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Expected tax benefit computed
at U.S. rate $ (13,212) (16,657) (52,579)
Increase in valuation
allowance 13,393 16,821 -
Taxable gain on
disposition (note 2) - - 21,675
State taxes, net of Federal benefit 351 - 850
Non-deductible depreciation
from purchase accounting
adjustments - - 1,448
Goodwill amortization and
restructuring charge - - 29,886
Other - ( 164) 3,232
------ ------ ------
532 - 4,512
Utilization of net operating
loss carryforward - - ( 1,925)
------ ------ ------
Total provision for income taxes $ 532 - 2,587
====== ====== ======
</TABLE>
The tax effects of temporary differences as of December 31, 1994 and
1993, in thousands, are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 31,978 $ 18,356
Accounts receivable 1,077 1,138
Vacation and holiday pay 420 655
Accrued expenses 4,983 4,551
Interest on merger debentures 4,735 4,494
Valuation allowance (41,834) (26,367)
------ ------
$ 1,359 $ 2,827
====== ======
Deferred tax liabilities:
Property, plant and equipment $ 1,359 $ 2,827
====== ======
</TABLE>
- 28 -
<PAGE> 29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
The valuation allowance for deferred tax assets as of January 1, 1993
was $7,047,000. The net changes in the total valuation allowance for the years
ended December 31, 1994 and 1993 were increases of $15,467,000 and $19,320,000,
respectively.
At December 31, 1994, the Company's net operating loss carryforwards of
approximately $84,240,000 expire in 2008 and 2009.
Net current deferred income tax benefits of $1,359,000 and $2,827,000 at
December 31, 1994 and 1993, respectively, are included in other current assets
in the accompanying consolidated balance sheets.
The Internal Revenue Service ("IRS") has examined the Company's Federal
income tax returns for the years 1988 through 1991 and is challenging certain
deductions, of which the most significant involves an effort to recharacterize
interest deductions as dividend distributions. The IRS has proposed
adjustments that approximate a net tax cost of $100 million, including interest
through the year ended December 31, 1994. The Company believes the IRS's
position with respect to these issues is incorrect and is vigorously contesting
these proposed adjustments. The Company cannot predict the ultimate outcome
nor the impact on its financial statements, if any.
(4) Long-term Debt
In conjunction with the Company's acquisition by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with
loans under a credit agreement with CSCL (the "Credit Agreement") and senior
subordinated pay-in-kind debentures due to CSCL. In exchange for the
approximately 6.85% of Consolidated Furniture common stock then outstanding,
the Company issued $33.5 million of subordinated pay-in-kind merger debentures
and 918,170 warrants (as discussed below) to purchase, in the aggregate,
142,900 shares of the Company's Class A common stock. The assets of
Consolidated Furniture and its subsidiaries are pledged as security for the
amounts due under the Credit Agreement. Certain instruments related to the
Credit Agreement have been amended at various times through March 1994. Among
other things, these amendments extended certain debt due dates, increased
certain debt limits and credit lines and modified selected financial covenant
tests. Certain provisions of these instruments have been waived at various
times through April 1994. During 1994, the Company entered into the Eleventh
Amendment to the Credit Agreement which, among other things, increased the
maximum amount that could be outstanding under the revolving credit facility
from $167.0 million to $200.0 million, established a sub-line limitation on
revolving credit loan advances to be used by Consolidated Furniture in by its
wholly-owned subsidiary, Furniture Comfort Corporation's Stratford division,
- 29 -
<PAGE> 30
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
and revised in a manner favorable to Consolidated Furniture the
financial covenants related to current ratio, consolidated net worth, working
capital and total debt. CSCL also waived compliance by Consolidated Furniture
with the consolidated net worth covenant of the Credit Agreement for the months
of April through June 1994. In April, 1995, CSCL waived provisions of the
Credit Agreement prohibiting sale by Consolidated Furniture of certain real
property that had been operated as, and related equipment located on, a saw
mill in Pontotoc, Mississippi. Proceeds from the disposition of Chromcraft
and Peters-Revington and the sale of substantially all the assets and
liabilities of Super Sagless were used to repay a portion of the debts due
under the Credit Agreement with CSCL.
The outstanding debt at December 31, 1994 and 1993 was as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1994
Interest
Debt 1994 1993 Rates
---- ---- ---- ------------
<S> <C> <C> <C>
Revolving credit, due 1996 $ 165,870 160,427 10%
Senior subordinated
debentures, due 1996 80,000 80,000 18%
Senior subordinated pay-
in-kind debentures, due 2001 105,853 91,173 15 1/2%
Merger debentures, due 2004 62,928 53,517 16 7/8%
Other, due 1998 700 850 6%
------- -------
415,351 385,967
Less current maturities 160 150
------- -------
$ 415,191 385,817
======= =======
</TABLE>
Substantially all of the Company's debt instruments restrict the
payment of dividends and the Credit Agreement with CSCL, relating to
Consolidated Furniture's revolving credit facility, contains certain financial
covenant tests. The Company plans to attempt to refinance, or negotiate an
extension of, the debt payable to CSCL when due.
In the opinion of management, the Company has the option until April
1, 1995 to pay interest on the senior subordinated pay-in-kind debentures and
merger debentures either by cash or by the distribution of additional
securities. On October 1, 1994, the Company tendered additional debentures in
payment of interest on its senior subordinated pay-in-kind debentures and
- 30 -
<PAGE> 31
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
merger debentures. On October 3, 1994, the trustee for the merger debentures
informed the Company that it would notify holders of the merger debentures of
its decision to decline to accept the additional merger debentures in
satisfaction of the October 1, 1994 installment of interest and that the
Company failed to make payment of interest in cash. The Company informed the
trustee that the Company disputes the trustee's view that the October 1, 1994
interest payment was required by the indenture governing the merger debentures
to be made entirely in cash. See Note 11.
The aggregate maturities of long-term debt (including capitalized
lease obligations) during the next five years and thereafter are as follows:
$160,000 in 1995; $246,040,000 in 1996; $180,000 in 1997; $190,000 in 1998; and
$168,781,000 subsequent to 1999.
The warrants issued with the merger debentures, discussed above,
became exercisable as of September 22, 1994 for a one-year period. The warrant
exercise price is $1 per share (subject to adjustment).
(5) Redeemable Preferred Stock
The Company issued 1,000 shares of junior preferred stock, par value
$.01 per share, for $100,000, which shares are held by CSCL. Dividends accrue
at $18 per share annually. As of December 31, 1994 and 1993, dividends payable
were approximately $150,000 and $110,000, respectively.
(6) Common Stock
Holders of Class A common stock are entitled to convert their shares
to an equal number of Class B common stock and holders of Class B common stock
are entitled to convert their shares to an equal number of Class A common
stock.
(7) Employee Benefit Plans
All salaried employees, excluding certain key executives, and hourly
paid employees of the Company with one year of service were covered by
non-contributory defined benefit retirement plans through May 31, 1993, at
which time further benefit accruals ceased and the plans were "frozen."
benefits for the plans are determined based on length of service and certain
average annual employee earnings. The cost of the retirement plans is accrued
annually; funding is in accordance with actuarial requirements of the plans,
subject to the Employee Retirement Income Security Act of 1974, as amended.
- 31 -
<PAGE> 32
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
Pension expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1994 1993 1992
------ ------ -------
<S> <C> <C> <C>
Current service cost $ - 1,506 1,992
Interest cost 892 956 856
Return on assets ( 829) ( 630) ( 407)
Amortization of prior service cost - 99 212
Special curtailment charge due to
cessation of benefit accruals as of
May 31, 1993 and disposition of
Chromcraft and Peters-Revington in
April 1992 - 927 914
----- ----- -----
$ 63 2,858 3,567
===== ===== =====
</TABLE>
Information with respect to the retirement plans for 1994 and 1993 has
been determined by consulting actuaries. The following table sets forth the
plans' funded status at December 31, 1994 and 1993, respectively, and
reconciles amounts recognized in the consolidated balance sheets at December
31, 1994 and 1993, respectively (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of obligations:
Vested $12,326 11,787
Nonvested 689 642
------ ------
Accumulated and projected benefit obligation 13,015 12,429
Assets at fair value at December 31 9,079 9,033
------ ------
Projected benefit obligation in excess of assets 3,936 3,396
Unrecognized net gain (loss) ( 1,367) ( 3)
------ ------
Accrued pension cost at December 31 2,569 3,393
Adjustment for minimum liability 1,367 -
------ ------
Pension liability at December 31 $ 3,936 3,393
====== ======
Assumptions:
Interest rates for obligations 7.25% 7.25%
Long-term rate of return 9.00% 9.00%
Salary increase rate N/A N/A
</TABLE>
As a result of the disposition of Chromcraft and Peters-Revington in
April 1992, all employees of Chromcraft and Peters-Revington were vested in
their retirement benefits under the plans.
- 32 -
<PAGE> 33
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies:
Barcalounger Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Barcalounger employees with at least one year of service. Annual
company contributions are based on individual participant's earnings and length
of service. For the year ended December 31, 1994 and the period June 1, 1993
to December 31, 1993, company contributions were $120,000 and $115,000,
respectively.
Barcalounger Savings Plan
This plan is designed to provide a savings vehicle for Barcalounger
employees with at least one year of service who may elect to participate by
saving on a before-tax and/or after-tax basis in one or more of four investment
funds. Annual company contributions match 25% of participants' contributions
of up to four percent of earnings. For the year ended December 31, 1994 and
the period June 1, 1993 to December 31, 1993, company matching contributions
were $36,000 and $21,000, respectively.
Stratford Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Stratford employees with at least one year of service. Annual
company contributions are based on individual participant's earnings and length
of service. For the year ended December 31, 1994 and the period June 1, 1993
to December 31, 1993, company contributions were $1,039,000 and $630,000,
respectively.
Prior to the sale of Super Sagless, $252,500 and $492,000 was incurred
for the year ended December 31, 1994 and the period June 1, 1993 to December
31, 1993, respectively, under the Super Sagless Retirement-Savings Plan, which
covered Super Sagless employees with at least one year of service. No future
contributions to the Super Sagless Plan by the Company are required.
The Company also maintained a non-qualified retirement plan for
certain key executives, who were excluded from participation in Consolidated
Furniture's Salaried Retirement Plan. Benefits of the executive retirement plan
were substantially the same as the Salaried Retirement Plan. The executive
retirement plan ceased benefit accruals in December 1992. The cost of this
plan was approximately $751,000 in 1992. As of December 31, 1994, the
remaining obligations under this executive plan are approximately $546,000, and
are included in other long-term liabilities.
- 33 -
<PAGE> 34
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
The Company also sponsors an investment plan. The plan previously
covered all employees but, subsequent to the adoption of the Barcalounger and
Super Sagless plans, noted above, this plan covers all employees not covered
by such plans. At the date of adoption of the Barcalounger and Super Sagless
plans, Barcalounger and Super Sagless participants' account balances were
transferred to the Barcalounger and Super Sagless plans. Company contributions
to the Company's investment plan were $39,000 in 1994, $50,000 in 1993 and
$177,000 in 1992.
Under various incentive compensation plans, certain employees of the
Company and its subsidiaries earned bonuses for reaching specific performance
criteria amounting to $519,000 in 1994, $964,000 in 1993 and $346,000 in 1992.
(8) Rental Commitments
The Company and its subsidiaries lease certain manufacturing and
warehousing facilities (capitalized leases), equipment (primarily
transportation equipment), and warehouse and showroom facilities (operating
leases).
Future minimum lease payments at December 31, 1994, under all
non-cancelable leases are as follows:
<TABLE>
<CAPTION>
Period Capital Operating
------ ------- ---------
(In thousands)
<S> <C> <C>
1995 $ 197 1,114
1996 197 929
1997 197 910
1998 196 928
1999 - 724
After 1999 - 426
----- -------
Total minimum lease payments 787 5,031
=======
Less amounts representing interest 87
-----
Total capitalized lease
obligations 700
Less current maturities of
capitalized lease obligations 160
-----
Capitalized lease obligations
net of current maturities $ 540
=====
</TABLE>
- 34 -
<PAGE> 35
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Rental Commitments (continued)
It is expected that, in the normal course of business, non-cancelable
leases that expire will be renewed or replaced.
Rental expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Minimum Rentals
(including cancel-
able leases) $ 4,314 4,276 5,502
Contingent rentals
(principally mileage
charges) - 362 452
Sublease rentals ( 285) ( 425) ( 674)
------ ------ ------
$ 4,029 4,213 5,280
====== ====== ======
</TABLE>
(9) Financial Information by Industry Segments
The Company is engaged in only one segment of business, the manufacture
of furniture. Sears Roebuck and Co. accounted for approximately twenty percent,
sixteen percent and thirteen percent of the Company's sales in each of the years
1994, 1993 and 1992, respectively.
(10) Contingencies
There were contingent liabilities at December 31, 1994 consisting of
purchase commitments and legal proceedings arising in the ordinary course of
business. The financial risk involved in connection with all contingent
liabilities, except the proposed adjustments delivered by the IRS, see note 3,
and the potential default condition on the merger debentures, see note 4, is
not considered material in relation to the consolidated financial position of
the Company.
- 35 -
<PAGE> 36
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Liquidity
Consolidated Furniture is expected to service its long-term debt under
the Credit Agreement, relating to the revolving credit facility, and senior
subordinated debentures from its cash flow from operations and available credit
facilities. As discussed in Note 4, subject to the interpretation of the
trustee for the merger debentures, interest on Fairwood's senior subordinated
pay-in-kind debentures and merger debentures was settled by distribution of
additional securities through September 1994. Fairwood has substantially no
assets other than the common stock of Consolidated Furniture, and Consolidated
Furniture and its primary operating subsidiary have pledged substantially all of
their assets to secure their obligations under the Credit Agreement. Throughout
portions of 1994, 1993 and 1992, Consolidated Furniture did not generate
sufficient funds from operations to fully meet its interest obligations related
to its long-term indebtedness. Consolidated Furniture funded these interest
obligations through increased borrowings from CSCL under the Credit Agreement.
However, during 1992 and 1994 the proceeds to Consolidated Furniture from the
disposition of Chromcraft and Peters-Revington and substantially all of the
assets of Super Sagless of approximately $83 million and $24 million,
respectively, were used to repay debt of Consolidated Furniture and its
subsidiaries under the Credit Agreement.
The Company is dependent upon CSCL for funding of its debt service
costs. CSCL has in the past increased its revolving line of credit line to
Consolidated Furniture under the Credit Agreement which has enabled
Consolidated Furniture to meet its debt service obligations. Under the Credit
Agreement, Consolidated Furniture and its subsidiaries are generally restricted
from transferring monies to the Company with the exception of amounts for (a)
specified administrative expenses of the Company not exceeding $275,000 per
year and (b) payment of income taxes. Management believes that cash flow from
operations and funding from CSCL will be adequate for its working capital
requirements and any cash payments due on the debt of Consolidated Furniture
through December 31, 1995.
- 36 -
<PAGE> 37
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
However, the Company's cash flow from operations will not be sufficient
to permit the Company to make cash interest payments on the Company's senior
subordinated pay-in-kind debentures and merger debentures. Consolidated
Furniture's credit facilities do not permit it to borrow funds to enable the
Company to make cash interest payments on the senior subordinated pay-in-kind
debentures and merger debentures. Accordingly, depending on the interpretation
of the indentures governing the senior subordinated pay-in-kind debentures and
merger debentures, the Company may have failed to make the interest payments
required on October 1, 1994, see note 4, and will probably fail to make the cash
interest payments required on April 1, 1995. Management is assessing its
alternatives and plans with respect to this matter based on possible actions, if
any, which are taken by the holders of the senior subordinated pay-in-kind
debentures and merger debentures.
- 37 -
<PAGE> 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The name, age and position or principal occupation during the past five
years of each member of the Board of Directors and executive officer of the
Company are set forth below. Directors serve for a term of one year and until
their successors are elected and qualified. Officers are elected annually by
the Board of Directors to serve for the ensuing year and until their respective
successors are elected.
<TABLE>
<CAPTION>
Director Position and Principal Occupation or
Name Age Since Employment Held During Last 5 Years
---- --- -------- ------------------------------------
<S> <C> <C> <C>
John B. Sganga 63 1992 Chief Financial Officer, Executive
Vice President, Secretary and
Treasurer since February 1993.
Mr. Sganga is also, inter alia,
Chief Financial Officer, Executive
Vice President, Secretary and
Treasurer of Consolidated Furniture
and Vice President, Treasurer and
Secretary of each of Consolidated
Furniture's subsidiaries. From
December 1988 to February 1993,
Mr. Sganga served the Company and
its subsidiaries in various officer
positions. Mr. Sganga is also a
director of Consolidated Furniture.
M. Saleem Muqaddam 47 1992 Vice President, CVCL, an affiliate
of the Company, since 1989. Mr.
Mugaddam is also vice president of
CSCL, an affiliate of CVCL.
Previously, Mr. Muqaddam spent 15
years with Citibank, N.A., an
affiliate of the Company, in senior
managerial positions. Mr. Muqaddam
is also a director of Consolidated
Furniture, Chromcraft Revington,
Inc., Pamida Holdings, Inc. and
Plantronics, Inc.
</TABLE>
Fairwood's senior executive officer holds the title of Chief Financial
Officer, Executive Vice President, Secretary and Treasurer. No executive
- 38 -
<PAGE> 39
officer holds the title of President or Chief Executive Officer, but the
functions customarily performed by the person holding such titles are performed
by Fairwood's Chief Financial Officer, Executive Vice President, Secretary and
Treasurer. There are no arrangements or understandings between any director
and any other person naming such person pursuant to which such director was
selected as a director.
The following were subsidiary presidents and may be deemed to be executive
officers of the Company as of December 31, 1994:
<TABLE>
<CAPTION>
Date Assumed
Name Age Position Position
---- --- -------- --------
<S> <C> <C> <C>
Stephen R. Lake 48 Chief Operating Officer August 1994
Stratford Division of
Furniture Comfort
Corporation.
Robert M. Shaughnessy 54 President of Furniture July 1992
Comfort Corporation and
President and Chief
Executive Officer
Stratford Division of
Furniture Comfort
Corporation
Wayne T. Stephens 44 President and Chief October 1992
Executive Officer
Barcalounger Division of
Furniture Comfort
Corporation
</TABLE>
There are no family relationships among any of the Company's directors or
officers.
The following is a brief account of the business experience during the
past five years of each of the subsidiary presidents:
Effective February 1, 1995 Mr. Lake was appointed to the position of
President of the Stratford Company ("Stratford"), a Division of Furniture
Comfort Corporation. From August 1994 to February 1995 he was the Chief
Operating Officer of Stratford. From September 1991 to July 1994 he was the
President and Chief Executive Officer of Super Sagless Corporation. From prior
to 1989 to February 1991 he was Vice President and General Manager of Clark
Components N.A.
Effective February 1, 1995 Mr. Shaughnessy resigned as President of
Furniture Comfort Corporation and President and Chief Executive Officer of
Stratford. Prior to his resignation he had been employed by the Company since
July 1992 in his present position. From February 1991 to July 1992 he was Vice
President, Marketing, Outboard Marine Corporation, from June 1990 to February
1991 he worked as a consultant and from prior to 1989 to June 1990 he was
Senior Vice President, Navistar.
- 39 -
<PAGE> 40
In connection with services provided by The Finley Group, a management
consulting firm, Mr. Stephens, a principal of that firm, has acted as president
of a number of companies; he was president from September 1989 to January 1990
of Southwest Elevator Corporation, from January 1990 to January 1991 of
Munford, Inc., from January 1991 to October 1991 of Specialty Paperboard, Inc.,
from January 1992 to October 1992 of Docktor Pet, Inc. and from October 1992 to
April 1993 as President and Chief Executive Officer of the Barcalounger
Division of Furniture Comfort Corporation. While continuing in his role as
President and Chief Executive Officer of the Barcalounger division, in April
1993, Mr. Stephens became a direct consultant to the Company and in January
1994 an employee of Furniture Comfort Corporation. Prior to joining The Finley
Group in September 1989, Mr. Stephens was a partner with Deloitte & Touche, a
public accounting firm.
ITEM 11. EXECUTIVE COMPENSATION
Executive Officers' Compensation
Information concerning the compensation earned by the above named executive
officers is set forth in the Summary Compensation Table.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Name and Annual Compensation ------------
Principal ------------------- LTIP All Other
Position Year Salary Bonus Payouts Compensation
- --------- ---- ----- ------- ------------
<S> <C> <C> <C> <C>
John B. Sganga 1994 $150,000 $ $ - $ 7,766 (1)
Executive VP 1993 190,729 - - 1,907 (1)
and CFO 1992 192,500 34,235 1,392 (2) 157,835 (1)
Stephen R. Lake
Chief Operating 1994 213,686 (3) 1,147,721 (4) - 51,849 (5)
Officer 1993 170,000 172,975 - 15,809 (5)
Stratford 1992 153,750 112,468 - 413 (5)
Robert M. Shaughnessy
President of 1994 250,000 141,934 - 4,524 (6)
Furniture Comfort 1993 235,231 - - 39,903 (6)
& CEO Stratford 1992 101,667 110,000 - 28,935 (6)
Wayne T. Stephens 1994 160,000 - - 2,150 (7)
President & CEO 1993 300,000 (8) - - -
Barcalounger 1992 55,682 (8) - - -
</TABLE>
(1) 1994 amount represents company contributions to the investment plan of
$1,500 and $6,266 for the value of the use of a company vehicle. 1993
amount represents company contributions to the Investment Plan. 1992
amount includes $150,510 distribution under the Executive Retirement
Plan, $5,400 excess of book value over purchase price of company car,
and $1,925 company contribution to Salaried Investment Plan.
- 40 -
<PAGE> 41
(2) Deferred executive incentive award given in 1989 and payable in 1992. No
deferred awards have been given since 1989.
(3) 1994 includes Super Sagless base salary of $107,917.
(4) 1994 amount includes Super Sagless bonus of $1,047,721.
(5) 1994 amount represents distribution from Super Sagless Retirement Plan
of $51,849. 1993 includes $12,916 distribution under the Executive
Retirement Plan, $1,518 company contribution to the Super Sagless
Retirement-Savings Plan, and $1,375 company contribution to Investment
Plan. 1992 amount represents the company contribution to the
Investment Plan.
(6) 1994 amount represents $4,524 for the value of the use of a company
vehicle. 1993 and 1992 amounts represent relocation allowances.
(7) 1994 amounts represent company contributions to the investment plan of
$800 and $1,350 for the value of the use of a company vehicle.
(8) 1993 amounts represent $200,000 paid to Mr. Stephens as a consultant
and $100,000 paid to The Finley Group for services it rendered through
Mr. Stephens. 1992 amounts represent $55,682 paid to The Finley Group
for services it rendered through Mr. Stephens.
Employment Agreements
Consolidated Furniture entered into an employment agreement with Mr.
Sganga, who is named in the summary compensation table, effective December 15,
1993, which provides for an annual salary, plus such bonuses as may be awarded
in the discretion of the Board of Directors. This agreement will remain in
effect through December 31, 1995 unless terminated sooner with or without cause
by the Board of Directors. If employment is terminated without cause, other
than due to death or disability or other incapacity, Mr. Sganga will be
entitled to receive a severance payment in an amount equal to the lesser of (i)
$150,000 and (ii) an amount equal to sum of the base salary payments that he
would have received had he remained in the employ of the Company until December
31, 1995. No severance will be paid if termination is for cause, or due to
death, disability or other incapacity.
Consolidated Furniture entered into an employment agreement with Mr.
Stephen R. Lake, who is named in the summary compensation table, effective June
16, 1994, which provides for an annual salary beginning at $250,000, plus
bonuses based on preestablished goals for each year. Mr. Lake was guaranteed a
$100,000 bonus for 1994. If employment is terminated without cause before the
third anniversary date of the agreement, Mr. Lake will be entitled to receive a
severance payment equal to his annual base salary then in effect.
Retirement Plan
Messrs. Sganga, Lake, Shaughnessy and Stephens, who are named in the
summary Compensation Table, are not participants in the Salaried and Sales
employees Retirement Plan of Consolidated Furniture, which ceased further
benefit accruals as of May 31, 1993.
- 41 -
<PAGE> 42
Consolidated Furniture adopted in 1990 a non-qualified non-contributory
Executive Retirement Plan for certain of its executives in the operating
companies and corporate office, including Messrs. Sganga, Shaughnessy and Lake.
Participants in this plan are not eligible to participate in the Consolidated
Furniture Salaried and Sales Employees Retirement Plan. Executives designated
as participants begin to accrue retirement benefits following completion of one
year of employment. Benefits accrued under the plan are reduced by any
benefits to which the individual may be entitled under a prior or current
defined benefit pension or supplemental retirement plan of Consolidated
Furniture.
In December 1992, benefit accruals were ceased to the Executive Retirement
Plan and Messrs. Sganga and Lake received payment in full settlement of the
accrued benefit obligation under the plan. Mr. Sganga received $150,510 in
1992 and Mr. Lake received $12,916 in 1993. Mr Stephens is not eligible to
participate in the Executive Retirement Plan.
Salaried Investment Plan
Officers of Consolidated Furniture are eligible to participate in its
ax-qualified Investment Plan for Salaried and Sales Employees. Directors who
are not officers are not eligible. Consolidated Furniture may, but is not
obligated to, contribute up to 100% of any savings of a participant not
exceeding 4% of salary.
The full value of a participant's investment in the plan becomes payable
upon retirement, disability or death. Upon termination of employment for
other reasons, a participant is entitled to the accumulated value of his or her
savings, and to varying amounts of Consolidated Furniture's contributions
depending on years of membership in the plan, with 100% thereof payable if
years of membership are 5 or more.
During 1994, such contributions for Mr. Sganga were $1,500. In June 1993,
the following defined contribution plans were adopted: Barcalounger Retirement
Plan, Barcalounger Savings Plan, Stratford Retirement Plan, and Super Sagless
Retirement-Savings Plan. Please refer to note 7, Employee Benefit Plans, in
the Notes to Consolidated Financial Statements. The company contribution for
Mr. Lake in the Super Sagless Retirement-Savings Plan was $1,518. Mr.
Shaughnessy is not a member of the Stratford Retirement Plan and Mr. Stephens
was not eligible for membership in the Barcalounger Retirement Plan nor the
Barcalounger Savings Plan.
Incentive Plan
Consolidated Furniture maintains an executive incentive (bonus) plan
implemented to provide individual awards for attainment of specified business
objectives. Under the executive incentive plan, each of Consolidated
Furniture's profit centers is assigned certain business goals annually, which
for 1994 were based on earnings and cash flow. Awards are made to profit
center participants based upon the extent to which their respective profit
centers attain their goals. Total awards made for the 1994 Plan Year were
$519,000, including awards of $267,721 for Mr. Lake and $141,934 for Mr.
Shaughnessy.
- 42 -
<PAGE> 43
During 1994, Mr. Lake also received an $780,000 bonus associated with the
sale of substantially all of the assets and liabilities of Super Sagless.
Directors' Compensation
As of the date of this Annual Report on Form 10-K, the Company has not
determined what compensation directors who are not officers of the Company will
receive for their service as director. No compensation was paid to directors
for their services as directors in 1994.
Compensation Committee Interlocks and Insider Participation
The Company's board of directors does not have a separate compensation
committee. Accordingly, the entire board of directors considers executive
compensation matters, except that any executive officer who is a director does
not take part in executive compensation matters regarding that executive
officer.
- 43 -
<PAGE> 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The Company's common stock consists of both voting stock and non-voting
stock. The table below sets forth, as of February 28, 1995, certain information
regarding the directors and executive officers and each person who owns of
record or beneficially 5% or more of the outstanding shares of common stock.
Such beneficial owners own their shares directly and have sole voting and
investment power with respect to their shares. To the Company's knowledge, no
director or executive officer holds any warrants and no person owns of record
or beneficially 5% or more of the outstanding warrants.
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares Percentage
Name and Address Shares of Company's of Company's of
of Beneficial Owner Common Stock Common Stock Voting Power
- ------------------- ------------------- ------------------ ------------
<S> <C> <C> <C>
Citicorp Venture Capital 1,000,100 99.98% 60%
Ltd. *
399 Park Avenue
New York, NY 10043
Thomas F. Creamer 100 0.01% 20%
Anthony C. Howkins 100 0.01% 20%
John B. Sganga - 0.00% 0%
========= ====== ===
M. Saleem Muqaddam** 1,000,100 99.98% 60%
========= ====== ===
- ---------------------------
</TABLE>
* Owns 999,800 shares of the Company's Class B Non-Voting Common Stock
and 300 shares of the Company's Class A Voting Common Stock. Under
the Company's Certificate of Incorporation, the Class B Non-Voting
Common Stock is convertible into Class A Voting Common Stock, so long
as the holder of the Class B Stock would be permitted to hold the
resulting Class A Stock under applicable law. On December 31, 1990,
CVCL and Fairwood entered into an Agreement and Plan to Relinquish
Control pursuant to which CVCL converted 200 shares of Class B Stock
into 200 shares of Class A Stock and increased its ownership of the
outstanding Class A Stock from 33-1/3% to 60%. Under this Agreement,
CVCL is required to convert a sufficient number of shares of Class A
Stock into Class B Stock to reduce CVCL's ownership of Class A Stock
such that CVCL will no longer be presumed to have control of Fairwood
under the regulations of the Small Business Administration upon the
earlier of (i) the date on which the Company's ratio of earnings
before interest, taxes and depreciation to interest expense on a
consolidated basis has been 1.5 to 1 for three consecutive fiscal
quarters or (ii) December 31, 1997 (or such later date as may be
consented to by the Small Business Administration). The Agreement has
been accepted by the Small Business Administration. CVCL is a
subsidiary of Citibank, N.A., a national bank which is owned by
Citicorp a publicly owned bank holding company, and is an affiliate of
CSCL.
** Mr. Muqaddam disclaims beneficial ownership of these shares owned of
record by CVCL which are attributed to him by reason of his status as an
officer of CVCL.
- 44 -
<PAGE> 45
Ownership by Directors and Officers
As of February 28, 1995, no shares of the Company's common stock were
beneficially held by any director or officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As further described in the Company's financial statements in Item 8, a
large majority of the Company's long-term debt at December 31, 1994 is payable
to CSCL, an affiliate of CVCL, the Company's majority shareowner. M. Saleem
Muqaddam, a director of the Company, is a vice president of CVCL and CSCL.
During 1994, the largest aggregate amount of indebtedness outstanding that was
payable to CSCL was approximately $353.4 million; as of February 28, 1995, the
aggregate amount of such indebtedness was approximately $337.8 million. See
Note 4, Long-term Debt, in the Notes to Consolidated Financial Statements set
forth in Item 8. During 1994 the Company borrowed approximately $31.2 million
from CSCL and made payments to CSCL of approximately $25.8 million. During
1995 it is anticipated that approximately $31.5 million will be borrowed from
CSCL and that payments to CSCL of approximately $14.0 million will be made to
CSCL. It is also anticipated that interest due to CSCL on the senior
subordinated pay-in-kind debentures, which interest approximates $16.4 million,
will not be paid.
399 Venture Partners, Inc., an affiliate of CVCL, owns approximately 49% of
Chromcraft Revington, Inc. M. Saleem Muqaddam, vice president of CVCL and
director of the Company, is a director of Chromcraft Revington, Inc.
- 45 -
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page
----
The following financial statements and supplementary data are included
in Part II, Item 8:
<TABLE>
<S> <C>
Independent Auditors' Report................................... 18-19
Consolidated Balance Sheets at December 31, 1994 and 1993...... 20
Consolidated Statements of Operations for the Years ended
December 31, 1994, 1993 and 1992 ............................ 21
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 1994, 1993 and 1992 ........ 22
Consolidated Statements of Cash Flows for the Years ended
December 31, 1994, 1993 and 1992 ............................. 23
Notes to Consolidated Financial Statements .................... 24-37
</TABLE>
2. Financial Statement Schedule
For the three years ended December 31, 1994:
<TABLE>
<S> <C>
Schedule VIII--Valuation and Qualifying Accounts
and Reserves................................... 51
</TABLE>
Other schedules are omitted because of the absence of conditions
under which they are required.
- 46 -
<PAGE> 47
3. Exhibits
Exhibits are listed by numbers corresponding to the Exhibit Table of
Item 601 in Regulation S-K
<TABLE>
<S> <C>
(3.1) Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.3 of the
Registrant's Registration Statement on Form S-4 (the "Form
S-4")).
(3.2) By-Laws of the Registrant (incorporated by reference to
Exhibit 3.4 of the Form S-4).
(3.3) Certificate of Amendment of Certificate of Incorporation,
dated March 22, 1993 (incorporated by reference to Exhibit
3.3 of the Registrant's annual report on Form 10-K for the
year ended December 31, 1992 (the "1992 Form 10-K"))
(4.1) Indenture, dated as of August 15, 1989, between Fairwood
Corporation, formerly MHS Holdings Corporation
(the "Company") and Bankers Trust Company, as Trustee,
relating to the 16-7/8% Subordinated Pay-In-Kind Debentures
due 2004 (the "Merger Debentures"), (incorporated by
reference to Exhibit 4.1 of the Registrant's third quarter
report on Form 10-Q for the quarter ended September 30, 1989
(the "1989 Third Quarter 10-Q")).
(4.2) Form of Merger Debentures, included as Exhibit A to Exhibit
4.1, (incorporated by reference to Exhibit 4.2 of the 1989
Third Quarter 10-Q).
(4.3) Pledge and Security Agreement, dated as of August 15, 1989,
made by the Company to Bankers Trust Company, as Trustee,
(incorporated by reference to Exhibit 4.3 of the 1989 Third
Quarter 10-Q).
(4.4) Warrant Agreement, dated as of August 15, 1989, between the
Company and Pittsburgh National Bank, as Warrant Agent,
(incorporated by reference to Exhibit 4.4 of the 1989 Third
Quarter 10-Q).
(4.5) Form of Warrants, included as Exhibit A to Exhibit 4.4,
(incorporated by reference to Exhibit 4.5 of the 1989 Third
Quarter 10-Q).
(4.6) 15-1/2% Senior Subordinated Pay-In-Kind Debentures of the
Company, dated as of September 22, 1989, issued to Citicorp
Capital Investors Ltd. (incorporated by reference to Exhibit
4.6 of the 1989 Third Quarter 10-Q).
(4.7) Pledge and Security Agreement, dated September 22, 1989,
made by the Company to Citicorp Capital Investors Ltd., as
Agent, (incorporated by reference to Exhibit 4.7 of the 1989
Third Quarter 10-Q).
(4.8) Credit Agreement dated as of September 22, 1989 among
Mohasco Corporation ("Mohasco"), Mohasco Upholstered
Furniture Corporation, Chromcraft Corporation, Super Sagless
Corporation, Choice Seats Corporation and Peters Revington
Corporation and Citicorp Capital Investors Ltd. (the "Credit
Agreement"), (incorporated by reference to Exhibit 4.8 of
the Registrant's annual report on Form 10-K for the year
ended December 31, 1989 (the "1989 Form 10-K")).
</TABLE>
- 47 -
<PAGE> 48
<TABLE>
<S> <C>
(4.9) Amendment, dated December 15, 1989, to the Credit Agreement,
(incorporated by reference to Exhibit 4.9 of the 1989 Form
10-K).
(4.10) Amendment, dated March 13, 1990, to the Credit Agreement,
(incorporated by reference to Exhibit 4.10 of the 1989 Form
10-K).
(4.11) Notice of Election and Waiver, dated March 13, 1990, to the
Credit Agreement, (incorporated by reference to Exhibit 4.11
of the Registrant's annual report on Form 10-K for the year
ended December 31, 1990 (the "1990 Form 10-K")).
(4.12) Term Note B, dated March 13, 1990, issued to Court Square
Capital Limited, (incorporated by reference to Exhibit 4.12
of the 1989 Form 10-K).
(4.13) Agreement and Waiver, dated August 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.13 of the
1990 Form 10-K).
(4.14) Agreement and Waiver, dated September 5, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.14 of the
1990 Form 10-K).
(4.15) Agreement and Waiver, dated September 15, 1990, to the
Credit Agreement, (incorporated by reference to Exhibit 4.16
of the 1990 Form 10-K).
(4.16) Waiver and Amendment, dated September 15, 1990, to the
Credit Agreement and letter, dated September 15, 1990,
related thereto, (incorporated by reference to Exhibit 4.16
of the 1990 Form 10-K).
(4.17) Waiver and Fourth Amendment, dated as of December 31, 1990,
to the Credit Agreement, (incorporated by reference to
Exhibit 4.17 of the 1990 Form 10-K).
(4.18) Revolving Credit Note, dated September 22, 1989, amended and
restated as of September 15, 1990, issued to Court Square
Capital Limited, and Endorsement No. 1 thereto, dated as of
December 31, 1990, (incorporated by reference to Exhibit
4.18 of the 1990 Form 10-K).
(4.19) Increasing Rate Senior Subordinated Debentures of Mohasco
Corporation dated as of September 22, 1989 issued to
Citicorp Capital Investors Ltd. (the "Senior Subordinated
Debentures"), (incorporated by reference to Exhibit 4.13 of
the 1989 Form 10-K).
(4.20) Amendment, dated March 30, 1990, to the Senior Subordinated
Debentures, (incorporated by reference to Exhibit 4.14 of
the 1989 Form 10-K).
(4.21) Second Amendment, dated as of December 31, 1990, to the
Senior Subordinated Debentures, (incorporated by reference
to Exhibit 4.21 of the 1990 Form 10-K).
(4.22) Endorsement No. 1, dated as of December 31, 1990, to the
Senior Subordinated Debentures, (incorporated by reference
to Exhibit 4.22 of the 1990 Form 10-K).
(4.23) Waiver, dated as of June 29, 1991, to the Credit Agreement,
(incorporated by reference to Exhibit 4.23 of the
Registrant's annual report on Form 10-K for the year ended
December 31,1991 the "1991 Form 10-K")).
</TABLE>
- 48 -
<PAGE> 49
<TABLE>
<S> <C>
(4.24) Waiver, dated as of October 31, 1991, to the Credit
Agreement, (incorporated by reference to Exhibit 4.24 of the
1991 Form 10-K).
(4.25) Letter Agreement, dated as of October 31, 1991, between the
Company and Manufacturers Hanover, as Warrant Agent and
letter from Pittsburgh National Bank, dated October 28,
1991, related thereto, (incorporated by reference to Exhibit
4.25 of the 1991 Form 10-K).
(4.26) Waiver and Fifth Amendment, dated as of March 27, 1992, to
Credit Agreement, (incorporated by reference to Exhibit 4.26
of the 1991 Form 10-K).
(4.27) Third Amendment, dated as of March 27, 1992, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.27 of the 1991 Form 10-K).
(4.28) Endorsement No. 2, dated as of March 27, 1992, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.28 of the 1991 Form 10-K).
(4.29) Sixth Amendment, dated as of April 23, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's second quarter report on Form 10-Q for the
quarter ended June 27, 1992 (the "1992 Second Quarter
10-Q")).
(4.30) Seventh Amendment, dated as of April 23, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.2 of the
1992 Second Quarter 10-Q).
(4.31) Eighth Amendment, dated as of September 26, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's third quarter report on Form 10-Q for the
quarter ended September 26,1992 (the "1992 Third Quarter
10-Q")).
(4.32) Waiver and Ninth Amendment, dated as of February 4, 1993, to
Credit Agreement, (incorporated by reference to Exhibit 4.32
of the 1992 Form 10-K).
(4.33) Tenth Amendment, dated as of March 22, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.33 of the
1992 Form 10-K).
(4.34) Recision of Waiver, dated as of April 30, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's first quarter report on Form 10-Q for the
quarter ended April 3, 1993 (the "1993 First Quarter 10-
Q")).
(4.35) Eleventh Amendment, dated as of March 25, 1994, to Credit
Agreement, (incorporated by reference to Exhibit 4.35 of the
1993 Form 10-K).
(4.36) Fourth Amendment, dated as of January 3, 1994, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.36 of the 1993 Form 10-K).
(10.1) Employment Agreement, between Mohasco and Robert W. Hatch,
dated September 21, 1989, (incorporated by reference to
Exhibit 10.1 of the 1989 Form 10-K).
(10.2) Supplemental Executive Retirement Agreement, between Mohasco
and Robert W. Hatch, dated September 27, 1990, (incorporated
by reference to Exhibit 10.2 of the 1990 Form 10-K).
</TABLE>
- 49 -
<PAGE> 50
<TABLE>
<S> <C>
(10.3) Mohasco Executive Retirement Plan, (incorporated by
reference to Exhibit 10.5 of the 1990 Form 10-K).
(10.4) Mohasco Corporation Executive Incentive Plan, (incorporated
by reference to Exhibit 10.6 of the 1990 Form 10-K).
(10.5) Amendment, dated December 31, 1991, to the Mohasco Executive
Retirement Plan, (incorporated by reference to Exhibit 10.6
of the 1991 Form 10-K).
(10.6) Merger Agreement dated March 10, 1992 among Chromcraft
Revington, Inc., Chromcraft Merger Subsidiary, Inc., Mohasco
Corporation, Chromcraft Corporation and the Company,
(incorporated by reference to Exhibit 10.1 of the March 17,
1992 Form 8-K).
(10.7) Merger Agreement dated March 10, 1992 among Chromcraft
Revington, Inc., PR Merger Subsidiary, Inc., Mohasco
Corporation, Peters-Revington Corporation and the Company,
(incorporated by reference to Exhibit 10.2 of the March 17,
1992 Form 8-K).
(10.8) Employment Agreement, between Mohasco and John B. Sganga,
dated December 15, 1993, (incorporated by reference to
Exhibit 10.8 of the 1993 Form 10-K).
(10.9) Agreement for Purchase and Sale of Assets among Super
Sagless Corporation, Mohasco Corporation, Leggett & Platt
Furniture Hardware Company and Leggett & Platt,
Incorporated, dated July 14, 1994, (incorporated by
reference to Exhibit 2.1 of the 1994 Second Quarter 10-Q).
(10.10) Employment Agreement, between Furniture Comfort Corporation
and Stephen R. Lake, dated June 16, 1994.
(22.1) List of Subsidiaries of the Registrant.
</TABLE>
The Company agrees to furnish the Securities and Exchange Commission, upon
request, a copy of any instrument defining the rights of holders of long term
debt of the Company and its consolidated subsidiaries.
(b) Reports on Form 8-K
No reports were filed on Form 8-K for the twelve months ended December
31, 1994.
- 50 -
<PAGE> 51
Schedule VIII
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1994, 1993 and 1992
(In Thousands)
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at close
Description of period earnings reserves of period
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Valuation and qualifying
accounts and reserves
deducted from accounts
and notes receivable:
1994
----
Allowance for discounts $ 259 1,420 1,355 324
Allowance for doubtful
accounts 2,753 934 1,255 2,432
Allowance for estimated
loss on claims 1,050 - 1,050 -
------ ------ ------ -----
$ 4,062 2,354 3,660 2,756
====== ====== ====== ======
1993
----
Allowance for discounts $ 185 1,705 1,631 259
Allowance for doubtful
accounts 2,454 1,433 1,134 2,753
Allowance for estimated
loss on claims 518 1,192 660 1,050
------ ------ ------ ------
$ 3,157 4,330 3,425 4,062
====== ====== ====== ======
1992
----
Allowance for discounts $ 161 1,570 1,546 185
Allowance for doubtful
accounts 3,150 1,367 2,063 2,454
Allowance for estimated
loss on claims 276 525 283 518
------ ------ ------ ------
$ 3,587 3,462 3,892 3,157
====== ====== ====== ======
</TABLE>
- 51 -
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FAIRWOOD CORPORATION
By: /s/ John B. Sganga
-------------------------
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
Date: February 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 21, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
Title
/s/ John B. Sganga Director and Chief
- ------------------------ Financial Officer,
John B. Sganga Executive Vice President,
Secretary and Treasurer
(principal executive,
financial and accounting
officer)
- 52 -
<PAGE> 53
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 21, 1996 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ M. Saleem Muqaddam Director
- ---------------------------
M. Saleem Muqaddam
- 53 -
<PAGE> 1
EXHIBIT 10.10
Mohasco Corporation
4401 Fair Lakes Court, Fairfax, Viginia 22033
(703) 958-8015
John B. Sganga
Executive Vice President
Chief Financial Officer
June 16, 1994
Mr. Stephen R. Lake
3074 Plantation Circle
Tupelo, MS 38801
Dear Steve:
I am pleased to confirm our offer to you for the position of Chief
Operating Officer of our Stratford Company, a part of a wholly-owned subsidiary
of Mohasco Corporation. In this position you will be responsible for
operations, will work with the Chief Executive Officer, and together with him,
you will be responsible to and report to the Board of Directors. Our offer
assumes and is contingent on the completion of the sale of our Super Saglass
Corporation subsidiary to Leggett & Platt, Incorporated. You would start at
Stratford Company Promptly upon completion of that sale.
As we have discussed, the following summarizes our compensation,
benefits and perquisites for you in this role:
(1) SALARY. An annual base salary of $250,000.
(2) BONUS. You will participate in the Company's Executive Plan.
As a member of this plan you will have an annual bonus opportunity, based on
target performance of preestablished financial goals for the year, of 55% of
your salary. For the remainder of 1994 we will guarantee you a bonus payment
of no less than $100,000, payable after the 1994 financial results have been
audited.
(3) LONG TERM EQUITY INCENTIVE. By the end of 1994 the Board of
Directors will establish an additional equity incentive plan for the Senior
executives of Stratford Company which will be designed to provide substantial
benefits after the Company reaches an EBIT performance threshold of $10 million
per year. This plan is expected to require an aggregate investment by senior
executives of approximately $500,000. Upon reaching an annual EBIT level of
approximately $20 million your personal return under this plan to you and the
other senior executives will be realized upon the sale of Stratford Company, an
initial public offering of its common stock or other transaction in which
Mohasco Corporation realizes a return on its investment in the Company.
<PAGE> 2
Mr. Stephen R. Lake
June 16, 1994
Page 2
(4) EMPLOYEE BENEFITS. You will be eligible to participate in the
normal benefit plans of the Company. A summary of these plans is available to
you.
(5) EXECUTIVE PERQUISITES. You will be provided with a Company car
in accordance with our policy and will be eligible for a comprehensive annual
physical at Company expense.
(6) TERMINATION GUARANTEE. In consideration of your accpeting this
challenging assignment, the Company will guarantee you a severance payment
equal to twelve months of your then current base salary if the Company
terminates your employment without cause before your third anniversary date.
(7) DUTIES. You will perform your duties for the Company in the
Tupelo area to the best of your ability and will be expected to devote your
full working time, energy and skills to these duties during the course of your
employment.
We are excited at the prospect of your joining the Stratford Company.
If this letter accurately summarizes our mutual understanding of the terms of
your employment, please sign and date the enclosed second copy of this letter
and return it to us.
Very truly yours,
Mohasco Corporation
By /s/ JOHN B. SGANGA
------------------
John B. Sganga
Agreed:
/s/ STEPHEN R. LAKE
- -------------------
Stephen R. Lake
