<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission file number 0-18446
Fairwood Corporation
--------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3472113
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Center
1201 N. Orange St., Suite 790, Wilmington, DE 19801
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(302) 884-6749
--------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Outstanding at
Class April 1, 2000
----- -----------------
Class A Voting, $.01 Par Value 500
- ------------------------------ -----------------
Class B Non-Voting, $.01 Par Value 999,800
- ---------------------------------- -----------------
<PAGE> 2
FAIRWOOD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
April 1, December 31,
Assets 2000 1999
------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,257 5,135
-------- --------
Trade accounts receivable 8,716 8,455
Less allowance for discounts and doubtful accounts 345 325
-------- --------
8,371 8,130
-------- --------
Inventories 8,872 6,841
Prepaid expenses and other current assets 458 166
-------- --------
Total current assets 20,958 20,272
-------- --------
Property, plant and equipment, at cost 8,176 8,127
Less accumulated depreciation and amortization 5,275 5,185
-------- --------
2,901 2,942
-------- --------
Other assets 40 125
-------- --------
$ 23,899 23,339
======== ========
</TABLE>
(Continued)
- 2 -
<PAGE> 3
FAIRWOOD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
April 1, December 31,
Liabilities and Deficit 2000 1999
----------------------- ------------ -----------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt:
Revolving credit $393,514 -
Senior subordinated debentures 80,000 -
Senior subordinated pay-in-kind debentures 105,853 105,853
Merger debentures 62,928 62,928
Accrued interest 150,694 147,490
Accounts payable 2,837 3,015
Accrued expenses 3,730 3,611
Federal and state income taxes 133 133
-------- --------
Total current liabilities 799,689 323,030
-------- --------
Long-term debt:
Revolving credit - 376,768
Senior subordinated debentures - 80,000
-------- --------
- 456,768
-------- --------
Other liabilities 3,035 2,771
-------- --------
Redeemable preferred stock:
Junior preferred, cumulative, par value $.01 per share 100 100
-------- --------
Common stock and other shareowners' deficit:
Common stock and additional paid-in capital 55,948 55,948
Accumulated other comprehensive loss ( 1,644) ( 1,644)
Accumulated deficit ( 833,229) ( 813,634)
-------- --------
( 778,925) ( 759,330)
-------- --------
$ 23,899 23,339
======== ========
</TABLE>
See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
- 3 -
<PAGE> 4
FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
April 1, April 3,
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 13,463 44,851
------- -------
Cost of sales 10,675 41,990
Selling, administrative and
general expenses 2,381 5,752
------- -------
13,056 47,742
------- --------
Operating income (loss) 407 ( 2,891)
Interest income 46 7
Interest on indebtedness ( 20,021) ( 18,267)
Other income, net - 14
------- -------
Loss before income taxes ( 19,568) ( 21,137)
Provision for income taxes - -
------- -------
Net loss $( 19,568) ( 21,137)
======= =======
</TABLE>
See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
- 4 -
<PAGE> 5
FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 1, April 3,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 19,568) ( 21,137)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 90 444
Gain on disposal of property and equipment - ( 14)
Changes in assets and liabilities:
Accounts receivable ( 241) 2,575
Inventories ( 2,031) ( 3,309)
Prepaid expenses and other current assets ( 292) ( 303)
Accounts payable ( 205) 1,889
Accrued expenses and interest 3,323 6,555
Other, net 349 173
------- -------
Cash used in operating activities ( 18,575) ( 13,127)
------- -------
Cash flows from investing activities:
Disposition of property and equipment - 14
Capital expenditures ( 49) ( 61)
------- -------
Cash used in investing activities ( 49) ( 47)
------- -------
Cash flows from financing activities:
Overdraft - ( 352)
Proceeds (payments) from line of credit
and term loan facility, net - ( 1,124)
Repayments of long-term debt - ( 11)
Proceeds from revolving credit 16,746 14,175
------- -------
Cash provided by financing activities 16,746 12,688
------- -------
Decrease in cash and cash equivalents ( 1,878) ( 486)
Cash and cash equivalents:
Beginning of period 5,135 2,165
------- -------
End of period $ 3,257 1,679
======= =======
Supplemental schedule of cash flow information
Cash paid during period for:
Interest $ 16,752 14,867
</TABLE>
Supplemental schedule of noncash operating and financing activities
In the three month periods ended April 1, 2000 and April 3, 1999 the Company
recognized $27 thousand and $23 thousand, respectively, of accrued dividends
payable to shareholders, which dividends have not been paid.
Cash and cash equivalents include cash in banks and highly-liquid short-term
investments having a maturity of three months or less on date of purchase.
See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
- 5 -
<PAGE> 6
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring adjustments, to present fairly the results of
operations and cash flows for the three months ended April 1, 2000 and
April 3, 1999, and the financial position at April 1, 2000 and December
31, 1999. The results of operations for the three-month periods ended
April 1, 2000 and April 3, 1999, are not necessarily indicative of the
results to be expected for the full year.
2. The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with Fairwood Corporation's ("Fairwood or
Company") audited consolidated financial statements included in the 1999
annual report on Form 10-K. Fairwood is a holding company as is its
subsidiary, Consolidated Furniture Corporation ("Consolidated Furniture")
which is the parent of Furniture Comfort Corporation ("Furniture
Comfort", formerly Futorian Furnishings, Inc.), whose operating division,
Barcalounger Division ("Barcalounger") manufactures motion upholstered
residential furniture.
On June 3, 1999, Furniture Comfort, Consolidated Furniture's operating
subsidiary, sold substantially all of the assets of the Stratford
Division. The proceeds from the sale were used to pay-down Furniture
Comfort's revolving credit and term loan. The sale included
substantially all of the business and assets of the Stratford Division,
including its office and showroom in Bannockburn, Illinois and the
assignment of leases for certain othermanufacturing and showroom
facilities.
3. Fairwood's comprehensive loss includes a minimum pension liability,
which is calculated and reported annually. As a result, the minimum
pension liability has no effect on the quarterly unaudited condensed
consolidated statement of operations.
4. All inventories (materials, labor and overhead) are valued at the lower
of cost or market using the last-in, first-out (LIFO) method. The
components of inventory, in thousands, are as follows:
<TABLE>
<CAPTION>
April 1, 2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
Raw materials $ 5,705 4,486
In process 2,035 2,144
Finished goods 2,533 1,612
------ ------
Inventories at
first-in, first out 10,273 8,242
LIFO reserve 1,401 1,401
------ ------
Inventories at LIFO $ 8,872 6,841
====== ======
</TABLE>
- 6 -
<PAGE> 7
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
5. In the second quarter of 1999, Fairwood paid an estimated tax liability
to the Internal Revenue Service ("IRS") arising out of an IRS
examination. Fairwood continues to be obligated to the extent of any
adjustment by the IRS to the interest component of the settlement and the
state tax effect of this settlement. An accrual for additional interest
of $1.9 million and taxes of $0.1 million remains at April 1, 2000. These
accruals for interest and taxes are included in accrued interest and
Federal and state income taxes, respectively, on the accompanying
consolidated balance sheet. The Company has not reached final settlement
with all taxing authorities, therefore the amount of the accruals are
subject to change.
With the exception of adjustments resulting from the IRS settlement, no
provision for Federal income taxes has been provided during the three
months ended April 1, 2000 and April 3, 1999, as the Company is in a net
operating loss carryforward position, and the valuation allowance has
been increased to offset any future benefit from this position.
6. On April 1, 1995 and each semi-annual interest payment date thereafter,
Fairwood failed to make the required interest payments due on the senior
subordinated pay-in-kind debentures and merger debentures (collectively,
the "Fairwood Debentures") and Fairwood does not expect to make the cash
interest payments required under the Fairwood Debentures on any future
semi-annual interest payment date. Accrued interest of $148.6 million on
the Fairwood Debentures, which includes $90.2 million due to Court Square
Capital Limited ("CSCL"), is included in accrued interest on the
accompanying unaudited condensed consolidated balance sheet as of April
1, 2000. On January 3, 1996, certain holders of the Fairwood public
debentures (the "Bondholders") filed an involuntary Chapter 7 petition
against Fairwood in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court.") Fairwood, Consolidated
Furniture and certain Citicorp affiliates filed a motion in response to
the involuntary filing seeking to dismiss the petition. By order dated
December 4, 1996, the Bankruptcy Court denied the motion to dismiss the
petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert
the Chapter 7 case to a case under Chapter 11. As of the date hereof,
Fairwood continues to operate as a debtor in possession under Section
1108 of the Bankruptcy Code. The Chapter 11 case pertains only to
Fairwood Corporation. Fairwood Corporation's direct and indirect
subsidiaries, including Consolidated Furniture Corporation, Furniture
Comfort Corporation, as well as its operating division, Barcalounger, are
not parties to the bankruptcy. In April 1997, the Bondholders' filed a
motion with the Bankruptcy Court seeking to convert Fairwood's Chapter 11
case to a case under Chapter 7 or, alternatively, for the appointment of
a Chapter 11 trustee. By order dated March 2, 1999, the Bondholders'
motion to convert the case or, alternatively, for the appointment of a
Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the
- 7 -
<PAGE> 8
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
District Court entered an Order affirming the Bankruptcy Court's decision
in all respects. By notice dated April 11, 2000, the Bondholder's have
appealed the District Court's decision to the Second Circuit Court of
Appeals. During the pendency of the appeal, Consolidated Furniture and
subsidiaries are expecting to continue to operate in the normal course of
business. Based on uncertainties involved with respect to these matters,
Fairwood continues to accrue interest on the Fairwood debentures. The
Fairwood debentures and related accrued interest are liabilities subject
to compromise.
7. Consolidated Furniture's revolving credit under its Credit Agreement with
CSCL (the "Credit Agreement") and senior subordinated debentures mature
on January 2, 2001 and, accordingly, have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance
sheet of the Company as of April 1, 2000. Consolidated Furniture intends
to negotiate an extension of these maturity dates or refinance such
indebtedness prior to January 2, 2001. However, there can be no assurance
that Consolidated Furniture will be able to negotiate such an
extension, or that the terms of such extension or refinancing will not be
on terms less favorable than those currently in place.
Fairwood's failure to make the April 1, 1995 and subsequent period
interest payments constitutes an event of default which permits the
acceleration of the Fairwood Debentures by the demand of the holders of
the requisite aggregate principal amount of the debentures. Upon
acceleration, the Fairwood Debentures would be currently due and payable.
Accordingly, the Fairwood Debentures have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance
sheet as of April 1, 2000.
8. Until June 3, 1999 Stratford provided new product development and selling
activities to Simmons, an affiliate. Under the agreement to provide
services, Stratford was reimbursed by Simmons approximately $150,000 for
product development and approximately $729,000 for selling expenses in
the three months ended April 3, 1999. Also in the three months ended
April 3, 1999 Stratford recognized as a reduction in general and
administrative expenses, approximately $850,000 of reimbursements for
general and administrative expenses.
9. Prior to the sale of Stratford, Fairwood's reportable segments were
strategic business units that offer different products. They were managed
separately because each business had distinctly different markets and
they had separate marketing and manufacturing facilities.
- 8 -
<PAGE> 9
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The segment financial information, in thousands, is as follows:
Three months ended April 1, 2000
--------------------------------
(unaudited)
<TABLE>
<CAPTION>
Stratford Barcalounger Corporate Eliminations Totals
--------- ------------ --------- ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ - $ 13,463 $ - $ - $ 13,463
Interest expense, net - ( 22) 19,997 - 19,975
Segment profit (loss) - 1,065 ( 20,633) - ( 19,568)
</TABLE>
Three months ended April 3, 1999
--------------------------------
(unaudited)
<TABLE>
<CAPTION>
Stratford Barcalounger Corporate Eliminations Totals
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 30,499 $ 14,352 $ - $ - $ 44,851
Intersegment income 546 - - ( 546) -
Interest expense, net 684 7 17,569 - 18,260
Segment profit (loss) ( 4,581) 715 ( 17,271) - ( 21,137)
</TABLE>
- 9 -
<PAGE> 10
Item 2.
FAIRWOOD CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain information in this quarterly report on Form 10-Q, including but not
limited to the Management's Discussion and Analysis of Financial Condition and
Results of Operations, may constitute forward-looking statements as such term is
defined in Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934. Certain forward-looking
statements can be identified by the use of forward-looking terminology such as,
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimated," or "anticipates" or the negative thereof or
other comparable terminology, or by discussions of strategy, plans or
intentions. Forward-looking statements involve risks and uncertainties,
including those described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, which could cause actual results to be materially
different than those in the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company assumes no obligation to update such
information.
Liquidity and Capital Resources
At April 1, 2000, the Company had long-term debt of approximately $642.3
million, all of which is classified as current liabilities and approximately
$579.4 is owed to Court Square Capital Limited ("CSCL"), an affiliate. Long-term
debt was approximately $625.5 million at December 31, 1999, of which $168.8
million was current and approximately $562.6 million was owed to CSCL. Accrued
interest on long-term debt was approximately $150.7 million and $147.5 million
at April 1, 2000 and December 31, 1999, respectively. Approximately $90.2
million and $89.7 million of the accrued interest was owed to CSCL at April 1,
2000 and December 31, 1999, respectively. The Company's outstanding indebtedness
includes its senior subordinated pay-in-kind debentures and merger debentures
(collectively, the "Fairwood Debentures"). Fairwood had the option during the
first five years to pay interest on the Fairwood Debentures either through cash
payments or through the distribution of additional securities. During such
five-year period, Fairwood distributed additional securities in satisfaction of
its interest obligations.
Fairwood is a holding company with no operations. The Company has effectively no
cash flow from its subsidiaries because the cash produced by the operations of
the subsidiaries will not for the foreseeable future to be sufficient to
permit the subsidiaries to transfer funds to Fairwood. Fairwood's sole asset is
the stock of Consolidated Furniture, its wholly-owned subsidiary. Fairwood's
obligations under the Fairwood Debentures are collateralized by Fairwood's
pledge of its interest in Consolidated Furniture's stock. CSCL, as holder of
Fairwood's senior subordinated pay-in-kind debentures, has a first priority
collateral interest in all of the outstanding stock of Consolidated Furniture,
and the holders of the merger debentures have a second priority collateral
interest in such stock. The Fairwood Debentures are obligations of Fairwood.
Consolidated Furniture is not an obligor under the Fairwood Debentures.
- 10 -
<PAGE> 11
However, Consolidated Furniture is an obligor under the Credit Agreement with
CSCL (the "Credit Agreement"). The Credit Agreement does not permit Consolidated
Furniture to borrow funds and transfer them to Fairwood to enable Fairwood to
make cash interest payments on the Fairwood Debentures. The borrowings under the
Credit Agreement are collateralized by substantially all of the assets of
Consolidated Furniture. Consolidated Furniture is also a holding company without
operations. Its primary asset is the outstanding stock of Furniture Comfort
Corporation ("Furniture Comfort", formerly Futorian Furnishings, Inc.), which
has operations that it conducts through its one remaining operating division,
Barcalounger. Furniture Comfort is also a direct obligor under the Credit
Agreement and has pledged substantially all of its assets to collateralize the
obligations under the Credit Agreement. Furniture Comfort is not an obligor on
the Fairwood Debentures.
On April 1, 1995 and each semi-annual interest payment date thereafter, Fairwood
failed to make the required interest payments due on the Fairwood Debentures and
Fairwood does not expect to make the cash interest payments required under the
Fairwood Debentures on any future semi-annual interest payment date. Accrued
interest of $148.6 million on the Fairwood Debentures, which includes $90.2
million due to CSCL, is included in accrued interest in the accompanying
unaudited condensed consolidated balance sheet as of April 1, 2000.
There can be no assurance that Fairwood will be able to continue as a going
concern. On January 3, 1996, certain holders of the Fairwood public debentures
(the "Bondholders") filed an involuntary Chapter 7 petition against Fairwood in
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court.") Fairwood, Consolidated Furniture and certain Citicorp
affiliates filed a motion in response to the involuntary filing seeking to
dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court
denied the motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert the
Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood
continues to operate as a debtor in possession under Section 1108 of the
Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as its operating
division, Barcalounger, are not parties to the bankruptcy. In April 1997, the
Bondholders' filed a motion with the Bankruptcy Court seeking to convert
Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the
appointment of a Chapter 11 trustee. By order dated March 2, 1999, the
Bondholders' motion to convert the case or, alternatively, for the appointment
of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the
District Court entered an Order affirming the Bankruptcy Court's decision in all
respects. By notice dated April 11, 2000, the Bondholder's have appealed the
District Court's decision to the Second Circuit Court of Appeals. During the
pendency of the appeal, Consolidated Furniture and subsidiaries are expecting to
continue to operate in the normal course of business.
- 11 -
<PAGE> 12
Fairwood's failure to make the April 1, 1995 and subsequent period interest
payments constitutes an event of default which permits the acceleration of the
Fairwood Debentures by the demand of the holders of the requisite aggregate
principal amount of the debentures, subject to a 180-day acceleration blockage
provision. Upon acceleration, the Fairwood Debentures would be due and payable.
Accordingly, the Fairwood Debentures have been classified as current liabilities
in the accompanying unaudited condensed consolidated balance sheet as of April
1, 2000.
Consolidated Furniture, Fairwood's wholly-owned subsidiary, is expected to
service its interest payment obligations under the Credit Agreement and senior
subordinated debentures from its cash flow from operations and available credit
facilities. Throughout 1999 and the first quarter of 2000, Consolidated
Furniture funded interest obligations related to long-term indebtedness on the
revolving line of credit and the senior subordinated debentures through
increased borrowings from CSCL under the Credit Agreement. Borrowings from CSCL
during the first three months of 2000 were approximately $16.7 million. There
were no principal repayments to CSCL during the first three months of 2000.
Consolidated Furniture is dependent upon CSCL for funding of its debt service
costs. CSCL has in the past increased its revolving credit line to Consolidated
Furniture in order for Consolidated Furniture to meet its debt service
obligations on the revolving line of credit and the senior subordinated
debentures. Under the Credit Agreement, Consolidated Furniture and its
subsidiaries are generally restricted from transferring moneys to Fairwood with
the exception of amounts for (a) specified administrative expenses of Fairwood
and (b) payment of income taxes. The senior subordinated debentures, senior
subordinated pay-in-kind debentures and merger debentures also have certain
restrictions as to the payment and transfer of moneys.
Management believes that cash flow from operations and funding from CSCL will be
adequate to meet Consolidated Furniture's obligations on the revolving credit
and the senior subordinated debentures through December 31, 2000.
Consolidated Furniture's revolving credit and senior subordinated debentures
mature on January 2, 2001 and, accordingly, have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance sheet
as of April 1, 2000. Consolidated Furniture intends to negotiate an extension of
these maturity dates with CSCL or refinance such indebtedness prior to January
2, 2001. However, there can be no assurance that Consolidated Furniture will be
able to negotiate such an extension, or that the terms of such extension or
refinancing will not be on terms less favorable than those currently in place.
For a discussion of the status of the IRS examination, refer to Fairwood's
consolidated financial statements as of December 31, 1999 included in Fairwood's
Form 10-K, and footnote 5 to Fairwood's unaudited condensed consolidated
financial statements included herein.
- 12 -
<PAGE> 13
Results of Operations
Three Months Ended April 1, 2000 Versus Three Months Ended April 3, 1999
The following discussion presents the material changes in results of operations
which have occurred in the first quarter of 2000 in comparison to the same
period in 1999. The comparability of these periods is impacted by the June 3,
1999 sale of the Stratford division.
Net sales on a consolidated basis were approximately $13.5 million in the first
quarter of 2000, a decrease of 70.0% from last year's first quarter consolidated
net sales of approximately $44.9 million. Cost of sales on a consolidated basis
decreased 74.5% in the first quarter of 2000 to $10.7 million, or 79.3% of net
sales, as compared to $42.0 million, or 93.5% of net sales, in 1999. These sales
and cost of sales decreases were impacted largely by the sale of Stratford. The
decrease in cost of sales as a percentage of net sales was primarily the result
of the elimination of lower margin Stratford sales.
First quarter 2000 net sales by Barcalounger decreased 6.3% to approximately
$13.5 million as compared to $14.4 million in 1999. This decrease in sales
reflects an increase of 4.0% in the average selling prices and a decrease in
sales volume of 10.1% in the first quarter of 2000 versus 1999. The increase in
average selling price is the result of an increase in the product mix of more
expensive and higher-grade leather products. The decrease in sales volume was
primarily attributable to the loss of five days production and shipping because
of unseasonable snow and ice, which negatively impacted the ability of the plant
to manufacture products due to employee absences. Barcalounger's cost of sales
decreased to 79.3% of net sales in the first quarter of 1999, as compared to
79.8% of net sales for the first quarter of 1998, as a result of lower costs
associated with certain raw materials.
Consolidated selling, administrative and general expenses for the first quarters
of 2000 and 1999 were approximately $2.4 million and $5.8 million, respectively,
representing a decrease of 58.6%. This decrease is due primarily to the June 3,
1999 sale of the Stratford division.
Interest expense, was approximately $20.0 million and $18.3 million for the
first quarters of 2000 and 1999, respectively, an increase of approximately
9.3%. The increase was primarily due to increased borrowings on the Credit
Agreement.
No income taxes have been provided in the first quarters of 2000 and 1999,
respectively, as the Company is in a net operating loss carryforward position.
For a discussion of the status of the IRS examination, refer to the Company's
consolidated financial statements as of December 31, 1999 included in the
Company's Form 10-K, and footnote 5 to the Company's unaudited condensed
consolidated financial statements included herein.
- 13 -
<PAGE> 14
Part II OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Reference is made to Item 3, Legal Proceedings, previously reported in
the Registrant's Form 10-K for the year ended December 31, 1999 for a
description of pending legal action.
There are certain legal proceedings arising out of the normal course of
business, the financial risk of which are not considered material in
relation to the consolidated financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 14 -
<PAGE> 15
FAIRWOOD CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRWOOD CORPORATION
--------------------
(Registrant)
/s/ John B. Sganga
-------------------------
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
Date: May 16, 2000
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 3,257
<SECURITIES> 0
<RECEIVABLES> 8,716
<ALLOWANCES> 345
<INVENTORY> 8,872
<CURRENT-ASSETS> 20,958
<PP&E> 8,176
<DEPRECIATION> 5,275
<TOTAL-ASSETS> 23,899
<CURRENT-LIABILITIES> 799,689
<BONDS> 248,781
0
100
<COMMON> 55,948
<OTHER-SE> (834,873)
<TOTAL-LIABILITY-AND-EQUITY> 23,899
<SALES> 13,463
<TOTAL-REVENUES> 13,509
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<INCOME-PRETAX> (19,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,568)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,568)
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<EPS-DILUTED> 0
</TABLE>
