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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 2001 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 I-91
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Furniture Brands International, Inc.
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(Exact Name of registrant as specified in its charter)
Delaware 43-0337683
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock - $1.00 Stated Value New York Stock Exchange
with Preferred Stock Purchase Rights
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( )
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 2002, was approximately $2,102,683,068.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
56,277,066 shares as of February 28, 2002
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 25, 2002...................... Part III
PART I
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Item 1. Business
(a) General Development of Business
On December 28, 2001 the Company purchased substantially all of the assets of
Henredon Furniture Industries, Inc., Drexel Heritage Furnishings, Inc. and
Maitland-Smith, Inc. (collectively "HDM Furniture Industries, Inc.") from
LifeStyle Furnishings International, Inc.
(c) Narrative Description of Business
The Company, the largest manufacturer of residential furniture in the United
States, markets its products through its four operating subsidiaries: Broyhill
Furniture Industries, Inc.; Lane Furniture Industries, Inc.; Thomasville
Furniture Industries, Inc., and HDM Furniture Industries, Inc.
PRODUCTS
The Company manufactures and distributes (i) case goods, consisting of bedroom,
dining room and living room furniture, (ii) stationary upholstery products,
consisting of sofas, loveseats, sectionals and chairs, (iii) occasional
furniture, consisting of wood tables, accent pieces, home entertainment centers
and home office furniture, (iv) recliners, motion furniture and sleep sofas, and
(v) accessories. The Company's brand name positioning by price and product
category is shown below.
UPHOLSTERY
---------------------------------
PRICE RECLINER/
CATEGORY CASE GOODS OCCASIONAL STATIONARY MOTION ACCESSORIES
- -------- ---------- ---------- ---------- --------- -----------
PREMIUM Henredon Drexel Heritage Henredon Drexel Maitland-Smith
Drexel Heritage Maitland-Smith Maitland-Smith Heritage
Hickory Chair Hickory Chair Hickory Chair
Pearson
BEST Thomasville Thomasville Thomasville Thomasville
HBF HBF
BETTER Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
GOOD Broyhill Broyhill Broyhill Broyhill
Lane
PROMOTIONAL Founders
RTA Creative
Interiors
BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium-priced bedroom, dining room and living
area furniture aimed at middle-income consumers. Broyhill's wood furniture
offerings consist of bedroom, dining room and living room furniture, occasional
tables, accent items, free-standing home entertainment centers and home office
furniture. Upholstered products include sofas, sleep sofas, loveseats,
sectionals, chairs, and fully reclining furniture all offered in a variety of
fabrics and leathers. Broyhill's residential furniture divisions produce a wide
range of furnishings in country, traditional, European, contemporary and
lifestyle designs.
The widely recognized Broyhill trademarks include Broyhill and Broyhill
Indulgence. The flagship Broyhill product line concentrates on bedroom, dining
room, upholstered and occasional furniture designed for the "good" and "better"
price categories. The Broyhill Indulgence product line enjoys an excellent
reputation for highly styled, case goods collections in the "best" price
category.
LANE FURNITURE INDUSTRIES
Lane manufactures and markets a broad range of high quality furniture targeting
the "good" and "better" price categories. Lane targets niche markets with its
three operating divisions, which participate in such segments of the residential
furniture market as motion furniture, wicker and rattan, and cedar chests.
Lane's upholstery division manufactures and markets reclining chairs and motion
furniture in the "good" and "better" price categories under the Lane brand name.
Motion furniture consists of sofas and loveseats with recliner-style moving
parts and comfort features, wall saver recliners, pad-over chaise recliners,
hi-leg recliners, sleep sofas and motion sectionals. Royal Development Company,
a division of Lane, designs and manufactures the mechanisms used in Lane's
reclining furniture products. The Lane Leather collection represents an
important source of growth for Lane's upholstery division, as leather is the
fastest-growing category in upholstered furniture. The collection, priced in the
"better" category comes in three styles - American ranch, American traditional
and urban contemporary.
Lane's wood furniture division markets cedar chests, living room, bedroom and
dining room furniture, wall systems, desks, console tables and mirrors and other
occasional wood pieces. Lane furniture is sold in the "good" and "better" price
categories.
Laneventure manufactures and markets moderately priced wicker, rattan, bamboo,
exposed aluminum and teak furniture, tables, occasional wood pieces and two
lines of upholstered furniture. One line is comprised of contemporary and modern
upholstered furniture and metal and glass occasional and dining room tables, and
the other which is comprised of traditional and contemporary upholstered
furniture, primarily sofas, loveseats, chairs and ottomans. Laneventure also
manufactures outdoor and patio furniture featuring fast drying upholstered
cushions under the name WeatherMaster, which has developed significant consumer
acceptance.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville manufactures and markets wood furniture, upholstered products and
promotional/RTA furniture. Thomasville markets its products primarily under the
Thomasville brand name. Thomasville offers an assortment of upholstery and wood
furniture under one brand name that targets the "best" price category.
Upholstery is primarily marketed in three major styles: traditional, American
traditional/country and casual/lifestyle contemporary. Upholstery style is
determined by both frame style and fabric or leather selection. Thomasville's
frame assortment allows the consumer to select from a wide variety of different
styles within the general style categories, and as much as 45% of the
Thomasville fabric and leather offering changes in a 12 month period, insuring
that the latest colors and textures are available. Wood furniture is primarily
marketed in four major styles: American traditional/country, 18th century,
European traditional and casual contemporary.
Hickory Chair manufactures and markets traditional styles of upholstered
furniture, dining room collections and occasional tables in the "best" and
"premium" price categories. The Hickory Chair division has been crafting fine
reproductions of 18th century furniture for over 80 years. For example, Hickory
Chair offers the James River collection which features reproductions of fine
furnishings from Virginia plantations, and the Mount Vernon collection, which
features reproductions from George Washington's home. In October 2000, Hickory
Chair introduced its Thomas O'Brien collection, which includes upholstery,
chairs, tables, beds and cabinetry in O'Brien's acclaimed "warm modernist"
style. Hickory Chair also introduced Grand Vista, a collection of larger scale,
casual reproductions from the Museum of Santa Fe and William Poole, a collection
of case goods and upholstery.
Pearson has been manufacturing and selling contemporary and traditional styles
of finely tailored upholstered furniture including sofas, loveseats, chairs and
ottomans for over 50 years. Pearson furniture sells in the "premium" price
category and is distributed to high-end furniture stores and interior designers.
HBF manufactures and sells a line of office furniture, including chairs, tables,
conference tables, desks and credenzas, in the upper-middle price range.
Highland House manufactures upholstered products in the "better" and "best"
price categories. Recent introductions include the Rue de Provence collection of
Provencal French bedroom pieces, occasional furniture and upholstery pieces that
use unique fabric selections supplied exclusively to Highland House from
southern France and the Harrod's of Knightsbridge collection which includes
exclusive pieces based upon research from Harrod's Department Stores' archives.
Founders offers assembled bedroom sets, bookcases and home entertainment centers
under the Founders brand name to a variety of retailers for sale to consumer
end-users and certain contract customers. Creative Interiors markets RTA
(ready-to-assemble) furniture such as home entertainment centers, bookcases,
bedroom and kitchen/utility furniture and computer desks under the Creative
Interiors brand name.
HDM FURNITURE INDUSTRIES
Henredon manufactures and markets bedroom, dining room, occasional and
upholstered furniture in the premium price category. Henredon markets its
furniture in 15 collections and is the furniture licensee for the Ralph Lauren
Home Collection and Historic Natchez. Henredon is an industry style and fashion
leader and provides the consumer with unique and distinct products ranging from
contemporary to traditional.
Drexel Heritage manufactures and markets wood and upholstered furniture for the
bedroom, dining room, living room, family room and home office in the "mid to
upper premium" price categories under the Drexel Heritage brand name. It
currently produces approximately 20 collections with four to six new collections
offered each year. Drexel's product styles include American traditional,
country, 18th century, European traditional, contemporary and transitional.
Drexel Heritage also manufactures and markets a line of unique old world
upholstery and wood accent pieces under the Lillian August brand name and
produces furniture for the hospitality and government markets.
Maitland-Smith is a leading designer and manufacturer of "best" and "premium"
hand crafted, antique-inspired furniture, accessories and lighting, utilizing a
wide range of unique materials, including distinctive leather, fancy faced
veneer, stone and hand-painted metal. Maitland markets under the Maitland-Smith
and LaBarge brand names. The Maitland-Smith brand is inspired by designs from
the master craftsmen of 17th, 18th and 19th century England. The LaBarge brand
name emphasizes Continental European design in mirrors and occasional furniture.
DISTRIBUTION
The Company's strategy of targeting diverse distribution channels such as
furniture centers, independent dealers, national and local chain stores,
department stores, specialty stores and decorator showrooms is supported by
dedicated sales forces covering each of these distribution channels. The Company
continues to explore opportunities to expand international sales and to
distribute through non-traditional channels such as wholesale clubs and catalog
retailers.
The Company's breadth of product and national scope of distribution enable it to
effectively service national retailers such as J.C. Penney and key regional
retailers such as Havertys, Breuner's and Kittle's. The consolidation of the
retail residential furniture industry has made access to distribution channels
an important competitive advantage for manufacturers. The Company has developed
dedicated distribution channels by expanding its gallery program and the network
of independent dealer-owned dedicated retail locations, such as Thomasville Home
Furnishings Stores and Drexel Heritage Home Inspiration Stores. The Company
distributes its products through a diverse network of independently owned retail
locations, which includes 178 freestanding stores, 943 galleries and 617
furniture centers.
Broyhill, Lane, Thomasville and Drexel Heritage have all developed gallery
programs with dedicated dealers displaying furniture in complete room ensembles.
These retailers employ a consistent showcase gallery concept wherein products
are displayed in complete and fully accessorized room settings instead of as
individual pieces. This presentation format encourages consumers to purchase an
entire room of furniture instead of individual pieces from different
manufacturers. The Company offers substantial services to retailers to support
their marketing efforts, including coordinated national advertising,
merchandising and display programs and extensive dealer training.
Thomasville Home Furnishings Stores and Drexel Heritage Home Inspiration Stores
are dealer-owned, free-standing retail locations that exclusively feature
Thomasville and Drexel Heritage furniture, respectively. The Company believes
distributing its products through dedicated, free-standing stores strengthens
brand awareness, provides well-informed and focused sales personnel and
encourages the purchase of multiple items per visit.
Haverty Furniture Companies, Inc. and the Company have formed a strategic
alliance whereby Havertys allocates up to one-half of the retail floor space in
all of its stores to the prominent display of product manufactured by the
Company. The Company also has a similar strategic alliance with Kittle's Home
Furnishings, Inc. These alliances advance the Company's strategy of expanding
distribution and dedicated display space.
Showrooms for the national furniture market are located in Thomasville and High
Point, North Carolina and for regional markets in Atlanta, Georgia; Chicago,
Illinois; San Francisco, California; and Tupelo, Mississippi.
BROYHILL FURNITURE INDUSTRIES
One of Broyhill's principal distribution channels is the Broyhill Showcase
Gallery program. This program, started in 1983, involves 325 domestic and
international participating dealer locations. Each dealer in the Broyhill
Showcase Gallery program owns the gallery and the Broyhill furniture inventory.
The program incorporates a core merchandise program, advertising material
support, in-store merchandising events and educational opportunities for the
retail store sales and management personnel. The average Broyhill Showcase
Gallery consists of 7,500 square feet of dedicated display space. Furniture is
displayed in complete and fully accessorized room settings instead of as
individual pieces.
In 2001, Broyhill introduced the Broyhill Furniture Showplace dedicated
distribution retail concept. Broyhill Furniture Showplaces are owned and
operated by a retail dealer who commits a minimum of 12,500 square feet of
display space to Broyhill products. This program also offers extensive
merchandising and marketing support.
For the retailer that is currently not a participant in the gallery or showplace
programs, Broyhill offers the Independent Dealer Program. This concept,
initiated in 1987, is designed to strengthen Broyhill's relationship with these
retailers by assisting them in overcoming some of the significant difficulties
in running an independent furniture business. Participating retailers in the
Independent Dealer Program commit to a minimum, pre-selected lineup of Broyhill
merchandise and, in return, receive a detailed, step-by-step, year-round
advertising and merchandising plan. The program includes three major sales
events per year, monthly promotional themes and professionally prepared
advertising and recognition on the local level. As part of the Independent
Dealer Program, Broyhill offers the Broyhill Furniture Center Program to 617
retailers that have committed at least 2,000 square feet exclusively to Broyhill
products arranged in gallery-type room settings. This program includes all of
the benefits of the Independent Dealer Program, plus additional marketing,
design and advertising assistance. The Company seeks to develop these
relationships so that some of these retailers may eventually become participants
in the Broyhill Showcase Gallery or Broyhill Furniture Showplace programs.
LANE FURNITURE INDUSTRIES
Lane distributes its products nationally and internationally through a
well-established network of approximately 16,000 retail locations. A diverse
distribution network is utilized in keeping with Lane's strategy of supplying
customers with highly specialized products in selected niche markets. This
distribution network primarily consists of independent furniture stores,
regional chains such as Havertys and Art Van, and department store companies
such as J.C. Penney, May Department Stores, Federated Department Stores and
Dillard Department Stores.
Lane has established specialty gallery programs with over 450 participating
dealers. This includes 355 dealer-owned Comfort Showcase Galleries and Comfort
Furnishings Galleries established by Lane's Upholstery division. These galleries
average approximately 4,200 square feet of retail space specifically dedicated
to the display, promotion and sale of Lane upholstery products.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at 660 independently-owned retail locations,
including 182 Thomasville Galleries, 148 Thomasville Home Furnishings Stores and
330 authorized dealers. The Thomasville Gallery concept was initiated in 1983.
Thomasville Galleries have an average 7,500 square feet of retail space
specifically dedicated to the display, promotion and sale of Thomasville
products. The first Thomasville Home Furnishings Store opened in 1988. The
typical Thomasville Home Furnishings Store is a 15,000 square foot,
independently-owned store offering a broad range of Thomasville products,
presented in a home-like setting by specially trained salespersons.
Pearson distributes its products primarily through premium-quality dealers and
the interior design trade. Hickory Chair also distributes through
premium-quality dealers including 20 gallery locations.
Thomasville's Founders division sells promotional furniture to a variety of
retailers for sale to consumer end-users and certain contract customers.
Promotional furniture is sold to retail chains such as Value City, as well as
independent furniture stores. Promotional furniture is also sold in the
hospitality and health care markets of Thomasville's contract business.
Thomasville's Creative Interiors division sells RTA furniture to customers which
include national chains such as Wal-Mart and Target, catalog showrooms, discount
mass merchandisers, warehouse clubs and home furnishings retailers.
HDM FURNITURE INDUSTRIES
Henredon distributes its products through a network of approximately 450 fine
furniture dealers, department stores and wholesale showrooms in this country and
abroad. The Ralph Lauren Home Collection is also distributed through Ralph
Lauren Polo retail stores. The typical Henredon display is 5,000 to 8,000 square
feet. Henredon dealers include Louis Shanks of Texas, Gabberts, Kittles, Boyles,
Baer's, Marshall Field, Bloomingdales, Rich's, Lazarus, Macy's West and
Dillards.
Drexel Heritage products are offered at 560 independently owned retail
locations, including 61 Drexel Heritage galleries, 30 dedicated Drexel Heritage
Home Inspiration stores and 469 authorized dealers. Drexel Heritage galleries
have an average of 5,000 square feet of dedicated space. The typical Drexel
Heritage Home Inspiration store is a 14,000 square foot independently owned
store offering a broad range of Drexel products, presented in a home-like
setting by a salesperson or design consultant.
Maitland-Smith distributes its products nationally and internationally through a
well-established network of high-end retail furniture stores, designer
showrooms, antique dealers and specialty gift stores. The dealers are selected
to preserve and enhance the prestige and reputation of the Maitland-Smith brand
names.
MARKETING AND ADVERTISING
Advertising is used to increase consumer awareness of the Company's brand names
and is targeted to specific consumer segments through national and regional
television as well as leading shelter and other popular magazines such as Better
Homes and Gardens, People and Good Housekeeping. Each operating company uses
focused advertising in major markets to create buying urgency around specific
sale events and to provide dealer location information, enabling retailers to be
listed jointly in advertisements for maximum advertising efficiency and shared
costs. The Company seeks to increase consumer buying and strengthen
relationships with retailers through cooperative advertising and selective
promotional programs. The Company focuses its marketing efforts on prime
potential customers utilizing information from databases and from callers to
each operating company's toll-free telephone number.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales. Broyhill's current marketing strategy features
national television advertising, in addition to its national print advertising
program and traditional promotional programs such as furniture "giveaways" on
television game shows and dealer-based promotions such as product mailings and
brochures. The national print advertising program, which consists of multi-page
layouts, is designed to appeal to the consumer's desire for decorating
assistance and increased confidence in making the decision to purchase a big
ticket product such as furniture. These advertisements are run in publications
such as Good Housekeeping and Better Homes and Gardens which appeal to
Broyhill's consumer base. Game show promotions, a long-standing Broyhill
tradition, include popular programs such as Wheel of Fortune and The Price is
Right. An extensive public relations campaign also exposes Broyhill products in
leading magazine and newspaper editorial features.
LANE FURNITURE INDUSTRIES
Lane's marketing approach reflects the diversity of its various divisions. Lane
employs an integrated marketing/advertising strategy in which it coordinates
magazine, newspaper, circular and television advertising with other marketing
programs to promote a single product. Each of the Lane divisions advertises
extensively in trade and consumer publications targeting various niche markets.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville's current advertising appears on national network and cable
television commercials during peak promotional periods. The campaign emphasizes
Thomasville fashion and quality leadership through the use of dramatic
commercials featuring individual, high quality wood and upholstery pieces.
National cable networks include A&E, The Discovery Channel, CNN, CNN Headline
News, The Weather Channel, TNN, The Travel Channel, TBS and Entertainment
Network.
To help retailers sell its product through to consumers, Thomasville offers a
full twelve-month schedule of promotional support which includes promotional
concepts, selected product discounts, cooperative advertising funds, and a
complete advertising package with color newspaper layouts plus radio and
television commercials dealers can use as supplied. Thomasville runs national
sales events to coincide with major industry sale periods. These events include
national print ads or Thomasville-designed newspaper inserts for dealer use.
HDM FURNITURE INDUSTRIES
Henredon's national advertising is focused in magazines such as Architectural
Digest, Traditional Home and House & Gardens. Henredon produces full color
catalogs in support of each collection and maintains a web site which provides
the consumer the opportunity to view all current collections, order catalogs and
locate dealers in their local trading areas.
Drexel Heritage offers a fully integrated marketing program that includes
national brand advertising and a full calendar of promotional events. These
events include themed promotional concepts, selected product discounts,
cooperative advertising support, consumer rebate events and a complete
advertising marketing portfolio. This portfolio includes dealer television
commercials, consumer sales circulars, direct mail postcards, newspaper
advertisements, radio commercials, in-store events and a complete in-store point
of sale package.
Maitland-Smith has chosen to do little advertising over the years. This approach
has created an aura of mystique around the brand that adds to its charm and has
worked well within its dealer base. Promotional activities with dealers are
designed to preserve and enhance Maitland-Smith's brand name in the home
furnishings industry.
MANUFACTURING
Broyhill operates 16 finished case goods and upholstery production and warehouse
facilities totaling over 5.0 million square feet. All finished good plants are
located in North Carolina. Broyhill pioneered the use of mass production
techniques in the furniture industry and by utilizing longer production runs
achieves economies of scale.
Lane operates 7 upholstery production and warehouse facilities in Mississippi
and North Carolina totaling over 2.9 million square feet. Since the late 1980's,
significant capital expenditures have been made to acquire technologically
advanced manufacturing equipment which has increased factory productivity as
well as capacity.
Thomasville manufactures or assembles its products at 18 finished case goods and
upholstery production and warehouse facilities located in North Carolina and
Virginia, totaling over 6.5 million square feet. Each plant is specialized,
manufacturing premium furniture products allowing more efficient production runs
while maintaining high quality standards.
The manufacturing process for Thomasville's Creative Interiors division is
highly automated. Large fiberboard and particleboard sheets are machine-finished
in long production runs, then stored and held for assembly using highly
automated assembly lines. Completed goods are flat packed and stored in an
automated warehouse to provide quicker delivery to customers. Ninety percent of
Creative Interiors products are shipped within 14 days of production.
Henredon manufactures in 4 casegoods and upholstery production and warehouse
facilities encompassing approximately 1.5 million square feet all located in
North Carolina. Henredon is a leader in cellular manufacturing which allows for
the efficient production of relatively small production runs.
Drexel Heritage operates 5 casegoods and upholstery production and warehouse
facilities that total approximately 1.7 million square feet. All facilities are
located in western North Carolina except for an upholstery plant located in High
Point, North Carolina. Each facility is specialized to manufacture premium
quality furniture in a cellularized manufacturing environment.
Maitland-Smith and LaBarge are manufactured at production facilities in the
Philippines and Indonesia and by selected sub-contractors located throughout
Asia, Italy and Mexico. Each production facility utilizes specialized craftsmen
to produce premium home furnishings products.
RAW MATERIALS AND SUPPLIERS
The raw materials used by the Company in manufacturing its products include
lumber, veneers, plywood, fiberboard, particleboard, paper, hardware, adhesives,
finishing materials, glass, mirrored glass, fabrics, leathers, metals, stone,
synthetics and upholstered filling material (such as synthetic fibers, foam
padding and polyurethane cushioning). The various types of wood used in the
Company's products include cherry, oak, maple, pine and pecan, which are
purchased domestically, and mahogany, which is purchased abroad. Fabrics,
leathers and other raw materials are purchased both domestically and abroad.
Management believes that its supply sources for those materials are adequate.
The Company has an agreement with Outlook International, Ltd. in which Outlook
is the exclusive representative for the Company for the manufacture of products
in the Far East.
On December 12, 2001 the Company announced a strategic alliance with Hong Kong
Teakwood Works whereby the operating companies will absorb substantially all of
Hong Kong Teakwood Works manufacturing capacity, subject to quality control and
delivery standards designated by the operating companies.
Other than the foregoing, the Company has no long-term supply contracts and has
experienced no significant problems in supplying its operations. Although the
Company has strategically selected suppliers of raw materials, the Company
believes that there are a number of other sources available, contributing to its
ability to obtain competitive pricing for raw materials. Raw materials prices
fluctuate over time depending upon factors such as supply, demand and weather.
Increases in prices may have a short-term impact on the Company's margins for
its products.
The majority of supplies for promotional and RTA products are purchased
domestically, although paper and certain hardware is purchased abroad.
Management believes, however, that its proximity to and relationship with
suppliers are advantageous for the sourcing of such materials. In addition, by
combining the purchase of various raw materials (such as foam, cartons, springs
and fabric) and services, the operating companies have been able to realize cost
savings.
ENVIRONMENTAL MATTERS
The Company is subject to a wide-range of federal, state and local laws and
regulations relating to protection of the environment, worker health and safety
and the emission, discharge, storage, treatment and disposal of hazardous
materials. These laws include the Clean Air Act of 1970, as amended, the
Resource Conservation and Recovery Act, the Federal Water Pollution Control Act
and the Comprehensive Environmental, Response, Compensation and Liability Act
("Superfund"). Certain of the Company's operations use glues and coating
materials that contain chemicals that are considered hazardous under various
environmental laws. Accordingly, management closely monitors the Company's
environmental performance at all of its facilities. Management believes the
Company is in substantial compliance with all environmental laws. While the
Company may be required to make capital investments at some of its facilities to
ensure compliance, the Company believes it will continue to meet all applicable
requirements in a timely fashion and that the amount of money required to meet
these requirements will not materially affect its financial condition or its
results of operations.
The Company has been identified as a potentially responsible party ("PRP") at a
number of superfund sites. The Company believes that its liability with respect
to most of the sites is de minimis, and the Company is entitled to
indemnification by others with respect to liability at certain sites. Management
believes that any liability as a PRP with regard to the superfund sites will not
have a material adverse effect on the financial condition or results of
operations of the Company.
COMPETITION
The furniture manufacturing industry is highly competitive. The Company's
products compete with products made by a number of furniture manufacturers,
including La-Z-Boy Incorporated, Ethan Allen Interiors, Inc., Bassett Furniture
Industries, Inc. and Lifestyle Furnishings International Ltd., as well as
approximately 600 smaller producers. The elements of competition include
pricing, styling, quality and marketing.
EMPLOYEES
As of December 31, 2001, the Company employed approximately 23,850 people
(including employees of Henredon, Drexel Heritage and Maitland-Smith). None of
the Company's employees is represented by a union.
BACKLOG
The combined backlog of the Company's operating companies as of December 31,
2001 aggregated approximately $290 million (approximately $199 million excluding
the backlog of Henredon, Drexel Heritage and Maitland-Smith) compared to
approximately $178 million as of December 31, 2000.
ITEM 2. Properties
The Company owns or leases the following principal plants, offices and
warehouses.
Division/Location Type of Facility Floor Space (sq.ft.) Owned or Leased
- ----------------- ---------------- -------------------- ---------------
Furniture Brands:
-----------------
St. Louis, MO Headquarters 26,800 Leased
Broyhill:
---------
Lenoir, NC Headquarters 136,000 Owned
Lenoir, NC Case goods plant/warehouse 312,632 Owned
Lenoir, NC Case goods plant/warehouse 628,000 Owned
Rutherfordton, NC Case goods plant/warehouse 575,656 Owned
Lenoir, NC Case goods plant/warehouse 419,000 Owned
Lenoir, NC Case goods plant/warehouse 390,020 Owned/Leased
Rutherfordton, NC Upholstery plant/warehouse 433,597 Owned
Conover, NC Case goods plant/warehouse 316,542 Owned
Lenoir, NC Case goods plant/warehouse 516,439 Owned
Lenoir, NC Case goods plant/warehouse 256,318 Owned
Lenoir, NC Upholstery plant/warehouse 252,380 Owned
Taylorsville, NC Upholstery plant/warehouse 212,754 Owned
Lenoir, NC Upholstery plant 124,700 Owned
Lenoir, NC Warehouse 96,000 Owned
Lenoir, NC Warehouse 252,250 Leased
Lenoir, NC Warehouse 205,964 Leased
Chino, CA Warehouse 79,456 Leased
Drexel Heritage:
----------------
Drexel, NC Headquarters 100,000 Owned
Marion, NC Case goods plant 501,133 Owned
Morganton, NC Upholstery plant 144,859 Owned
High Point, NC Upholstery plant 280,650 Owned
Hildebran, NC Case goods plant 360,710 Owned
Morganton, NC Warehouse 501,800 Owned
High Point, NC Showroom 100,112 Owned
Henredon:
---------
Morganton, NC Headquarters/
casegoods plant/warehouse 898,690 Owned
Spruce Pine, NC Case goods plant 553,180 Owned
High Point, NC Upholstery plant 125,803 Owned
Mt. Airy, NC Upholstery plant 102,500 Owned
Lane:
-----
Tupelo, MS Headquarters/
upholstery plant/warehouse 715,951 Owned
Saltillo, MS Upholstery plant/warehouse 570,328 Owned
Verona, MS Upholstery plant/warehouse 413,000 Owned
Pontotoc, MS Upholstery plant/warehouse 369,216 Owned
High Point, NC Plant 187,162 Owned
Conover, NC Upholstery plant 351,015 Owned
Conover, NC Upholstery plant/warehouse 348,180 Owned
Maitland-Smith:
---------------
High Point, NC Headquarters/warehouse 220,000 Leased
Cebu, Philippines Case goods plant 448,421 Owned
Semarang, Indonesia Plant/warehouse 142,075 Owned/Leased
Thomasville:
------------
Thomasville, NC Headquarters/ Showroom 256,000 Owned
Thomasville, NC Case goods plant/warehouse 373,000 Owned
Thomasville, NC Case goods plant 240,000 Owned
Thomasville, NC Case goods plant 325,000 Owned
Thomasville, NC Case goods plant 309,850 Owned
Lenoir, NC Case goods plant/warehouse 828,000 Owned
Winston-Salem, NC Case goods plant/warehouse 706,000 Owned
Statesville, NC Upholstery plant 158,600 Owned
Troutman, NC Upholstery plant 238,200 Owned
Conover, NC Upholstery plant 123,200 Owned
Hickory, NC Upholstery plant 58,700 Owned
Thomasville, NC Warehouse 731,000 Owned
Appomattox, VA Case goods plant/warehouse 829,800 Owned
Carysbrook, VA Case goods plant 189,000 Owned
Hickory, NC Upholstery plant/warehouse 209,800 Leased
Conover, NC Case goods plant/warehouse 260,000 Owned
Hickory, NC Upholstery plant/warehouse 555,511 Owned
Hickory, NC Case goods/upholstery
plant/warehouse 211,391 Owned
High Point, NC Upholstery plant/warehouse 178,500 Owned
The Tupelo, Mississippi facility is encumbered by a mortgage and first lien
securing revenue bonds. The Company believes its properties are generally well
maintained, suitable for its present operations and adequate for current
production requirements. Productive capacity and extent of utilization of the
Company's facilities are difficult to quantify with certainty because in any one
facility maximum capacity and utilization varies periodically depending upon the
product that is being manufactured, the degree of automation and the utilization
of the labor force in the facility. In this context, the Company estimates that
overall its production facilities were utilized during 2001 at a moderate level
of productive capacity and believes that in conjunction with its import
capabilities the Company's facilities have the capacity, if necessary, to expand
production to meet anticipated product requirements.
Item 3. Legal Proceedings
The Company is or may become a defendant in a number of pending or threatened
legal proceedings in the ordinary course of business. In the opinion of
management, the ultimate liability, if any, of the Company from all such
proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its subsidiaries.
The Company is also subject to regulation regarding environmental matters, and
is a party to certain actions related thereto. For information regarding
environmental matters, see "Item 1. Business - Environmental Matters."
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for The Registrant's Common Equity and Related Stockholder
Matters
As of February 28, 2002, there were approximately 2,150 holders of record of
Common Stock.
Shares of the Company's Common Stock are traded on the New York Stock Exchange.
The reported high and low sale prices for the Company's Common Stock on the New
York Stock Exchange is included in Note 14 to the consolidated financial
statements of the Company.
The Company has not paid cash dividends on its Common Stock during the two years
ended December 31, 2000 and 2001.
Item 6. Selected Financial Data
FIVE-YEAR CONSOLIDATED FINANCIAL REVIEW
- --------------------------------------------------- -------------------------------------------------------------------------------
(Dollars in thousands Year Ended December 31,
except per share data) -------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Summary of operations:
Net sales $1,891,313 $2,116,239 $2,088,112 $1,960,250 $1,808,276
Gross profit 466,794 546,859 550,312 515,512 450,690
Interest expense 21,984 36,389 37,577 43,455 42,747
Earnings before income tax
expense and extraordinary item 87,694 165,997 176,764 152,143 107,254
Income tax expense 29,664 57,574 64,854 54,205 40,201
Earnings before extraordinary item 58,030 108,423 111,910 97,938 67,053
Extraordinary item - (2,522) - - -
Net earnings $ 58,030 $ 105,901 $ 111,910 $ 97,938 $ 67,053
Per share of common stock - diluted:
Earnings before extraordinary item $ 1.13 $ 2.15 $ 2.14 $ 1.82 $ 1.15
Extraordinary item - (0.05) - - -
Net earnings $ 1.13 $ 2.10 $ 2.14 $ 1.82 $ 1.15
Weighted average common shares
- diluted (in thousands) 51,325 50,443 52,335 53,809 58,473
Other information:
Working capital $ 603,420 $ 548,463 $ 518,036 $ 509,148 $ 482,288
Property, plant and equipment, net 321,640 303,235 297,746 293,777 294,061
Capital expenditures 22,991 53,310 48,951 44,358 40,004
Total assets 1,503,489 1,304,838 1,288,834 1,303,204 1,257,236
Long-term debt 454,400 462,000 535,100 589,200 667,800
Shareholders' equity $ 759,659 $ 583,905 $ 474,197 $ 413,509 $ 323,322
===================================================================================================================================
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following analysis of the results of operations and financial condition
of the Company should be read in conjunction with the consolidated financial
statements and related notes. In addition, management believes the following
factors have had a significant effect on its recent financial statements.
Acquisition
On December 28, 2001, the Company acquired substantially all of the assets
and liabilities of Henredon Furniture Industries, Drexel Heritage Furnishings
and Maitland-Smith. Since the acquisition occurred near the last business day of
2001, it is reflected in the Company's consolidated balance sheet as of December
31, 2001; however, the Company's consolidated results of operations for 2001 do
not include any of the operations of the acquired companies. The purchase price
of the acquisition was $287.1 million, consisting of $176.5 million in cash and
4.0 million shares of the Company's common stock.
Restructuring
During 2001, the Company implemented a plan to reduce its domestic case
goods manufacturing capacity. This plan included the closing of 12 manufacturing
facilities and a permanent reduction of approximately 20% of the Company's total
employment. Pretax restructuring and impairment charges of $26.4 million were
recorded in 2001, consisting of $5.9 million charged to cost of operations, $2.5
million charged to selling, general and administrative expenses and $18.0
million in asset impairment charges.
Results of Operations
As an aid to understanding the Company's results of operations on a
comparative basis, the following table has been prepared to set forth certain
statements of operations and other data for 2001, 2000, and 1999.
- ------------------------------------- -----------------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
-----------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ---------------------------
% of % of % of
Dollars Net Sales Dollars Net Sales Dollars Net Sales
- ------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net sales $1,891.3 100.0% $2,116.2 100.0% $2,088.1 100.0%
Cost of operations 1,387.6 73.4 1,529.9 72.3 1,498.6 71.8
Selling, general and
administrative
expenses 330.8 17.5 335.6 15.9 321.2 15.4
Depreciation and
amortization 55.8 2.9 58.1 2.7 56.5 2.7
Asset impairment charges 18.0 1.0 - - - -
- ------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Earnings from
operations 99.1 5.2 192.6 9.1 211.8 10.1
Interest expense 22.0 1.2 36.4 1.7 37.6 1.8
Other income, net 10.6 0.6 9.8 0.4 2.6 0.1
- ------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Earnings before income
tax expense and extraordinary
item 87.7 4.6 166.0 7.8 176.8 8.5
Income tax expense 29.7 1.5 57.6 2.7 64.9 3.1
- ------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net earnings before extraordinary
item $ 58.0 3.1% $108.4 5.1% $111.9 5.4%
===================================== ============= ============= ============= ============= ============= =============
Gross profit 1 $466.8 24.7% $546.8 25.8% $550.3 26.4%
===================================== ============= ============= ============= ============= ============= =============
1 The Company believes that gross profit provides useful information regarding
a company's financial performance. Gross profit has been calculated by
subtracting cost of operations and the portion of depreciation associated
with cost of goods sold from net sales.
(Dollars in millions) Year Ended December 31,
------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------- ------------------- ------------------- --------------------
Net sales $1,891.3 $2,116.2 $2,088.1
Cost of operations 1,387.6 1,529.9 1,498.6
Depreciation (associated with cost of goods sold) 36.9 39.5 39.2
-------------------------------------------------------------- ------------------- ------------------- --------------------
Gross profit $466.8 $546.8 $550.3
============================================================== =================== =================== ====================
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net sales for 2001 were $1,891.3 million compared to $2,116.2 million in
2000, a decrease of $224.9 million or 10.6%. The decrease in net sales was due
to the general economic slowdown which began in the third quarter of 2000, the
failure of several large customers and the continuation of an established
program of discontinuing relationships with retailers that did not meet the
Company's standards.
Cost of operations for 2001 was $1,387.6 million compared to $1,529.9
million for 2000, a decrease of 9.3%. Cost of operations as a percentage of net
sales increased from 72.3% for 2000 to 73.4% for 2001 primarily due to decreased
plant utilization resulting from the sales volume decrease, an increased focus
on imported products, and the restructuring charges.
Selling, general and administrative expenses decreased to $330.8 million in
2001 from $335.6 million in 2000, a decrease of 1.4%. As a percentage of net
sales, selling, general and administrative expenses rose from 15.9% in 2000 to
17.5% in 2001 due to the sales decrease, an increase in bad debt expense, and
the restructuring charges.
Depreciation and amortization for 2001 was $55.8 million compared to $58.1
million in 2000, a decrease of 4.1%. The decrease in depreciation expense was
due to lower capital expenditures and the restructuring.
Interest expense for 2001 totaled $22.0 million compared with $36.4 million
in 2000. The decrease in interest expense reflects the Company's debt reduction
program and lower interest rates.
Other income, net for 2001 totaled $10.6 million compared to $9.8 million
for 2000. For 2001, other income consisted of interest on short-term investments
of $0.8 million, other miscellaneous income and expense items totaling $1.8
million and non-operating income of $8.0 million. The non-operating income
results from the sale of the Company's investment in a company which leases
exhibition space to furniture and accessory manufacturers, partially offset by
additions to reserves related to certain discontinued operations.
Income tax expense for 2001 totaled $29.7 million, producing an effective
tax rate of 33.8% compared with an effective tax rate of 34.7% for 2000.
Net earnings per common share before extraordinary item on a diluted basis
were $1.13 and $2.15 for 2001 and 2000, respectively. Weighted average shares
used in the calculation of net earnings per common share on a basic and diluted
basis were 50,357,000 and 51,325,000 in 2001, respectively, and 49,532,000 and
50,443,000 in 2000, respectively.
Gross profit for 2001 was $466.8 million compared with $546.8 million for
2000, a decrease of 14.6%. The decrease in gross profit margin to 24.7% in 2001
from 25.8% in 2000 was primarily due to the decreased plant utilization and
restructuring charges noted earlier.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales for 2000 were $2,116.2 million compared to $2,088.1 million in
1999, an increase of $28.1 million or 1.3%. The increase in net sales was
achieved through the Company's continuing strategies of introducing new
products, emphasizing brand names and expanding distribution. These efforts were
mitigated in part by a general economic slowdown in the second half of the year
and the failure of several large customers.
Cost of operations for 2000 was $1,529.9 million compared to $1,498.6
million for 1999, an increase of 2.1%. Cost of operations as a percentage of net
sales increased from 71.8% for 1999 to 72.3% for 2000 primarily due to
manufacturing inefficiencies in the second half resulting from temporary plant
shutdowns to balance inventory with incoming orders.
Selling, general and administrative expenses increased to $335.6 million in
2000 from $321.2 million in 1999, an increase of 4.5%. As a percentage of net
sales, selling, general and administrative expenses rose from 15.4% in 1999 to
15.9% in 2000 largely due to an increase in bad debt expense associated with the
customer failures noted earlier.
Depreciation and amortization for 2000 was $58.1 million compared to $56.5
million in 1999, an increase of 2.9%.
Interest expense for 2000 totaled $36.4 million compared with $37.6 million
in 1999. The decrease in interest expense reflects the Company's debt reduction
program, partially offset by higher interest rates.
Other income, net for 2000 totaled $9.8 million compared to $2.6 million
for 1999. For 2000, other income consisted of interest on short-term investments
of $0.6 million, a cash dividend (nonrecurring) of $7.6 million received by the
Company relating to its minority investment in a company which leases exhibition
space to furniture and accessory manufacturers, and other miscellaneous income
and expense items totaling $1.6 million.
Income tax expense for 2000 totaled $57.6 million, producing an effective
tax rate of 34.7% compared with an effective tax rate of 36.7% for 1999. The
effective tax rates for both periods were adversely impacted by certain
nondeductible expenses incurred and provisions for state and local income taxes.
The effective tax rate for 2000 was favorably impacted by the nontaxable portion
of the $7.6 million cash dividend.
Net earnings per common share before extraordinary item on a diluted basis
were $2.15 and $2.14 for 2000 and 1999, respectively. Weighted average shares
used in the calculation of net earnings per common share on a basic and diluted
basis were 49,532,000 and 50,443,000 in 2000, respectively, and 50,968,000 and
52,335,000 in 1999, respectively.
Gross profit for 2000 was $546.8 million compared with $550.3 million for
1999, a decrease of 0.6%. The decrease in gross profit margin to 25.8% in 2000
from 26.4% in 1999 was primarily due to the manufacturing inefficiencies
resulting from the temporary plant shutdowns in the second half noted earlier.
Financial Condition and Liquidity
Liquidity
Cash and cash equivalents at December 31, 2001 totaled $15.7 million
compared to $14.6 million at December 31, 2000. For 2001, net cash provided by
operating activities totaled $184.7 million. Net cash used by investing
activities totaled $181.0 million. Net cash used by financing activities totaled
$2.6 million.
Working capital was $603.4 million at December 31, 2001 compared to $548.5
million at December 31, 2000. The current ratio was 4.4-to-1 at December 31,
2001 compared to 4.8-to-1 at December 31, 2000. The increase in working capital
between years is the result of the acquisition of Henredon, Drexel Heritage and
Maitland-Smith.
At December 31, 2001, long-term debt totaled $454.4 million compared to
$462.0 million at December 31, 2000. The decrease in indebtedness was funded by
cash flow from operations, offset by the aforementioned acquisition. The
Company's debt-to-capitalization ratio was 37.4% at December 31, 2001 compared
to 44.2% at December 31, 2000.
Financing Arrangements
To meet short-term capital and other financial requirements, the Company
maintains a $630.0 million revolving credit facility with a group of financial
institutions. The revolving credit facility allows for the issuance of letters
of credit and cash borrowings. Letter of credit outstandings are limited to no
more than $150.0 million, with cash borrowings limited only by the facility's
maximum availability less letters of credit outstanding. On December 31, 2001
there were $440.0 million in cash borrowings and $32.5 million in letters of
credit outstanding, leaving an excess of $157.5 million available under the
facility.
Cash borrowings under the revolving credit facility bear interest at a base
rate or at an adjusted Eurodollar rate plus an applicable margin which varies,
depending upon the type of loan the Company executes. The applicable margin over
the base rate and Eurodollar rate is subject to adjustment based upon achieving
certain credit ratings. At December 31, 2001, loans outstanding under the
revolving credit facility consisted of $300.0 million based on the adjusted
Eurodollar rate and $140.0 million based on the base rate, which in conjunction
with the interest rate swaps have a weighted average interest rate of 4.87%.
The Company believes that its revolving credit facility, together with cash
generated from operations, will be adequate to meet liquidity requirements for
the foreseeable future.
Other
Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company's exposure to interest rate risk consists of its floating rate revolving
credit facility. This risk is managed using interest rate swaps to fix a portion
of the Company's floating rate long-term debt. Based upon a hypothetical
ten-percent increase in interest rates the potential impact to the Company's net
earnings would be $0.4 million.
Recently Issued Statements of Financial Accounting Standard
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS No. 141) "Business Combinations"
and No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS No. 141
requires the purchase method of accounting be used for all business combinations
subsequent to June 30, 2001 and specifies criteria for recognizing intangible
assets acquired in a business combination. SFAS No. 142 requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually. Intangible assets with
definite useful lives will continue to be amortized over their respective
estimated useful lives. The Company adopted SFAS No. 142 effective January 1,
2002 and is in the process of reviewing the provisions of the statement and
evaluating its impact on the financial statements. The Company believes the
impact of discontinuing the amortization of intangible assets will be to
increase annual earnings by approximately $0.20 per share.
Outlook
While the Company continues to see weak consumer spending in its sector, it
is beginning to see signs the economy is firming up. Order trends in the fourth
quarter of 2001 showed continued strength in the middle and upper-middle price
categories. While the Company has yet to see such a turnaround at the upper end,
the cost savings initiatives undertaken during the year should position it for
strong operating profit margin improvement as that price category begins to turn
as well. Business overall is expected to be essentially flat for the first half
of 2002, with a recovery beginning at mid-year and accelerating through the
second half. The Company is currently projecting earnings per share of
$2.25-$2.35 for the full year.
Capital expenditures are forecasted at $45.0 - $50.0 million for 2002, with
depreciation expense anticipated to be approximately $50.0 million. Selling,
general and administrative expenses for the year are expected to be 16.50% -
16.75% of net sales. Based upon current interest rates and budgeted debt
reduction, interest expense is expected to be approximately $24.0 million for
2002. The Company expects to generate in excess of $100.0 million in cash flow
from operations, the majority of which will be used to reduce long-term debt.
Forward-Looking Statements
The Company herein has made forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include the Company's expected sales,
earnings per share, profit margins, and cash flows, the effects of certain
manufacturing realignments and other business strategies, the prospects for the
overall business environment, and other statements containing the words
"expects," "anticipates," "estimates," "believes," and words of similar import.
The Company cautions investors that any such forward-looking statements are not
guarantees of future performance and that certain factors may cause actual
results to differ materially from those in the forward-looking statements. Such
factors may include: overall business and economic conditions and growth in the
furniture industry; changes in customer spending patterns and demand for home
furnishings; competitive factors, such as design and marketing efforts by other
furniture manufacturers; pricing pressures; success of the marketing efforts of
retailers and the prospects for further customer failures; the Company's success
in furniture design and manufacture; the effects of manufacturing realignments
and cost savings programs; and other risk factors listed from time to time in
the Company's future public releases and SEC reports.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company's exposure to interest rate risk consists of its floating rate Secured
Credit agreement. This risk is managed using interest rate swaps to fix a
portion of the Company's floating rate long-term debt. Based upon a hypothetical
ten percent increase in interest rates the potential impact to the Company's net
earnings would be $0.4 million.
Item 8. - Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) December 31, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 15,707 $ 14,606
Receivables, less allowances of $18,841
($23,075 at December 31, 2000) 359,493 351,804
Inventories (Note 5) 369,773 294,454
Deferred income taxes 26,160 23,555
Prepaid expenses and other current assets 7,582 7,162
- ------------------------------------------------------------------------------------- -------------------- ---------------------
Total current assets 778,715 691,581
Property, plant and equipment:
Land 18,090 19,206
Buildings and improvements 240,554 226,096
Machinery and equipment 346,460 345,040
- ------------------------------------------------------------------------------------- -------------------- ---------------------
605,104 590,342
Less accumulated depreciation 283,464 287,107
- ------------------------------------------------------------------------------------- -------------------- ---------------------
Net property, plant and equipment 321,640 303,235
Intangible assets (Note 6) 367,305 289,895
Other assets 35,829 20,127
- ------------------------------------------------------------------------------------- -------------------- ---------------------
$1,503,489 $1,304,838
===================================================================================== ==================== =====================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 83,508 $ 65,483
Accrued employee compensation 23,815 24,822
Accrued interest expense 2,805 7,646
Other accrued expenses 65,167 45,167
- ------------------------------------------------------------------------------------- -------------------- ---------------------
Total current liabilities 175,295 143,118
Long-term debt (Note 7) 454,400 462,000
Deferred income taxes 69,032 77,533
Other long-term liabilities 45,103 38,282
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares,
no par value - issued, none - -
Common stock, authorized 100,000,000 shares,
$1.00 stated value - issued 56,277,066 shares at December 31, 2001
and 52,277,066 shares at December 31, 2000 (Note 8) 56,277 52,277
Paid-in capital 219,469 118,360
Retained earnings 520,503 462,473
Accumulated other comprehensive income (5,108) -
Treasury stock at cost
(1,664,666 shares at December 31, 2001 and
2,601,759 shares at December 31, 2000) (31,482) (49,205)
- ------------------------------------------------------------------------------------- -------------------- ---------------------
Total shareholders' equity 759,659 583,905
- ------------------------------------------------------------------------------------- -------------------- ---------------------
$1,503,489 $1,304,838
===================================================================================== ==================== =====================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
Year Ended December 31,
---------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $1,891,313 $2,116,239 $2,088,112
Costs and expenses:
Cost of operations 1,387,632 1,529,874 1,498,622
Selling, general and administrative expenses 330,835 335,596 321,205
Depreciation and amortization 55,767 58,155 56,528
Asset impairment charges 18,000 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 99,079 192,614 211,757
Interest expense 21,984 36,389 37,577
Other income, net 10,599 9,772 2,584
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense and
extraordinary item 87,694 165,997 176,764
Income tax expense (Note 9) 29,664 57,574 64,854
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 58,030 108,423 111,910
Extraordinary item - early extinguishment
of debt, net of income tax benefit (Note 11) - (2,522) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 58,030 $ 105,901 $ 111,910
===================================================================================================================================
Net earnings per common share - basic (Note 8):
Earnings before extraordinary item $ 1.15 $ 2.19 $ 2.20
Extraordinary item - early extinguishment of debt - (0.05) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share - basic $ 1.15 $ 2.14 $ 2.20
===================================================================================================================================
Net earnings per common share - diluted (Note 8):
Earnings before extraordinary item $ 1.13 $ 2.15 $ 2.14
Extraordinary item - early extinguishment of debt - (0.05) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share - diluted $ 1.13 $ 2.10 $ 2.14
===================================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31,
-------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Cash flows from operating activities:
Net earnings $ 58,030 $ 105,901 $ 111,910
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net loss on early extinguishment of debt - 2,522 -
Depreciation of property, plant and equipment 43,707 46,095 44,468
Amortization of intangible and other assets 12,060 12,060 12,060
Asset impairment charges 18,000 - -
Other, net (includes gains on sale of investments) (11,586) 1,602 2,172
(Increase) decrease in receivables 41,502 (6,419) (21,221)
(Increase) decrease in inventories 33,070 (9,059) 21,987
Increase in prepaid expenses and intangible and other assets (6,789) (7,737) (2,872)
Increase (decrease) in accounts payable,
accrued interest expense and other accrued expenses 7,224 (9,226) (12,861)
Decrease in net deferred tax liabilities (8,356) (2,788) (5,390)
Decrease in other long-term liabilities (2,156) (807) (1,687)
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Net cash provided by operating activities 184,706 132,144 148,566
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (176,235) - -
Proceeds from the disposal of assets 18,197 316 451
Additions to property, plant and equipment (22,991) (53,310) (48,951)
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Net cash used by investing activities (181,029) (52,994) (48,500)
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Cash flows from financing activities:
Payments for debt issuance costs - (2,090) -
Additions to long-term debt 140,000 486,500 -
Payments of long-term debt (147,600) (559,600) (54,100)
Proceeds from the issuance of treasury stock 5,024 3,237 7,943
Purchase of treasury stock - - (59,720)
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Net cash used by financing activities (2,576) (71,953) (105,877)
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Net increase(decrease) in cash and cash equivalents 1,101 7,197 (5,811)
Cash and cash equivalents at beginning of period 14,606 7,409 13,220
- --------------------------------------------------------------------------------- ---------------- ----------------- --------------
Cash and cash equivalents at end of period $ 15,707 $ 14,606 $ 7,409
================================================================================= ================ ================= ==============
Supplemental Disclosure:
Cash payments for income taxes, net $ 26,083 $ 63,120 $ 68,100
================================================================================= ================ ================= ==============
Cash payments for interest $ 28,940 $ 30,873 $ 40,070
================================================================================= ================ ================= ==============
Issuance of common stock for acquisition $ 110,640 $ - $ -
================================================================================= ================ ================= ==============
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------ -------------------------------------------------------
(Dollars in thousands) Year Ended December 31,
-------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Common Stock:
Beginning balance $ 52,277 $ 52,277 $ 52,277
Stock issued for acquisition of business 4,000 - -
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Ending balance $ 56,277 $ 52,277 $ 52,277
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Paid-In Capital:
Beginning balance $118,360 $120,326 $127,513
Stock plans activity (Note 8) (5,531) (1,966) (7,187)
Stock issued for acquisition of business 106,640 - -
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Ending balance $219,469 $118,360 $120,326
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Retained Earnings:
Beginning balance $462,473 $356,572 $244,662
Net earnings 58,030 105,901 111,910
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Ending balance $520,503 $462,473 $356,572
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Accumulated Other Comprehensive Income:
Beginning balance $ - $ - $ -
Cumulative effect of adopting SFAS No. 133 2,960 - -
Effect of financial instruments accounted for as hedges (8,068) - -
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Ending balance $ (5,108) $ - $ -
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Treasury Stock:
Beginning balance $(49,205) $(54,978) $(10,943)
Stock plans activity (Note 8) 17,723 5,773 15,685
Purchase of treasury shares
(3,123,200 shares) - - (59,720)
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Ending balance $(31,482) $(49,205) $(54,978)
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
Total Shareholders' Equity $759,659 $583,905 $474,197
======================================================================== =================== ================ ==================
Comprehensive Income:
Net earnings $ 58,030 $105,901 $111,910
Cumulative effect of adopting SFAS No. 133 2,960 - -
Effect of financial instruments accounted for as hedges (8,068) - -
- ------------------------------------------------------------------------ ------------------- ---------------- ------------------
$ 52,922 $105,901 $111,910
======================================================================== =================== ================ ==================
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. The Company
Furniture Brands International, Inc. (referred to herein as the "Company")
is one of the largest home furniture manufacturers in the United States. During
the year ended December 31, 2001, the Company had three primary operating
subsidiaries: Broyhill Furniture Industries, Inc.; Lane Furniture Industries,
Inc.; and Thomasville Furniture Industries, Inc. On December 28, 2001, the
Company acquired substantially all of the assets and liabilities of Henredon
Furniture Industries, Drexel Heritage Furnishings and Maitland-Smith.
Substantially all of the Company's sales are made to unaffiliated furniture
retailers. The Company has a diversified customer base with no one customer
accounting for 10% or more of consolidated net sales and no particular
concentration of credit risk in one economic sector. Foreign operations and net
sales are not material.
2. Significant Accounting Policies
The significant accounting policies of the Company are set forth below.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results are likely to differ from
those estimates but management believes such differences are not significant.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All material intercompany transactions are
eliminated in consolidation. The Company's fiscal year ends on December 31. The
operating companies included in the consolidated financial statements report
their results of operations as of the Saturday closest to December 31.
Accordingly, the results of operations will periodically include a 53-week
fiscal year. Fiscal years 2001, 2000, and 1999 were 52-week years.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. Short-term investments are
recorded at amortized cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when acquired.
Depreciation is calculated using both accelerated and straight-line methods
based on the estimated useful lives of the respective assets, which generally
range from 3 to 45 years for buildings and improvements and from 3 to 12 years
for machinery and equipment.
Intangible Assets
Intangible assets consist of goodwill and trademarks and have been
amortized on a straight-line basis over 20 to 40 - year periods. Effective with
the Company's adoption of SFAS No. 142 on January 1, 2002, goodwill and
intangible assets with indefinite lives will no longer be amortized, but instead
tested for impairment. Intangible assets will be reviewed for impairment
annually or whenever events or changes in business circumstances indicate the
carrying value of the assets may not be recoverable. Impairment losses are
recognized if expected future cash flows of the related assets are less than
their carrying values.
Fair Value of Financial Instruments
The Company considers the carrying amounts of cash and cash equivalents,
receivables, and accounts payable to approximate fair value because of the short
maturity of these financial instruments.
Amounts outstanding under long-term debt agreements are considered to be
carried on the financial statements at their estimated fair values because they
were entered into recently and/or accrue interest at rates which generally
fluctuate with interest rate trends.
The Company periodically uses interest rate swap agreements (derivative
financial instruments) to hedge risk associated with its floating rate long-term
debt. Effective January 1, 2001 the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which requires that all derivative instruments be recorded on the
balance sheet as an asset or liability with any gain or loss recorded as a
component of accumulated other comprehensive income until recognized in
earnings. The fair value of the swap agreements is based upon quoted market
prices. The net amount to be paid or received under the interest rate swap
agreements is recorded as a component of interest expense.
Revenue Recognition
The Company recognizes revenue when finished goods are shipped, with
appropriate provisions for returns and uncollectible accounts.
Advertising Costs
Advertising costs are expensed when first aired or distributed. Advertising
costs for 2001, 2000 and 1999 were $57,453, $57,111 and $58,039 respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the
enactment date.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method.
3. Restructuring and Asset Impairment Charges
During 2001, the Company implemented a plan to reduce its domestic case
goods manufacturing capacity. This plan included the closing of 12 manufacturing
facilities and a permanent reduction of approximately 20% of the company's total
employment. Pretax restructuring and impairment charges of $26,352 have been
recorded during 2001 of which $18,000 relates to a fixed asset impairment charge
for properties and machinery and equipment of the closed facilities. The balance
consisting of $5,913 charged to cost of operations and $2,439 charged to
selling, general and administrative expenses relates to employee severance and
benefits costs and plant shutdown costs.
As of December 31, 2001, $1,000 of the restructuring charges were included
as an accrued expense in current liabilities.
4. Acquisition of Business
On December 28, 2001, the Company acquired substantially all of the assets
and liabilities of Henredon Furniture Industries, Drexel Heritage Furnishings
and Maitland-Smith for $287,140. The acquisition establishes the Company as the
furniture industry's only full-line resource in all middle and upper price
categories. The purchase price, including capitalized expenses of approximately
$1,500, consisted of $176,500 paid in cash and four million shares of the
Company's common stock valued at $110,640. The value of the common stock issued
was determined based on the average market price over the two-day period before
and after the terms of the acquisition were agreed to and announced. Since the
acquisition occurred near the last business day of 2001, it is reflected in the
Company's consolidated balance sheet as of December 31, 2001; however, the
Company's consolidated results of operations for 2001 do not include any of the
operations of the acquired companies.
The estimated fair value of the assets acquired and liabilities assumed at
the date of the acquisition are as follows:
- --------------------------------------------------------------------------------
Accounts receivable $ 49,191
Inventories 108,389
Other current assets 6,262
Property plant and equipment 68,095
Intangible assets 90,962
Other long-term assets 1,289
- --------------------------------------------------------------------------------
Total assets acquired $324,188
- --------------------------------------------------------------------------------
Current liabilities $ 30,481
Other long-term liabilities 6,567
- --------------------------------------------------------------------------------
Total liabilities assumed 37,048
- --------------------------------------------------------------------------------
Net assets acquired $287,140
================================================================================
The Company is in the process of obtaining third-party valuations of the
assets; thus, the allocation of the purchase price is subject to change.
The following unaudited summary, prepared on a pro forma basis, combines
the consolidated results of operations of the Company for 2001 and 2000 with
those of the acquired companies as if the transaction had occurred at the
beginning of each year presented.
-------------------------------------------------------------- ------------------------------------------------------
Year Ended December 31,
2001 2000
-------------------------------------------------------------- ------------------------ -----------------------------
Net sales $2,311,647 $2,620,151
Earnings before extraordinary item 68,260 127,507
Net earnings $ 68,260 $ 127,507
Net earnings per common share - diluted:
Earnings before extraordinary item $ 1.23 $ 2.34
Net earnings $ 1.23 $ 2.34
-------------------------------------------------------------- ------------------------ -----------------------------
Such pro forma amounts are not necessarily indicative of what actual
consolidated results of operations might have been if the acquisition had been
effective at the beginning of each year presented.
5. Inventories
Inventories are summarized as follows:
- --------------------------------------------------------------- ----------------------------- ----------------------------
December 31, December 31,
2001 2000
- --------------------------------------------------------------- ----------------------------- ----------------------------
Finished products $187,523 $125,491
Work-in-process 69,507 61,932
Raw materials 112,743 107,031
- --------------------------------------------------------------- ----------------------------- ----------------------------
$369,773 $294,454
=============================================================== ============================= ============================
6. Intangible Assets
Intangible assets include the following:
- ---------------------------------------------------------------------- ---------------------- ----------------------------
December 31, December 31,
2001 2000
- ---------------------------------------------------------------------- ---------------------- ----------------------------
Intangible assets, at cost:
Goodwill $239,173 $239,173
Trademarks and trade names 156,828 156,828
Intangibles from acquisition 90,962 -
- ---------------------------------------------------------------------- ---------------------- ----------------------------
486,963 396,001
Less accumulated amortization 119,658 106,106
- ---------------------------------------------------------------------- ---------------------- ----------------------------
$367,305 $289,895
====================================================================== ====================== ============================
7. Long-Term Debt
Long-term debt consists of the following:
- ---------------------------------------------------------------------- ---------------------- ----------------------------
December 31, December 31,
2001 2000
- ---------------------------------------------------------------------- ---------------------- ----------------------------
Revolving credit facility (unsecured) $ 440,000 $ 446,000
Other 14,400 16,000
- ---------------------------------------------------------------------- ---------------------- ----------------------------
$ 454,400 $ 462,000
====================================================================== ====================== ============================
The following discussion summarizes certain provisions of the long-term debt.
Revolving Credit Facility
The revolving credit facility is an unsecured, five-year facility with a
commitment of $630,000. The facility allows for issuance of letters of credit
and cash borrowings. Letter of credit outstandings are limited to no more than
$150,000, with cash borrowings limited only by the facility's maximum
availability less letters of credit outstanding.
Currently, for letter of credit issuances, a fee of 0.75% per annum
(subject to increase/decrease based upon the Company achieving certain credit
ratings from Standard & Poor's and Moody's) is assessed for the account of the
lenders ratably. A further fee of 0.125% is assessed on standby letters of
credit representing a facing fee. A customary administrative charge for
processing letters of credit is also payable to the relevant issuing bank.
Letter of credit fees are payable quarterly in arrears.
Cash borrowings under the revolving credit facility bear interest at a base
rate or at an adjusted Eurodollar rate plus an applicable margin which varies,
depending upon the type of loan the Company executes. The applicable margin over
the base rate and adjusted Eurodollar rate is subject to adjustment based upon
achieving certain credit ratings. At December 31, 2001, loans outstanding under
the revolving credit facility consisted of $300,000 based on the adjusted
Eurodollar rate and $140,000 based on the base rate, which in conjunction with
the interest rate swaps have a weighted average interest rate of 4.87%.
At December 31, 2001, there were $440,000 of cash borrowings and $32,464 in
letters of credit outstanding under the revolving credit facility, leaving an
excess of $157,536 available under the facility.
The revolving credit facility has no mandatory principal payments; however,
the commitment matures on June 7, 2005. The facility requires the Company to
meet certain financial covenants including a minimum consolidated net worth and
maximum leverage ratio. In addition, the facility requires repayment upon the
occurrence of a change of control of the Company.
Other
Other long-term debt consists of various industrial revenue bonds with
interest rates ranging from approximately 4.0% to 9.0%.
Interest Rate Swap Agreements
In May 2001, in order to reduce the impact of changes in interest rates on
its floating rate long-term debt, the Company entered into three interest rate
swap agreements each having a notional amount of $100.0 million and a
termination date in May 2004. The Company pays the counterparties a blended
fixed rate of 4.93% per annum and receives payment based upon the floating
three-month LIBOR rate.
Other Information
The Company has no mandatory long-term debt payments until 2005, at which
time $448,000 matures.
8. Common Stock
The Company's restated certificate of incorporation includes authorization
to issue up to 100 million shares of common stock with a $1.00 per share stated
value. As of December 31, 2001, 56,277,066 shares of common stock were issued.
It is not presently anticipated that dividends will be paid on common stock in
the foreseeable future.
The Company has been authorized by its Board of Directors to repurchase its
common stock from time to time in open market or privately negotiated
transactions. Common stock repurchases are recorded as treasury stock and may be
used for general corporate purposes. In 1999, the Company repurchased 3,123,200
shares for $59,720. As of December 31, 2001, the Company has Board of Directors'
authorization for the repurchase of an additional $100,000 of its common stock.
Shares of common stock were reserved for the following purposes at December
31, 2001:
Number of Shares
- -------------------------------------------------------------------- -----------------------------------------------------
Common stock options:
Granted 4,298,916
Available for grant 816,740
- --------------------------------------------------------------------------------------------------------------------------
5,115,656
==========================================================================================================================
On April 29, 1999, stockholders approved the 1999 Long-Term Incentive Plan.
The plan provided for a total of 2,250,000 shares plus all remaining shares
available for grant or which become available for grant due to cancellation
under the 1992 Stock Option Plan. The plan is administered by the Executive
Compensation and Stock Option Committee of the Board of Directors and permits
certain key employees to be granted nonqualified options, performance-based
options, restricted stock, or combinations thereof. Options must be issued at
market value on the date of grant and expire in a maximum of ten years.
In 1999, the Company issued 79,000 shares of restricted stock. The
restricted shares vest over various periods from 2 to 5 years. The deferred
compensation expense is amortized to expense over the period of time the
restrictions are in place and the unamortized portion is classified as a
reduction of paid-in-capital in the Company's consolidated balance sheets.
Changes in options granted and outstanding are summarized as follows:
- ------------------------------------ ------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------------
2001 2000 1999
---------------------------- --------------------------- ---------------------------
--------------- ------------ --------------- ----------- ------------- -------------
Average Average Average
Shares Price Shares Price Shares Price
--------------- ------------ --------------- ----------- ------------- -------------
Beginning of period 4,345,634 $13.61 4,027,063 $12.67 4,018,581 $ 9.37
Granted 954,900 24.00 734,600 16.70 772,600 23.49
Exercised (937,093) 5.36 (305,300) 6.83 (662,141) 6.02
Cancelled (64,525) 24.48 (110,729) 18.60 (101,977) 7.91
- ------------------------------------ --------------- ------------ --------------- ----------- ------------- -------------
End of period 4,298,916 $17.55 4,345,634 $13.61 4,027,063 $12.67
==================================== =============== ============ =============== =========== ============= =============
Exercisable at
end of period 2,324,391 2,591,726 2,342,822
==================================== =============== ============ =============== =========== ============= =============
Weighted average fair
value of options granted $12.40 $ 9.52 $13.03
==================================== =============== ============ =============== =========== ============= =============
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with SFAS No. 123, the Company's net earnings and net
earnings per share would have been as follows:
- ---------------------------------------------------- ---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------- ----------------------- ---------------------- ----------------------
Net earnings
As reported $58,030 $105,901 $111,910
Pro forma 52,648 101,819 108,600
Net earnings per share - basic
As reported $ 1.15 $ 2.14 $ 2.20
Pro forma 1.05 2.06 2.13
Net earnings per share - diluted
As reported $ 1.13 $ 2.10 $ 2.14
Pro forma 1.04 2.05 2.10
==================================================== ======================= ====================== ======================
The weighted average fair value of options granted is estimated as of the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk free interest rate of 4.9%, 5.7%, and 5.0% in
2001, 2000, and 1999, respectively; expected dividend yield of 0% for all years;
expected life of 7 years for all years and expected volatility of 47%, 47%, and
46% for 2001, 2000, and 1999, respectively.
Summarized information regarding stock options outstanding and exercisable
at December 31, 2001 follows:
- -------------------------------------------------------------------------------------------------------------------------
Outstanding Exercisable
--------------------------------------------------------- --------------------------------
Range of Average
Exercise Contractual Average Average
Prices Shares Life Price Shares Price
- ----------------------- --------------------- ------------------ ---------------- ------ ---------------- ---------------
Up to $10 796,441 2.1 $ 6.97 796,441 $ 6.97
$10 - $20 1,512,075 5.5 14.64 972,050 13.64
Over $20 1,990,400 6.9 24.00 555,900 24.04
- ----------------------- --------------------- ------------------ ---------------- ------ ---------------- ---------------
4,298,916 5.5 $17.55 2,324,391 $13.84
======================= ===================== ================== ================ ====== ================ ===============
Weighted average shares used in the computation of basic and diluted net
earnings per common share for 2001, 2000, and 1999 are as follows:
- --------------------------------------------------------------- ----------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------
2001 2000 1999
------------------- ------------------- ------------------
Weighted average shares used for
basic net earnings per common share 50,356,763 49,531,931 50,967,973
Effect of dilutive securities:
Stock options 968,227 910,805 1,366,611
- --------------------------------------------------------------- ------------------- ------------------- ------------------
Weighted average shares used for
diluted net earnings per common share 51,324,990 50,442,736 52,334,584
=============================================================== =================== =================== ==================
Excluded from the computation of diluted net earnings per common share were
options to purchase 79,000 and 1,163,700 shares at an average price of $30.84,
and $23.81 per share during 2001 and 2000, respectively. These options have been
excluded from the diluted earnings per share calculation since their impact is
anti-dilutive.
9. Income Taxes
Income tax expense was comprised of the following:
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------- ---------------------------- ---------------------------- ----------------------------
Current:
Federal $34,672 $55,191 $62,108
State and local 562 5,171 8,136
- ---------------------------------- ---------------------------- ---------------------------- ----------------------------
35,234 60,362 70,244
Deferred (5,570) (2,788) (5,390)
- ---------------------------------- ---------------------------- ---------------------------- ----------------------------
$29,664 $57,574 $64,854
================================== ============================ ============================ ============================
The following table reconciles the differences between the federal
corporate statutory rate and the Company's effective income tax rate:
==========================================================================================================================
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------- ----------------- ----------------- -----------------
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal tax benefit 0.4 1.7 2.5
Nondeductible amortization of intangible assets 2.9 1.5 1.5
Dividend exclusion - (1.1) -
Adjustments to income tax reserves (4.3) - 0.3
Other (0.2) (2.4) (2.6)
- -------------------------------------------------------------------- ----------------- ----------------- -----------------
Effective income tax rate 33.8% 34.7% 36.7%
==================================================================== ================= ================= =================
The sources of the tax effects for temporary differences that give rise to
the deferred tax assets and liabilities were as follows:
- ------------------------------------------------------------------------ ------------------------ -----------------------
December 31, December 31,
2001 2000
- ------------------------------------------------------------------------ ------------------------ -----------------------
Deferred tax assets attributable to:
Expense accruals $ 16,579 $ 15,293
Valuation reserves 16,858 11,811
Asset impairment charges 6,193 -
Employee pension and other benefit plans 1,375 3,605
Fair market value adjustments -
account receivable 1,453 -
Inventory costs capitalized 201 1,560
Other 2,366 2,805
- ------------------------------------------------------------------------ ------------------------ -----------------------
Total deferred tax assets 45,025 35,074
- ------------------------------------------------------------------------ ------------------------ -----------------------
Deferred tax liabilities attributable to:
Fair value adjustments (73,109) (68,744)
Depreciation (7,828) (8,099)
Fair market value adjustments -
accounts receivable - (2,530)
Other (6,960) (9,679)
- ------------------------------------------------------------------------ ------------------------ -----------------------
Total deferred tax liabilities (87,897) (89,052)
- ------------------------------------------------------------------------ ------------------------ -----------------------
Net deferred tax liabilities $(42,872) $(53,978)
======================================================================== ======================== =======================
10. Employee Benefits
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 2001, 2000, and
1999 was $1,425, $2,090, and $5,649, respectively.
Company-Sponsored Defined Benefit Plans
Annual cost for defined benefit plans is determined using the projected
unit credit actuarial method. Prior service cost is amortized on a straight-line
basis over the average remaining service period of employees expected to receive
benefits.
It is the Company's practice to fund pension costs to the extent that such
costs are tax deductible and in accordance with ERISA. The assets of the various
plans include corporate equities, government securities, corporate debt
securities and insurance contracts. The table below summarizes the funded status
of the Company-sponsored defined benefit plans.
- ------------------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2001 2000
- --------------------------------------------------------------------------------- --------------------- ----------------------
Change in projected benefit obligation:
Projected benefit obligation - beginning of year $323,511 $313,756
Service cost 9,372 8,665
Interest cost 23,315 22,522
Actuarial gain (4,759) (3,298)
Benefits paid (19,258) (18,134)
- --------------------------------------------------------------------------------- --------------------- ----------------------
Projected benefit obligation - end of year $332,181 $323,511
- --------------------------------------------------------------------------------- --------------------- ----------------------
Change in plan assets:
Fair value of plan assets - beginning of year $354,356 $361,890
Actual return on plan assets (16,284) 9,402
Employer contributions 1,319 1,198
Benefits paid (19,258) (18,134)
- --------------------------------------------------------------------------------- --------------------- ----------------------
Fair value of plan assets - end of year $320,133 $354,356
- --------------------------------------------------------------------------------- --------------------- ----------------------
Funded status $(12,048) $ 30,845
Unrecognized net (gain) loss 20,177 (26,807)
Unrecognized prior service cost 824 1,336
- --------------------------------------------------------------------------------- --------------------- ----------------------
Prepaid pension cost $ 8,953 $ 5,374
================================================================================= ===================== ======================
Net periodic pension cost for 2001, 2000, and 1999 included the
following components:
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------- ---------------- --------------- ---------------
Service cost-benefits earned during the period $ 9,372 $ 8,665 $ 8,379
Interest cost on the projected benefit obligation 23,315 22,522 21,905
Expected return on plan assets (32,655) (31,840) (29,193)
Net amortization and deferral (2,291) (2,914) (1,230)
- --------------------------------------------------------------------------- ---------------- --------------- ---------------
Net periodic pension (income) expense $ (2,259) $ (3,567) $ (139)
=========================================================================== ================ =============== ===============
Employees are covered primarily by noncontributory plans, funded by Company
contributions to trust funds, which are held for the sole benefit of employees.
Monthly retirement benefits are based upon service and pay with employees
becoming vested upon completion of five years of service.
The expected long-term rate of return on plan assets was 9.0% in all years
presented. Measurement of the projected benefit obligation was based upon a
weighted average discount rate of 7.25% and a long-term rate of compensation
increase of 4.5% for all years presented.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes contributions to
defined contribution plans and sponsors employee savings plans. The cost of
these plans is included in the total cost for all plans reflected above.
11. Extraordinary Item - Early Extinguishment of Debt
In conjunction with the June 7, 2000, refinancing of an existing secured
credit agreement, the Company charged to results of operations $2,522, net of
income tax benefit of $1,520, representing the deferred financing fees and
expenses pertaining to the refinanced facility. The charge was recorded as an
extraordinary item.
12. Commitments and Contingent Liabilities
Certain of the Company's real properties and equipment are operated under
lease agreements. Rental expense under operating leases totaled $18,900,
$18,514, and $17,417 for 2001, 2000, and 1999, respectively. Annual minimum
payments under operating leases (including the companies acquired on December
28, 2001) are $19,538, $16,525, $13,609, $8,848, and $6,487 for 2002 through
2006, respectively. Future minimum lease payments under operating leases,
reduced by minimum rentals from subleases of $1,250 at December 31, 2001,
aggregate $94,220.
The Company has provided guarantees related to store leases for certain
independent dealers opening Thomasville Home Furnishings Stores. The total
future lease payments guaranteed at December 31, 2001 were $54,329. The Company
believes the risk of significant loss from these lease guarantees is remote.
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the opinion
of management, the ultimate liability, if any, of the Company from all such
proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its subsidiaries.
13. Other Income, Net
Other income, net for 2001 totaled $10,599 compared to $9,772 for 2000. For
2001, other income consisted of interest on short-term investments of $844,
other miscellaneous income and expense items totaling $1,755 and non-operating
income of $8,000. The non-operating income results from the sale of the
Company's investment in a company which leases exhibition space to furniture and
accessory manufacturers, partially offset by additions to reserves related to
certain discontinued operations.
For 2000, other income consisted of interest on short-term investments of
$538, a cash dividend (nonrecurring) of $7,642 received by the Company relating
to its minority investment in a company which leases exhibition space to
furniture and accessory manufacturers, and other miscellaneous income and
expense items totaling $1,592.
Other income for 1999 consisted of interest on short-term investments of
$388 and other miscellaneous income and expense items totaling $2,196.
14. Quarterly Financial Information (Unaudited)
Following is a summary of unaudited quarterly information:
- --------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
==========================================================================================================================
Year ended December 31, 2001:
Net sales $476,801 $448,682 $459,648 $506,182
Gross profit 114,417 112,321 114,725 125,331
Net earnings $ 22,831 $ 13,871 $ 1,647 $ 19,681
Net earnings per common share:
Basic $ 0.45 $ 0.27 $ 0.03 $ 0.39
Diluted $ 0.44 $ 0.27 $ 0.03 $ 0.39
Common stock price range:
High $ 32.41 $29.17 $ 28.00 $ 26.76
Low $ 18.91 $18.25 $ 22.55 $ 20.44
==========================================================================================================================
Year ended December 31, 2000:
Net sales $519,467 $499,746 $533,079 $563,947
Gross profit 130,066 126,812 141,547 148,434
Net earnings:
Earnings before extraordinary item 24,307 23,373 30,143 30,600
Extraordinary item - - (2,522) -
Total $ 24,307 $ 23,373 $ 27,621 $ 30,600
Net earnings per common share - basic:
Earnings before extraordinary item
Extraordinary item $ 0.49 $ 0.47 $ 0.61 $ 0.62
Total - - (0.05) -
$ 0.49 $ 0.47 $ 0.56 $ 0.62
Net earnings per common share - diluted:
Earnings before extraordinary item
Extraordinary item
Total $ 0.48 $ 0.46 $ 0.60 $ 0.61
- - (0.05) -
Common stock price range: $ 0.48 $ 0.46 $ 0.55 $ 0.61
High
Low
$ 21.69 $ 18.56 $ 21.69 $ 19.69
$ 14.94 $ 14.06 $ 14.25 $ 14.56
- --------------------------------------------------------------------------------------------------------------------------
The Company has not paid cash dividends on its common stock during the
three years ended December 31, 2001. The closing market price of the Company's
common stock on December 31, 2001 was $32.02 per share.
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
The sections entitled "Nominees" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's Definitive Proxy Statement for the Annual
Meeting of Stockholders on April 25, 2002 are incorporated herein by reference.
Executive Officers of the Registrant
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Wilbert G. Holliman 64 President of the Subsidiary - 1989
Action Industries, Inc.
Chief Executive Officer of
the Subsidiary - Action
Industries, Inc. 1994
Director X 1996
President X 1996
Chief Executive Officer X 1996
Chair of the Board X 1998
John T. Foy 54 President and Chief Executive
Officer of the Operating Company -
Lane Furniture Industries, Inc. X 1996
Christian J. Pfaff 53 President and Chief Executive
Officer of the Operating Company-
Thomasville Furniture Industries,
Inc. X 1997
Dennis R. Burgette 54 President and Chief Executive
Officer of the Operating Company -
Broyhill Furniture Industries, Inc. X 2000
Daniel M. Grow 55 President and Chief Executive
Officer of the Operating Company-
Drexel Heritage Furniture Industries, Inc. X 1992
Seamus Bateson 50 President and Chief Executive Officer
of the Operating Company -
Maitland-Smith Furniture Industries, Inc. X 1999
Michael K. Dugan 61 President and Chief Executive Officer
of the Operating Company -
Henredon Furniture Industries, Inc. X 1987
Lynn Chipperfield 50 General Counsel 1993
Vice-President 1996
Secretary X 1996
Senior Vice President X 2000
Chief Administrative Officer X 2000
David P. Howard 51 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Treasurer X 1996
Steven W. Alstadt 47 Controller X 1994
Chief Accounting Officer X 1994
- -----------------------
*Member of the Executive Committee
There are no family relationships between any of the executive officers of the
Registrant.
The executive officers are elected at the organizational meeting of the Board of
Directors which follows the annual meeting of stockholders and serve for one
year and until their successors are elected and qualified.
Each of the executive officers has held the same position or other positions
with the same employer during the past five years, except Seamus Bateson who
became President and Chief Executive Officer of Maitland-Smith in 1999 and prior
thereto was President of Rubbermaid Asia Pacific (a manufacturer and marketer of
consumer products).
Item 11. Executive Compensation
The sections entitled "Executive Compensation", "Executive Compensation and
Stock Option Committee Report on Executive Compensation", "Stock Options",
"Retirement Plans", "Incentive Agreements" and "Performance Graph" of the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on
April 25, 2002 are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section entitled "Security Ownership" of the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on April 25, 2002, is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheets, December 31, 2001 and 2000
Consolidated statements of operations for each of the years in the
three-year period ended December 31, 2001
Consolidated statements of cash flows for each of the years in the
three-year period ended December 31, 2001
Consolidated statements of shareholders' equity for each of the years
in the three-year period ended December 31, 2001
Notes to consolidated financial statements
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required information is presented in the
consolidated financial statements or related notes or are not applicable.
3. Exhibits:
3(a) Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3 (a) to Furniture Brands
International, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.)
3(b) By-Laws of the Company revised and amended to May 6, 1998.
(Incorporated by reference to Exhibit 3(a) to Furniture Brands
International, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.)
3(c) Rights Agreement, dated as of July 30, 1998, between the Company and
Bank of New York, as Rights Agent. (Incorporated by reference to
Exhibit 4 (b) to Furniture Brands International, Inc.'s Report on Form
10-Q for the quarter ended June 30, 1998.)
3(d) Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company. (Incorporated by
reference to Exhibit 4(c) to Furniture Brands International, Inc.'s
Report on Form 10-Q for the quarter ended June 30, 1998.)
4(a) Credit Agreement, dated as of June 7, 2000, among the Company,
Broyhill Furniture Industries, Inc., Lane Furniture Industries, Inc.,
Thomasville Furniture Industries, Inc., Various Lenders, First Union
National Bank, as Documentation Agent, Bank of America, N.A., as
Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent. (Incorporated by reference to Exhibit 4 (a) to
Furniture Brands International, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.)
4(b) Registration Rights Agreement, made and entered into as of December
28, 2001, by and among the Company, Henredon Furniture Industries,
Inc., Drexel Heritage Furnishings, Inc., Maitland-Smith, Inc.,
Maitland-Smith Pacific, LTD and Lifestyle Furnishings International
Ltd. (Incorporated by reference to Exhibit 4 to Furniture Brands
International, Inc.'s Report on Form 8-K, dated January 11, 2002, as
amended on March 14, 2002.)
No other long-term debt instruments are filed since the total amount
of securities authorized under any such instrument does not exceed 10%
of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to furnish a copy of such
instruments to the Securities & Exchange Commission upon request.
10(a)Furniture Brands International, Inc.'s 1992 Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10 (a) to Furniture
Brands International, Inc.'s Form 10-Q for the quarter ended March 31,
2000.)
10(b)Furniture Brands International, Inc.'s 2000 Long-Term Incentive Plan
(Incorporated by reference to Exhibit 10 (b) to Furniture Brands
International, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000.)
10(c)Form of Indemnification Agreement between the Company and the
Company's directors.
10(d)Written description of bonus plan for management personnel of Lane
Furniture Industries, Inc. (Incorporated by reference to Exhibit 10
(e) to Furniture Brands International, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1994.)
10(e)Retirement Plan for directors. (Incorporated by reference to Exhibit
10 (g) to Furniture Brands International, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1994.)
10(f)First Amendment to Retirement Plan for Directors. (Incorporated by
reference to Exhibit 10 (e) to Furniture Brands International, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1994.)
10(g)Furniture Brands International, Inc. Executive Incentive Plan, as
amended on October 25, 2001.
10(h)Broyhill Furniture Industries, Inc. Executive Incentive Plan, as
amended on January 24, 2002.
10(i)Thomasville Furniture Industries, Inc. Executive Incentive Plan, as
amended on January 24, 2002.
10(j)Henredon Furniture Industries, Inc. Executive Incentive Plan, dated
January 24, 2002.
10(k)Drexel Heritage Furniture Industries, Inc. Executive Incentive Plan,
dated January 24, 2002.
10(l)Maitland-Smith Furniture Industries, Inc. Executive Incentive Plan,
dated January 24, 2002.
10(m)Employment Agreement, dated as of April 29, 1997, between Action
Industries, Inc. and John T. Foy. (Incorporated by reference to
Exhibit 10 (d) to Furniture Brands International, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.)
10(n)Employment Agreement, dated as of January 1, 2000, between the
Company and Wilbert G. Holliman. (Incorporated by reference to Exhibit
10 (j) to Furniture Brands International, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998.)
10(o)Employment Agreement, dated as of August 1, 1996, between the Company
and Lynn Chipperfield. (Incorporated by reference to Exhibit 10 (c) to
Furniture Brands International, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1996.)
10(p)Employment Agreement, dated as of August 1, 1996, between the Company
and David P. Howard. (Incorporated by reference to Exhibit 10 (d) to
Furniture Brands International, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.)
10(q)Employment Agreement, dated as of January 29, 1998, between the
Company and Christian J. Pfaff. (Incorporated by reference to Exhibit
10 (o) to Furniture Brands International, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1997.)
10(r)Employment Agreement, dated as of January 1, 2000, between the
Company and Dennis R. Burgette. (Incorporated by reference to Exhibit
10 (p) to Furniture Brands International, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998.)
10(s)Form of Agreement Not To Compete between the Company and Wilbert G.
Holliman, Dennis R. Burgette, John T. Foy, Christian J. Pfaff, David
P. Howard, Lynn Chipperfield and Steven W. Alstadt. (Incorporated by
reference to Exhibit 10 (r) to Furniture Brands International, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998.)
21 List of Subsidiaries of the Company
23 Consent of KPMG LLP
(b) Reports on Form 8-K.
A Form 8-K was filed on October 30, 2001 announcing third quarter and nine
month operating results and projections for the fourth quarter and full
year 2001 earnings per share. A Form 8-K was filed on December 7, 2001
announcing the signing of an agreement of the purchase by the Company of
substantially all of the assets of Henredon Furniture Industries, Inc.,
Drexel Heritage Furnishings, Inc. and Maitland-Smith, Inc. and the
reaffirmation of earlier projections for the fourth quarter and full year
2001. A Form 8-K was filed on January 11, 2002, as amended on March 14,
2002, announcing the acquisition of substantially all the assets of
Henredon Furniture Industries, Inc., Drexel Heritage Furnishings, Inc. and
Maitland-Smith, Inc. A Form 8-K was filed on January 30, 2002 announcing
fourth quarter and full year operating results and projections for the
first quarter and full year 2002. A Form 8-K was filed on March 4, 2002
revising projections for the first quarter and full year 2002.
SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM 10-K WILL BE SUPPLIED
ANY OR ALL SUCH EXHIBITS AT A CHARGE OF TEN CENTS PER PAGE.
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to consolidated Financial Statements and Schedules
Page No.
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 21, 2001 and 2000 22
Consolidated Statements of Operations for Each of the years in the three-year period 23
ended December 31, 2001
Consolidated Statements of Cash Flows for each of the years in the three-year period 24
ended December 31, 2001
Consolidated Statements of Shareholders' Equity for each of the years in the three- 25
year period ended December 31, 2001
Notes to Consolidated Financial Statements 26
Financial Statement Schedule 40
Independent Auditors' Report 46
Consolidated Financial Statement Schedules:
Schedule
--------
Valuation and qualifying accounts I 45
Schedule II
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Dollars in Thousands
-----------------------------------------------------------------------------------
Additions
Balance at Charged to Deductions Balance at
Beginning Acquired Costs and from End of
Description of Period Companies Expenses Reserves Period
-------------- -------------- --------------- --------------- --------------
Year Ended December 31, 2001
- ----------------------------
Allowances deducted from receivables on balance
sheet:
Allowance for doubtful accounts $17,906 $2,084 $15,417 $(22,843)(a) $12,564
Allowance for cash discounts/
chargebacks/other 5,169 2,416 1,263 (2,571)(b) 6,277
-------------- -------------- --------------- --------------- -------------
$23,075 $4,500 $16,680 $ 25,414 $18,841
============== ============== =============== =============== ==============
Year Ended December 31, 2000
- ----------------------------
Allowances deducted from receivables on balance
sheet:
Allowance for doubtful accounts $15,960 $ - $12,002 $(10,056)(a) $17,906
Allowance for cash discounts/
chargebacks/other 3,097 - 3,470 (1,398)(b) 5,169
-------------- -------------- --------------- --------------- --------------
$19,057 $ - $15,472 $(11,454) $23,075
============== ============== =============== =============== ==============
Year Ended December 31, 1999
- ----------------------------
Allowances deducted form receivables on balance
sheet:
Allowance for doubtful accounts $15,293 $ - $ 2,362 $ (1,695)(a) $15,960
Allowance for cash discounts/ -
chargebacks/other 3,040 $ - 1,364 (1,307)(b) 3,097
-------------- ------------ --------------- -------------- --------------
$18,333 $ - $ 3,726 $ (3,002) $19,057
============== ============ =============== =============== ==============
(a) Uncollectible accounts written off, net of recoveries.
(b) Cash discounts taken by customers and claims allowed to customers.
See accompanying independent auditors' report.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Furniture Brands International, Inc.:
We have audited the accompanying consolidated balance sheets of Furniture
Brands International, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity,
cash flows and the related financial statement schedule for each of the years in
the three-year period ended December 31, 2001. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Furniture
Brands International, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG LLP
St. Louis, Missouri
January 24, 2002
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Furniture Brands International, Inc.
(Registrant)
By /s/ Wilbert G. Holliman
------------------------------
Chairman of the Board,
President and Chief
Executive Officer
Date: March 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 2002.
Signature Title
President and Director
/s/ Wilbert G. Holliman (Principal Executive
- ------------------------------------------------- Officer)
/s/ Katherine Button Bell Director
- -------------------------------------------------
/s/ Bruce A. Karsh Director
- -------------------------------------------------
/s/ Donald E. Lasater Director
- -------------------------------------------------
/s/ Lee M. Liberman Director
- -------------------------------------------------
/s/ Richard B. Loynd Director
- -------------------------------------------------
/s/ Malcolm Portera Director
- -------------------------------------------------
/s/ Albert E. Suter Director
- -------------------------------------------------
Signature Title
Vice-President and Treasurer
/s/ David P. Howard (Principal Financial Officer)
- ------------------------------------------------
Controller
/s/ Steven W. Alstadt (Principal Accounting Officer)
- ------------------------------------------------
Exhibit 10(c)
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of January 24, 2002, is made by
and between Furniture Brands International, Inc., a Delaware corporation (the
"Company") and __________________ (the "Indemnitee"), an "agent" (as hereinafter
defined) of the Company.
R E C I T A L S
A. The Company recognizes that competent and experienced persons are
reluctant to serve as directors or officers of corporations unless they are
protected by comprehensive liability insurance or indemnification, or both, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers;
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors and officers with adequate, reliable
knowledge of legal risks to which they are exposed or information regarding the
proper course of action to take;
C. The Company and the Indemnitee recognize that plaintiffs often seek
damages in such large amounts and the costs of litigation may be so enormous
(whether or not the case is meritorious), that the defense and/or settlement of
such litigation is often beyond the personal resources of directors and
officers;
D. The Company believes that it is unfair for its directors and officers to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director or officer received no personal profit and in cases where the
director or officer was not culpable;
E. The Company, after reasonable investigation, has determined that the
liability insurance coverage presently available to the Company may be
inadequate to cover all possible exposure for which the Indemnitee should be
protected. The Company believes that the interests of the Company and its
shareholders would best be served by a combination of such insurance and the
indemnification by the Company of the directors and officers of the Company;
F. Section 145 of the General Corporation Law of Delaware ("Section 145"),
under which the Company is organized, empowers the Company to indemnify its
officers, directors, employees and agents by agreement and expressly provides
that the indemnification provided by Section 145 is not exclusive;
G. The Board of Directors has determined that contractual indemnification
as set forth herein is not only reasonable and prudent but necessary to promote
the best interests of the Company and its shareholders;
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company; and
I. The Indemnitee is willing to serve, or to continue to serve, the
Company, only on the condition that he is furnished the indemnity provided for
herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions
(a) Agent. For purposes of this Agreement, "agent' of the Company means any
person who is or was a director, officer, employee or other agent of the
Company, a subsidiary of the Company or the INTERCO Charitable Trust or was a
director, officer, employee or agent of a foreign or domestic corporation which
was a predecessor corporation of the Company or a subsidiary of the Company.
(b) Expenses. For purposes of this Agreement, "expenses" includes all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements, other out-of-pocket
costs and reasonable compensation for time spent by the Indemnitee for which he
or she is not otherwise compensated by the Company or any third party, provided
that the rate of compensation and estimated time involved is approved by the
Board of Directors, which approval shall not be unreasonably withheld), actually
and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement, Section 145 or otherwise.
(c) Proceedings. For the purpose of this Agreement, "proceeding" means any
threatened, pending, or completed claim, action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means any
corporation (or other entity or enterprise) of which more than 50% of the
outstanding voting securities (or comparable interests) are owned directly or
indirectly by the Company, by the Company and one or more other subsidiaries, or
by one or more other subsidiaries.
(e) Miscellaneous. For purposes of this Agreement, any person who acts in
good faith and in a manner he or she reasonably believes to be in the best
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
serve as an agent of the Company, at its will (or under separate agreement, if
such agreement now or hereafter exists), in the capacity Indemnitee currently
serves (or in such other positions which he or she agrees to assume) as an agent
of the Company, so long as he or she is duly appointed or elected and qualified
in accordance with the applicable provisions of the Bylaws of the Company, any
subsidiary of the Company, or until such time as he or she tenders his or her
resignation in writing, provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee
in any capacity.
3. Indemnity in Third Party Proceedings. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or otherwise involved in any proceeding (other than a proceeding by or in the
name of the Company to procure judgment in its favor) by reason of the fact that
the Indemnitee is or was an agent of the Company, or by reason of any act or
inaction by him or her in any such capacity, against any and all expenses and
liabilities of any type whatsoever (including, but not limited to, judgments,
settlements, fines and penalties), actually and reasonably incurred by him or
her in connection with the investigation, defense, settlement or appeal of such
proceeding, but only if the Indemnitee acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any proceeding by judgment, order of court, settlement, conviction or on plea of
nolo contendere, or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith in a manner which he reasonably
believed to be in the best interests of the Company, and with respect to any
criminal proceedings, that such person had reasonable cause to believe that his
or her conduct was unlawful.
4. Indemnity in Derivative Action. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or otherwise involved in any proceeding by or in the name of the Company to
procure a judgment in its favor by reason of the fact that the Indemnitee is or
was an agent of the Company, or by reason of any act or inaction by him or her
in any such capacity, against all expenses actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense, settlement, or
appeal of such proceeding, but only if the Indemnitee acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, except that no indemnification under this subsection
shall be made in respect of any claim, issue or matter as to which the
Indemnitee shall have been finally adjudged to be liable to the Company by a
court of competent jurisdiction due to willful misconduct of a culpable nature
in the performance of his or her duty to the Company, unless and only to the
extent that any court in which such proceeding was brought or another court of
competent jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as such
court shall deem proper.
5. Indemnification of Expenses of Successful Party. Notwithstanding any
other provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding or in defense
of any claim, issue or matter therein, including the dismissal of an action
without prejudice, the Company shall indemnify the Indemnitee against all
expenses actually and reasonably incurred in connection with the investigation,
defense or appeal of such proceeding.
6. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines or penalties), but is not entitled, however, to
indemnification for the total amount thereof, the Company shall nevertheless
indemnify the Indemnitee for the portion thereof to which the Indemnitee is
entitled.
7. Advancement of Expenses. Subject to sections 8(a) and 11(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be finally determined that the Indemnitee is not entitled to be
indemnified by the Company as authorized by this Agreement or otherwise. The
advances to be made hereunder shall be paid by the Company to or on behalf of
the Indemnitee promptly and in any event within thirty (30) days following
delivery of a written request therefor by the Indemnitee to the Company.
8. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of or the threat of commencement of any proceeding, the Indemnitee shall, if the
Indemnitee believes that indemnification with respect thereto may be sought from
the Company under this Agreement, notify the Company of the commencement or
threat of commencement thereof, provided the failure to provide such
notification shall not diminish Indemnitee's indemnification hereunder, except
to the extent that the Company can demonstrate that it was actually prejudiced
as a result thereof.
(b) Any indemnification requested by the Indemnitee under Section 3 and/or
4 hereof shall be made no later than forty-five (45) days after receipt of the
written request of Indemnitee unless a determination is made within said
forty-five (45) day period (i) by the Board of Directors of the Company by a
majority vote of a quorum thereof consisting of directors who are not parties to
such proceedings, or (ii) in the event such quorum is not obtainable, at the
election of the Company, either by independent legal counsel in a written
opinion or by a panel of arbitrators, one of whom is selected by the Company,
another of whom is selected by the Indemnitee and the last of whom is selected
by the first two arbitrators so selected, that the Indemnitee has not met the
relevant standard for indemnification set forth in Section 3 and 4 hereof.
(c) Notwithstanding a determination under Section 8(b) above that the
Indemnitee is not entitled to indemnification with respect to any specific
proceeding, the Indemnitee shall have the right to apply to any court of
competent jurisdiction for the purpose of enforcing the Indemnitee's right to
indemnification pursuant to this Agreement. The burden of proving that the
indemnification or advances are not appropriate shall be on the Company. Neither
the failure of the Company (including its Board of Directors or independent
legal counsel or the panel of arbitrators) to have made a determination prior to
the commencement of such action that indemnification or advances are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Company (including its Board of
Directors or independent legal counsel or the panel or arbitrators) that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create any presumption that the Indemnitee has not met the
applicable standard of conduct.
(d) The Company shall indemnify the Indemnitee against all expenses
incurred in connection with any hearing or proceeding under this Section 8
unless a court of competent jurisdiction finds that each of the claims and/or
defenses of the Indemnitee in any such proceeding was frivolous or in bad faith.
9. Assumption of Defense. In the event the Company shall be obligated to
pay the expenses of any proceeding against or involving the Indemnitee, the
Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel reasonably acceptable to the Indemnitee, upon the
delivery to the Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same proceeding, provided that (i) the
Indemnitee shall have the right to employ his or her counsel in such proceeding
at the Indemnitee's expense; and (ii) if (a) the employment of counsel by the
Indemnitee has been previously authorized in writing by the Company, (b) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of such defense,
or (c) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, the fees and expenses of the Indemnitee's counsel
shall be at the expense of the Company.
10. Insurance. The Company may, but is not obligated to, obtain directors'
and officers' liability insurance ("D&O Insurance") as may be or become
available in reasonable amounts from established and reputable insurers with
respect to which the Indemnitee is named as an insured. Notwithstanding any
other provision of the Agreement, the Company shall not be obligated to
indemnify the Indemnitee for expenses, judgments, fines or penalties, which have
been paid directly to or on behalf of the Indemnitee by D&O Insurance. If the
Company has D&O Insurance in effect at the time the Company receives from the
Indemnitee any notice of the commencement of a proceeding, the Company shall
give prompt notice of the commencement of such proceeding to the insurer in
accordance with the procedures set forth in the policy. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
to or on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policy.
11. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to the
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145, but such indemnification or advancement of expenses may be provided
by the Company in specific cases if the Board of Directors finds it to be
appropriate; or
(b) Action for Indemnification. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding effected without
the Company's written consent; or
(d) Non-compete and Non-disclosure. To indemnify the Indemnitee in
connection with proceedings or claims involving the enforcement of non-compete
and/or non-disclosure agreements or the non-compete and/or non-disclosure
provisions of employment, consulting or similar agreements the Indemnitee may be
a party to with the Company or any subsidiary of the Company; or
(e) Certain Matters. To indemnify the Indemnitee on account of any
proceeding with respect to (i) remuneration paid to Indemnitee if it is
determined by final judgment or other final adjudication that such remuneration
was in violation of law, (ii) which final judgment is rendered against the
Indemnitee for an accounting of profits made by the purchase or sale by
Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions
of any federal, state or local statute, or (iii) which it is determined by final
judgment or other final adjudication that the Indemnitee's conduct was knowingly
fraudulent or dishonest.
12. Nonexclusivity. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, in any court in which a proceeding is
brought, the vote of the Company's sharehholders or disinterested directors,
other agreements or otherwise, both as to action in his or her official capacity
and to action in another capacity while occupying his or her position as an
agent of the Company, and the Indemnitee's rights hereunder shall continue after
the Indemnitee has ceased acting as an agent of the Company and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
13. Settlement. The Company shall not settle any proceeding without the
Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold consent to any proposed settlement.
14. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all papers required and shall do
everything that may reasonably be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights. The Company shall pay or reimburse all expenses
incurred by Indemnitee in connection with such subrogation.
15. Interpretation of Agreement. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
16. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the
validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby,
and (iii) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable and to give effect to Section 15 hereof.
17. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions to this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
18. Successor and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successor and assigns of the parties hereto.
19. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date, or (iii) if transmitted electronically by a means by
which receipt thereof can be demonstrated. Addresses for notice to either party
are set out on the signature page hereof and may be subsequently modified by
written notice.
20. Supersedes Prior Agreement. This Agreement supersedes any prior
indemnification agreement between Indemnitee and the Company or its
predecessors.
21. Service of Process and Venue. For purposes of any claims or proceeding
to enforce this agreement, the Company consents to the jurisdiction and venue of
any federal or state court of competent jurisdiction in the states of Delaware
and Missouri, and waives and agrees not to raise any defense that any such court
is an inconvenient forum or any similar claim.
22. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware. If a court of competent jurisdiction shall make a final
determination that the provisions of the law of any state other than Delaware
govern indemnification by the Company of its officers and directors, then the
indemnification provided under this Agreement shall in all instances be
enforceable to the fullest extent permitted under such law, notwithstanding any
provision of this Agreement to the contrary.
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
FURNITURE BRANDS INTERNATIONAL, INC.
By _______________________________________
Name: W. G. Holliman
Title: Chairman of the Board
Indemnitee:
By _______________________________________
Name:
Address:
Exhibit 10(g)
FURNITURE BRANDS
EXECUTIVE INCENTIVE PLAN
February 1995
Amended March 1, 1996
Amended September 26, 1996
Amended February 24, 1997
Amended April 29, 1999
TABLE OF CONTENTS
INTRODUCTION.................................................................................................... 1
OBJECTIVES OF PLAN.............................................................................................. 1
Objectives............................................................................................. 1
Award Achievement...................................................................................... 1
PARTICIPATION................................................................................................... 2
Eligibility............................................................................................ 2
Participation.......................................................................................... 2
Non-Eligibility........................................................................................ 3
Plan Year.............................................................................................. 3
HOW THE PLAN WORKS.............................................................................................. 3
Plan Factors........................................................................................... 3
Setting Furniture Brands Goals......................................................................... 3
Notification of Participation.......................................................................... 3
MECHANICS OF DETERMINING AWARDS................................................................................. 4
Definitions of Terms................................................................................... 4
Mechanics of Determining Awards........................................................................ 4
DISCRETIONARY AWARDS PROGRAM.................................................................................... 5
CERTIFICATION................................................................................................... 6
PAYMENT OF AWARDS............................................................................................... 6
ADMINISTRATION.................................................................................................. 6
MANNER OF EXERCISE OF COMMITTEE AUTHORITY....................................................................... 6
CERTAIN PERFORMANCE BASED AWARDS................................................................................ 6
NO CONTRACT OF EMPLOYMENT....................................................................................... 6
ASSIGNMENTS AND TRANSFERS....................................................................................... 6
GOVERNING LAW................................................................................................... 6
AMENDMENT AND TERMINATION OF PLAN AND AWARDS.................................................................... 6
EFFECTIVE DATE OF THE PLAN...................................................................................... 7
FURNITURE BRANDS
CORPORATE
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for those
management persons at the corporate offices of Furniture Brands International,
Inc. ("FBI") who directly and substantially influence achievement of certain
corporate goals. The Plan provides monetary awards for the achievement of those
goals. In select cases, the Plan provides for additional special discretionary
awards.
FBI believes that the total annual income of key employees should be
influenced by their individual and collective effort, and that rewards should
directly relate to the achievement of planned, meaningful results. The Plan is
in addition to and assumes the existence of a base salary which is competitive,
equitable, and subject to periodic performance-related adjustments.
The overall administration and control of the Plan, including final
determination of annual bonus awards to each participant, is the responsibility
of the Executive Compensation and Stock Option Committee of the FBI Board of
Directors (the "Committee"). The Committee (or a subcommittee thereof which has
been designated by the Committee to administer the Plan) shall consist solely of
three or more members of the FBI Board of Directors who are "outside directors"
as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder. Members of the Committee are not
eligible to participate in the Plan.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan is designed
to:
(1) provide for monetary awards of significant value related directly
to measurable FBI results;
(2) motivate participating individuals to achieve results beyond the
routine of position responsibilities; and
(3) be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary and
monetary awards under the Plan, is designed to be competitive with total
compensation for similar positions in American industry.
3. PARTICIPATION
A. Eligibility. Only management persons whose performance directly and
substantially influences the annual results of FBI will be considered
for participation in the Plan. Ordinarily the extent of such influence
will be reflected in the Bonus Percentage (as herein defined).
B. Participation
(1) At the start of each Plan Year (as herein defined) FBI management
will submit a list of proposed participants and Bonus Percentages
for review and approval by the Committee. The Committee may in
its discretion change the participants and Bonus Percentages,
provided, however, that the Committee shall, within the first 90
days of each Plan Year, set forth in writing, a final approved
list of participants and Bonus Percentages for such Plan Year.
Such final list of participants and Bonus Percentages may not
thereafter be modified except as provided in this Plan. With
respect to persons who have been determined to be "covered
employees" within the meaning of Code Section 162(m)(3) for such
Plan Year (a "Covered Employee"), additional participation in the
Plan during a Plan Year shall be permitted only in the event of
an unusual circumstance, such as a new hire. Executive officers
of the Company may be participants in the Plan to the extent
approved by the Committee.
(2) To earn an award, an individual must be designated a participant
for the Plan Year and must participate effectively for a minimum
of eight full months of the Plan Year.
(3) A participant who has lost time due to illness, or dies, retires
or becomes totally disabled during the Plan Year, will be
considered for an award under the Plan provided that his/her
influence on goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any time during
the Plan Year by reason of voluntary or encouraged resignation,
or who is discharged, will not receive an award.
(2) Any individual who has been demoted at any time during the Plan
Year to a position not included in the Plan will not receive an
award.
D. Plan Year. The Plan Year will correspond with the FBI fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be measured in order to
determine an award: opportunity and FBI performance.
(1) Opportunity is the potential impact that a participant may have
on the achievement of goals. This is expressed by the Bonus
Percentage.
(2) FBI Performance is the result of achievement. This is measured by
the percentage of attainment of FBI's goals.
B. Setting FBI Goals. At or prior to the beginning of each Plan Year, FBI
management will recommend to the Committee for approval, one or more
objective measurable performance goals for FBI (the "Goals") for such
year, and the weighting to be assigned to each Goal. The Goals will be
based upon one or more of the following criteria: sales; earnings;
earnings per share; pre-tax earnings; net profits; return on equity;
cash flow; debt reduction; asset management; stock price; market
share; costs; or selling, general and administrative ("SG&A")
expenses. The Goals will be realistic, yet rigorous. They will be
attainable, but attainment will require above average performance. The
Committee may, in its discretion, approve management's recommendations
or change the Goals and/or weightings, provided, however, that the
Company shall, within the first 90 days of the year (or, in the case
of a new hire added to the Plan during the year, before 25% of such
individual's services for the Company for the year has elapsed), set
forth in writing the final approved Goals, the Minimum Percentages (as
herein defined) for such year and the weighting to be assigned to such
Goals.
C. Notification of Participation. Each participant's target Bonus
Percentage will be communicated each Plan Year by delivery of the
Participation Form.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be expressed as a
percentage (not less than 10% and not more than 100%) of the
participant's base salary. That percentage will be higher for a
position with significantly greater responsibilities, thus
recognizing the direct relationship between position
responsibility and influence on FBI results. Participants who are
promoted during a Plan Year to a position with a higher Bonus
Percentage will receive a prorated award based on the percentage
of the Plan Year spent in each position.
(2) Aggregate Target Amount. The Aggregate Target Amount will be
expressed as a dollar amount, calculated by multiplying the
participant's base annual salary rate, as in effect on March 1 of
the Plan Year, which has been established at or before the time
of the setting of the Aggregate Target Amount, by the Bonus
Percentage. The result will be the total award to which the
participant will be entitled if FBI achieves 100% of all Goals
for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted Target Amount
will be calculated by multiplying the Aggregate Target Amount by
the weighted percentage applicable to the Goal. The result for
each Goal will be the portion of the total award to which the
participant will be entitled if FBI achieves 100% of that Goal
for that Plan Year. The sum of the Weighted Target Amounts will
equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
(1) FBI Performance. FBI's performance against the Goals will be measured
by the percentage of achievement of each Goal. FBI's performance with
respect to each Goal will be based upon audited results.
(2) Achievement of Target. The Plan is designed to provide the participant
with 100% of his/her Weighted Target Amount with respect to each Goal
if FBI achieves 100% satisfaction of that Goal.
(3) Minimum FBI Performance. Each Plan Year the Committee will establish a
minimum percentage (the "Minimum Percentage") with respect to each
Goal. Achievement below the Minimum Percentage will result in no award
with respect to that Goal.
Undercertain circumstances, the Committee may establish Goals the
achievement of which contemplate reducing rather than increasing an
amount, such as a reduced debt level or reduced SG&A expenses. In any
such case, the percentage which will be applied to the Weighted Target
Amount for such Goal will be inversely proportional to the performance
against the Goal. For example, if a Goal is a year-end debt amount and
the actual year-end debt is 105% of the Goal, the percentage of
Weighted Target Amount to be paid with respect to that Goal would be
95%. In these circumstances, the Minimum Percentage will be expressed
in terms of a figure greater than 100%.
(4) Calculation of Award. The percentage of FBI's achievement of each Goal
will be applied to the Weighted Target Amount for that Goal to
determine the amount of the award payable with respect to that Goal.
Awards will be calculated separately for each Goal, but will be
aggregated and paid as one award check.
(5) Discretion to Increase Award. The Committee shall, under no
circumstances, increase an award granted under this Section 5 except
to the extent permitted under Treasury Regulation Section
1.162-27(e)(2)(iii).
6. DISCRETIONARY AWARDS PROGRAM.
(1) To recognize special needs, a discretionary awards program is part of
this Plan. Its objective is to recognize the performance of FBI
through a more qualitative evaluation, rather than a quantitative
evaluation. This could occur, for example, if FBI does not achieve one
or more Goals due to business or economic reasons beyond its control
but, given these adverse circumstances, nonetheless performed well.
Under such circumstances, a special award may be granted at the
discretion of the Committee.
(2) To the extent all or any portion of an award is not immediately
deductible as compensation expense by FBI for federal income tax
purposes, payment of such award or portion thereof, as the case may
be, will be deferred until following termination of employment of the
participant or until such earlier date as the Committee shall, in its
discretion, determine, either at the time of deferral or thereafter,
whereupon such award or any portion thereof, as the case may be, less
appropriate withholdings, will be paid by check provided that the same
shall then have become immediately deductible as compensation expense
by FBI for federal income tax purposes. Simple interest shall be paid
annually on the deferred compensation at FBI's effective borrowing
rate.
(3) Nothing contained in this Section 6 shall be deemed to permit or
provide for discretionary increases in awards payable to Covered
Employees under Section 5 hereof.
7. CERTIFICATION. Before any payments are made under this Plan, the
Committee must certify in writing that the Goals justifying the payment of an
award have been met.
8. PAYMENT OF AWARDS. Except as provided in Section 6 hereof, awards, to
the extent immediately deductible as compensation expense by FBI for federal
income tax purposes, less appropriate withholdings, will be paid by check as
soon as practical after the audited close of a fiscal year.
9. ADMINISTRATION. Subject to the limitations as herein set forth, the
Committee is authorized and empowered to administer the Plan; interpret the
Plan; establish, modify and grant waivers of award restrictions; prescribe,
amend and rescind rules relating to the Plan; and determine the rights and
obligations of participants under the Plan. All decisions of the Committee shall
be final and binding upon all parties including the Company, its stockholders,
and its participants.
10. MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The express grant of any
specific power to the Committee and the taking of any action by the Committee,
shall not be construed, as limiting any power or authority of the Committee. All
designations of participation, bonus percentages, goals, minimum percentages,
aggregate amounts, and certifications of performance shall be in writing. A
writing signed by all members of the Committee shall constitute the act of the
Committee without the necessity, in such event, to hold a meeting. The Committee
may delegate the authority, subject to such terms as the Committee shall
determine, to perform administrative functions (excluding those described in the
second sentence of this Section 10) under the Plan.
11. CERTAIN PERFORMANCE BASED AWARD. Any awards under Section 5 hereof are
intended to be "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code and shall be paid solely on account of the attainment
of one or more preestablished, objective performance goals within the meaning of
Section 162(m). If any provision of this Plan does not comply with the
requirements of Section 162(m) of the Code as then applicable to any employee,
such provision shall be construed or deemed amended to the extent necessary to
conform to such requirements with respect to such employee.
12. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not be
considered an agreement to employ a participant for any period of time or in any
position.
13. ASSIGNMENTS AND TRANSFERS. With the exception of transfer by will or by
the laws of descent and distribution, rights under the Plan may not be
transferred or assigned.
14. GOVERNING LAW. The Plan shall be construed, administered and governed
in all respects under and by the applicable internal laws of the State of
Missouri, without giving effect to the principles of conflicts of law thereof.
15. AMENDMENT AND TERMINATION OF PLAN AND AWARDS. The Board may amend,
alter, suspend, discontinue or terminate the Plan without the consent of
stockholders or participants, except as is required by any federal or state law
or regulation or the rules of any stock exchange on which the shares of FBI
("Shares") are listed, or if the Board in its discretion determines that
obtaining such stockholder approval is for any reason advisable, provided,
however, that (i) without the consent of an affected participant, no amendment,
alteration, suspension, discontinuation, or termination of the Plan may impair
the rights of such participant under any award theretofore granted to such
participant, and (ii) the Plan may not be amended without the consent of the
stockholders of a majority of the Shares then outstanding to (a) materially
modify the requirements as to eligibility for participation in the Plan, (b)
change the specified performance objectives for payment of awards under Section
5, (c) increase the maximum award payable under Section 5, (d) withdraw
administration of the Plan from the Committee or (e) extend the period during
which awards may be granted.
16. EFFECTIVE DATE OF THE PLAN. The Plan, as amended, shall become
effective on January 1, 1997 provided that the Plan is approved by the
affirmative vote of the holders of a majority of the Shares present or
represented and entitled to vote at the 1997 annual meeting of the stockholders
of FBI. The terms of the Plan shall be perpetual; subject to earlier termination
by the Board pursuant to Section 15, after which no awards may be made under the
Plan, but any such termination shall not affect awards then outstanding or the
authority of the Committee to continue to administer the Plan.
Exhibit 10(h)
BROYHILL FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted January 31, 1995
Amended January 27, 2000
Amended January 24, 2002
TABLE OF CONTENTS
INTRODUCTION................................................................. 1
OBJECTIVES OF PLAN........................................................... 1
Objectives.......................................................... 1
Award Achievement................................................... 1
PARTICIPATION................................................................ 2
Eligibility......................................................... 2
Participation....................................................... 2
Non-Eligibility..................................................... 2
Plan Year........................................................... 2
HOW THE PLAN WORKS........................................................... 2
Plan Factors........................................................ 2
Notification of Participation....................................... 3
Setting Broyhill Goals.............................................. 3
MECHANICS OF DETERMINING AWARDS.............................................. 3
Definitions of Terms................................................ 3
Mechanics of Determining Awards..................................... 4
DISCRETIONARY AWARDS PROGRAM................................................. 4
PAYMENT OF AWARDS............................................................ 5
NO CONTRACT OF EMPLOYMENT.................................................... 5
EXHIBIT I........................................................... 6
EXHIBIT II.......................................................... 7
BROYHILL FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for those
management persons at the corporate offices of Broyhill Furniture Industries,
Inc. ("Broyhill") who directly and substantially influence achievement of
certain corporate goals. The Plan provides monetary awards for the achievement
of those goals. In select cases, the Plan provides for additional special
discretionary awards.
The Plan is in addition to and assumes the existence of a base salary which
is competitive, equitable, and subject to periodic performance-related
adjustments.
Broyhill believes that the total annual income of key employees should be
influenced by their individual and collective effort, and that rewards should
directly relate to the achievement of planned, meaningful results.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan is designed
to:
(1) provide for monetary awards of significant value related directly
to measurable Broyhill results;
(2) motivate participating individuals to achieve results beyond the
routine of position responsibilities; and
(3) be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary
and monetary awards under the Plan, is designed to be competitive
with total compensation for similar positions in American
industry.
3. PARTICIPATION
A. Eligibility. Only management persons whose performance directly and
substantially influences the annual results of Broyhill will be
considered for participation in the Plan. Ordinarily the extent of
such influence will be reflected in the Bonus Percentage (as herein
defined).
B. Participation
(1) At the start of each Plan Year Broyhill management will submit a
list of proposed participants and Bonus Percentages for review
and approval by the Executive Compensation and Stock Option
Committee of the Furniture Brands International Board of
Directors (the "Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated a participant
for the Plan Year and must participate effectively for a minimum
of eight full months of the Plan Year.
(3) A participant who has lost time due to illness, or dies, retires
or becomes totally disabled during the Plan Year, will be
considered for an award under the Plan provided that his/her
influence on goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any time during
the Plan Year by reason of voluntary or encouraged resignation,
or who is discharged, will not receive an award.
(2) Any individual who has been demoted at any time during the Plan
Year to a position not included in the Plan will not receive an
award.
D. Plan Year. The Plan Year will correspond with the Broyhill calendar
fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be measured in order to
determine an award: opportunity and Broyhill performance.
(1) Opportunity is the potential impact that a participant may have
on the achievement of goals. This is expressed by the Bonus
Percentage.
(2) Broyhill Performance is the result of achievement. This is
measured by the percentage of attainment of Broyhill's goals.
B. Notification of Participation. Each participant's target Bonus
Percentage will be communicated each Plan Year by delivery of the
Participation Form (see Exhibit II).
C. Setting Broyhill Goals. At or prior to the beginning of each Plan
Year, Broyhill management will recommend to the Committee for
approval, one or more objective measurable performance goals for
Broyhill (the "Goals") for such year, and the weighting to be assigned
to each Goal. The Goals will be realistic, yet rigorous. They will be
attainable, but attainment will require above average performance. The
Committee may, in its discretion, approve management's recommendations
or change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be expressed as a
percentage (not less than 10% and not more than 100%) of the
participant's base salary. That percentage will increase with
significant increases in responsibility, thus recognizing the
direct relationship between position responsibility and influence
on Broyhill results. Participants who are promoted during a Plan
Year to a position with a higher Bonus Percentage will receive a
prorated award based on the percentage of the Plan Year spent in
each position.
(2) Aggregate Target Amount. The Aggregate Target Amount will be
expressed as a dollar amount, calculated by multiplying the
participant's base annual salary rate (in effect at the end of
the Plan Year) by the Bonus Percentage. The result will be the
total award to which the participant will be entitled if Broyhill
achieves 100% of all Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted Target Amount
will be calculated by multiplying the Aggregate Target Amount by
the weighted percentage applicable to the Goal. The result for
each Goal will be the portion of the total award to which the
participant will be entitled if Broyhill achieves 100% of that
Goal for that Plan Year. The sum of the Weighted Target Amounts
will equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
(1) Broyhill Performance. Broyhill's performance against the Goals
will be measured by the percentage of achievement of each Goal.
Broyhill's performance with respect to each Goal will be based
upon audited results.
(2) Achievement of Target. The Plan is designed to provide the
participant with 100% of his/her Weighted Target Amount with
respect to each Goal if Broyhill achieves 100% satisfaction of
that Goal.
(3) Minimum and Maximum Bonus Percentage. Each Plan Year the
Committee will establish a minimum percentage (the "Minimum
Percentage") with respect to each Goal, which Minimum Percentage
will be 35% unless the Committee shall determine otherwise. The
Minimum Percentage will be paid regardless of achievement below
that level with respect to that Goal.
Each year the Committee will also establish a maximum bonus
percentage (the "Maximum Percentage") with respect to each Goal,
which Maximum Percentage will be 125% unless the Committee shall
determine otherwise. No amount greater than the Maximum
Percentage will be paid with respect to any Goal notwithstanding
performance greater than that percentage.
Under certain circumstances, the Committee may establish Goals
the achievement of which contemplate reducing rather than
increasing an amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage which will be
applied to the Weighted Target Amount for such Goal will be
inversely proportional to the performance against the Goal. For
example, if a Goal is a year-end debt amount and the actual
year-end debt is 105% of the Goal, the percentage of Weighted
Target Amount to be paid with respect to that Goal would be 95%.
In these circumstances, the minimum and maximum performance
percentages will be expressed in terms of figures greater than or
less than 100%, respectively.
(4) Calculation of Award. The percentage of Broyhill's achievement of
each Goal will be applied to the Weighted Target Amount for that
Goal to determine the amount of the award payable with respect to
that Goal. Awards will be calculated separately for each Goal,
but will be aggregated and paid as one award check. The examples
set forth in Exhibit I illustrate this calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective is to recognize
the performance of Broyhill through a more qualitative evaluation, rather than a
quantitative evaluation. This could occur, for example, if Broyhill does not
achieve one or more Goals due to business or economic reasons beyond its control
but, given these adverse circumstances, nonetheless performed well. Under such
circumstances, a special award may be granted at the discretion of the
Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately deductible as
compensation expense by Broyhill for federal income tax purposes, less
appropriate withholdings, will be paid by check as soon as practical after the
audited close of a fiscal year. To the extent all or any portion of an award is
not immediately deductible as compensation expense by Broyhill for federal
income tax purposes, payment of such award or portion thereof, as the case may
be, will be deferred until following termination of employment of the
participant, whereupon such award or such portion thereof, as the case may be,
plus simple interest at Broyhill's effective borrowing rate for the period of
deferral, less appropriate withholdings, will be paid by check as soon as the
same shall become immediately deductible as compensation expense by Broyhill for
federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not be
considered an agreement to employ a participant for any period of time or in any
position.
EXHIBIT I
---------
Assumptions:
Participant's Base Salary $100,000
Bonus Percentage x 20% (of base salary)
---------
Aggregate Target Amount $20,000
Weighted Broyhill Goals:
Goal 1 (e.g., Net Sales) Weighted 25%
Goal 2 (e.g., Pretax Profit) Weighted 75%
Weighted Target Amounts:
Goal 1 ($20,000 x 20%) $ 5,000
Goal 2 ($20,000 x 40%) $ 15,000
--------
TOTAL $20,000
Example:
Broyhill Goal Achievement:
Goal 1 90% of Goal
Goal 2 110% of Goal
Award Payable:
Goal 1 (90% x $5,000) $ 4,500
Goal 2 (110% x $15,000) $ 16,500
--------
TOTAL $21,000
EXHIBIT II
BROYHILL FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Participation Form
PARTICIPANT: _______________________________________________
BONUS PERCENTAGE FOR [YEAR]: ____________ % OF BASE SALARY
GOALS FOR [YEAR] AMOUNT WEIGHTING
Net Sales $000,000,000 00%
Pretax Earnings $000,000,000 00%
Exhibit 10(i)
THOMASVILLE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted Marc h 25, 1996
Amended January 27, 2000
Amended January 24, 2002
TABLE OF CONTENTS
INTRODUCTION................................................................ 1
OBJECTIVES OF PLAN.......................................................... 1
Objectives......................................................... 1
Award Achievement.................................................. 1
PARTICIPATION............................................................... 2
Eligibility........................................................ 2
Participation...................................................... 2
Non-Eligibility.................................................... 2
Plan Year.......................................................... 2
HOW THE PLAN WORKS.......................................................... 2
Plan Factors....................................................... 2
Notification of Participation...................................... 3
Setting Thomasville Goals.......................................... 3
MECHANICS OF DETERMINING AWARDS............................................. 3
Definitions of Terms............................................... 3
Mechanics of Determining Awards.................................... 4
DISCRETIONARY AWARDS PROGRAM................................................ 4
PAYMENT OF AWARDS........................................................... 5
NO CONTRACT OF EMPLOYMENT................................................... 5
EXHIBIT I.......................................................... 6
EXHIBIT II......................................................... 7
THOMASVILLE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for those
management persons at the corporate offices of Thomasville Furniture Industries,
Inc. ("Thomasville") who directly and substantially influence achievement of
certain corporate goals. The Plan provides monetary awards for the achievement
of those goals. In select cases, the Plan provides for additional special
discretionary awards.
The Plan is in addition to and assumes the existence of a base salary which
is competitive, equitable, and subject to periodic performance-related
adjustments.
Thomasville believes that the total annual income of key employees should
be influenced by their individual and collective effort, and that rewards should
directly relate to the achievement of planned, meaningful results.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan is designed
to:
(1) provide for monetary awards of significant value related directly
to measurable Thomasville results;
(2) motivate participating individuals to achieve results beyond the
routine of position responsibilities; and
(3) be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary
and monetary awards under the Plan, is designed to be competitive
with total compensation for similar positions in American
industry.
3. PARTICIPATION
A. Eligibility. Only management persons whose performance directly and
substantially influences the annual results of Thomasville will be
considered for participation in the Plan. Ordinarily the extent of
such influence will be reflected in the Bonus Percentage (as herein
defined).
B. Participation
(1) At the start of each Plan Year Thomasville management will submit
a list of proposed participants and Bonus Percentages for review
and approval by the Executive Compensation and Stock Option
Committee of the Furniture Brands International Board of
Directors (the "Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated a participant
for the Plan Year and must participate effectively for a minimum
of eight full months of the Plan Year.
(3) A participant who has lost time due to illness, or dies, retires
or becomes totally disabled during the Plan Year, will be
considered for an award under the Plan provided that his/her
influence on goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any time during
the Plan Year by reason of voluntary or encouraged resignation,
or who is discharged, will not receive an award.
(2) Any individual who has been demoted at any time during the Plan
Year to a position not included in the Plan will not receive an
award.
D. Plan Year. The Plan Year will correspond with the Thomasville calendar
fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be measured in order to
determine an award: opportunity and Thomasville performance.
(1) Opportunity is the potential impact that a participant may have
on the achievement of goals. This is expressed by the Bonus
Percentage.
(2) Thomasville Performance is the result of achievement. This is
measured by the percentage of attainment of Thomasville's goals.
B. Notification of Participation. Each participant's target Bonus
Percentage will be communicated each Plan Year by delivery of the
Participation Form (see Exhibit II).
C. Setting Thomasville Goals. At or prior to the beginning of each Plan
Year, Thomasville management will recommend to the Committee for
approval, one or more objective measurable performance goals for
Thomasville (the "Goals") for such year, and the weighting to be
assigned to each Goal. The Goals will be realistic, yet rigorous. They
will be attainable, but attainment will require above average
performance. The Committee may, in its discretion, approve
management's recommendations or change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be expressed as a
percentage (not less than 10% and not more than 100%) of the
participant's base salary. That percentage will increase with
significant increases in responsibility, thus recognizing the
direct relationship between position responsibility and influence
on Thomasville results. Participants who are promoted during a
Plan Year to a position with a higher Bonus Percentage will
receive a prorated award based on the percentage of the Plan Year
spent in each position.
(2) Aggregate Target Amount. The Aggregate Target Amount will be
expressed as a dollar amount, calculated by multiplying the
participant's base annual salary rate (in effect at the end of
the Plan Year) by the Bonus Percentage. The result will be the
total award to which the participant will be entitled if
Thomasville achieves 100% of all Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted Target Amount
will be calculated by multiplying the Aggregate Target Amount by
the weighted percentage applicable to the Goal. The result for
each Goal will be the portion of the total award to which the
participant will be entitled if Thomasville achieves 100% of that
Goal for that Plan Year. The sum of the Weighted Target Amounts
will equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
(1) Thomasville Performance. Thomasville's performance against the
Goals will be measured by the percentage of achievement of each
Goal. Thomasville's performance with respect to each Goal will be
based upon audited results.
(2) Achievement of Target. The Plan is designed to provide the
participant with 100% of his/her Weighted Target Amount with
respect to each Goal if Thomasville achieves 100% satisfaction of
that Goal.
(3) Minimum and Maximum Bonus Percentage. Each Plan Year the
Committee will establish a minimum percentage (the "Minimum
Percentage") with respect to each Goal, which Minimum Percentage
will be 35% unless the Committee shall determine otherwise. The
Minimum Percentage will be paid regardless of achievement below
that level with respect to that Goal.
Each year the Committee will also establish a maximum bonus
percentage (the "Maximum Percentage") with respect to each Goal,
which Maximum Percentage will be 125% unless the Committee shall
determine otherwise. No amount greater than the Maximum
Percentage will be paid with respect to any Goal notwithstanding
performance greater than that percentage.
Under certain circumstances, the Committee may establish Goals
the achievement of which contemplate reducing rather than
increasing an amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage which will be
applied to the Weighted Target Amount for such Goal will be
inversely proportional to the performance against the Goal. For
example, if a Goal is a year-end debt amount and the actual
year-end debt is 105% of the Goal, the percentage of Weighted
Target Amount to be paid with respect to that Goal would be 95%.
In these circumstances, the minimum and maximum performance
percentages will be expressed in terms of figures greater than or
less than 100%, respectively.
(4) Calculation of Award. The percentage of Thomasville's achievement
of each Goal will be applied to the Weighted Target Amount for
that Goal to determine the amount of the award payable with
respect to that Goal. Awards will be calculated separately for
each Goal, but will be aggregated and paid as one award check.
The examples set forth in Exhibit I illustrate this calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective is to recognize
the performance of Thomasville through a more qualitative evaluation, rather
than a quantitative evaluation. This could occur, for example, if Thomasville
does not achieve one or more Goals due to business or economic reasons beyond
its control but, given these adverse circumstances, nonetheless performed well.
Under such circumstances, a special award may be granted at the discretion of
the Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately deductible as
compensation expense by Thomasville for federal income tax purposes, less
appropriate withholdings, will be paid by check as soon as practical after the
audited close of a fiscal year. To the extent all or any portion of an award is
not immediately deductible as compensation expense by Thomasville for federal
income tax purposes, payment of such award or portion thereof, as the case may
be, will be deferred until following termination of employment of the
participant, whereupon such award or such portion thereof, as the case may be,
plus simple interest at Thomasville's effective borrowing rate for the period of
deferral, less appropriate withholdings, will be paid by check as soon as the
same shall become immediately deductible as compensation expense by Thomasville
for federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not be
considered an agreement to employ a
participant for any period of time or in any position.
EXHIBIT I
Assumptions:
Participant's Base Salary $50,000
Bonus Percentage x 20% of base salary
---------
Aggregate Target Amount $12,500
Weighted Thomasville Goals:
Corporate results determine 30% of award (25% Sales; 75% Profits)
Business unit results determine 70% of award (25% Sales; 75%
Profits)
Goal 1 (Corporate Net Sales) Weighted 7.5%
Goal 2 (Corporate Pre-Tax Profit) Weighted 22.5%
Goal 3 (Divisional Net Sales) Weighted 17.5%
Goal 4 (Divisional Pre-Tax Profit) Weighted 52.5%
Weighted Target Amounts:
Goal 1 ($12,500 x 7.5%) $ 937.50
Goal 2 ($12,500 x 22.5%) $ 2,812.50
Goal 3 ($12,500 x 17.5%) $ 2,187.50
Goal 4 ($12,500 x 52.5%) $ 6,562.50
----------
$12,500.00
Example:
Thomasville Goal Achievement:
Goal 1 120% of Goal
Goal 2 110% of Goal
Goal 3 110% of Goal
Goal 4 90% of Goal
Award Payable:
Goal 1 (120% x $937.50) $ 1,125.00
Goal 2 (110% x $2,812.50) $ 3,093.75
Goal 3 (110% x $2,187.50) $ 2,406.25
Goal 4 (90% x $6,562.50) $ 5,906.25
----------
TOTAL $12,531.25
EXHIBIT II
THOMASVILLE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Participation Form
PARTICIPANT: ________________________________________________
BONUS PERCENTAGE FOR [YEAR]: ____________ % OF BASE SALARY
Summary: This year, [70%] of your bonus is based upon performance
at the business unit level and [30%] of your bonus is based upon
performance at the corporate level. Within each of those two levels,
[75%] of your bonus is based upon profits and [25%] of your bonus is
based upon sales.
GOALS FOR [YEAR] AMOUNT WEIGHTING
- ---------------------------------- ---------------------- ---------------------
Corporate Sales $000,000,000 00.00%
Corporate Pretax Profits $000,000,000 00.00%
[Wood] Division Sales $000,000,000 00.00
[Wood] Division Pretax Profits $000,000,000 00.00%
Exhibit 10(j)
HENREDON FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted January 24, 2002
TABLE OF CONTENTS
INTRODUCTION................................................................ 1
OBJECTIVES OF PLAN.......................................................... 1
Objectives......................................................... 1
Award Achievement.................................................. 1
PARTICIPATION............................................................... 2
Eligibility........................................................ 2
Participation...................................................... 2
Non-Eligibility.................................................... 2
Plan Year.......................................................... 2
HOW THE PLAN WORKS.......................................................... 2
Plan Factors....................................................... 2
Notification of Participation...................................... 3
Setting Henredon Goals............................................. 3
MECHANICS OF DETERMINING AWARDS............................................. 3
Definitions of Terms............................................... 3
Mechanics of Determining Awards.................................... 4
DISCRETIONARY AWARDS PROGRAM................................................ 4
PAYMENT OF AWARDS........................................................... 5
NO CONTRACT OF EMPLOYMENT................................................... 5
EXHIBIT I.......................................................... 6
EXHIBIT II......................................................... 7
HENREDON FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for those
management persons at the corporate offices of Henredon Furniture Industries,
Inc. ("Henredon") who directly and substantially influence achievement of
certain corporate goals. The Plan provides monetary awards for the achievement
of those goals. In select cases, the Plan provides for additional special
discretionary awards.
The Plan is in addition to and assumes the existence of a base salary which
is competitive, equitable, and subject to periodic performance-related
adjustments.
Henredon believes that the total annual income of key employees should be
influenced by their individual and collective effort, and that rewards should
directly relate to the achievement of planned, meaningful results.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan is designed
to:
(1) provide for monetary awards of significant value related directly
to measurable Henredon results;
(2) motivate participating individuals to achieve results beyond the
routine of position responsibilities; and
(3) be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary
and monetary awards under the Plan, is designed to be competitive
with total compensation for similar positions in American
industry.
3. PARTICIPATION
A. Eligibility. Only management persons whose performance directly and
substantially influences the annual results of Henredon will be
considered for participation in the Plan. Ordinarily the extent of
such influence will be reflected in the Bonus Percentage (as herein
defined).
B. Participation
(1) At the start of each Plan Year Henredon management will submit a
list of proposed participants and Bonus Percentages for review
and approval by the Executive Compensation and Stock Option
Committee of the Furniture Brands International Board of
Directors (the "Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated a participant
for the Plan Year and must participate effectively for a minimum
of eight full months of the Plan Year.
(3) A participant who has lost time due to illness, or dies, retires
or becomes totally disabled during the Plan Year, will be
considered for an award under the Plan provided that his/her
influence on goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any time during
the Plan Year by reason of voluntary or encouraged resignation,
or who is discharged, will not receive an award.
(2) Any individual who has been demoted at any time during the Plan
Year to a position not included in the Plan will not receive an
award.
D. Plan Year. The Plan Year will correspond with the Henredon calendar
fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be measured in order to
determine an award: opportunity and Henredon performance.
(1) Opportunity is the potential impact that a participant may have
on the achievement of goals. This is expressed by the Bonus
Percentage.
(2) Henredon Performance is the result of achievement. This is
measured by the percentage of attainment of Henredon's goals.
B. Notification of Participation. Each participant's target Bonus
Percentage will be communicated each Plan Year by delivery of the
Participation Form (see Exhibit II).
C. Setting Henredon Goals. At or prior to the beginning of each Plan
Year, Henredon management will recommend to the Committee for
approval, one or more objective measurable performance goals for
Henredon (the "Goals") for such year, and the weighting to be assigned
to each Goal. The Goals will be realistic, yet rigorous. They will be
attainable, but attainment will require above average performance. The
Committee may, in its discretion, approve management's recommendations
or change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be expressed as a
percentage (not less than 10% and not more than 100%) of the
participant's base salary. That percentage will increase with
significant increases in responsibility, thus recognizing the
direct relationship between position responsibility and influence
on Henredon results. Participants who are promoted during a Plan
Year to a position with a higher Bonus Percentage will receive a
prorated award based on the percentage of the Plan Year spent in
each position.
(2) Aggregate Target Amount. The Aggregate Target Amount will be
expressed as a dollar amount, calculated by multiplying the
participant's base annual salary rate (in effect at the end of
the Plan Year) by the Bonus Percentage. The result will be the
total award to which the participant will be entitled if Henredon
achieves 100% of all Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted Target Amount
will be calculated by multiplying the Aggregate Target Amount by
the weighted percentage applicable to the Goal. The result for
each Goal will be the portion of the total award to which the
participant will be entitled if Henredon achieves 100% of that
Goal for that Plan Year. The sum of the Weighted Target Amounts
will equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
(1) Henredon Performance. Henredon's performance against the Goals
will be measured by the percentage of achievement of each Goal.
Henredon's performance with respect to each Goal will be based
upon audited results.
(2) Achievement of Target. The Plan is designed to provide the
participant with 100% of his/her Weighted Target Amount with
respect to each Goal if Henredon achieves 100% satisfaction of
that Goal.
(3) Minimum and Maximum Bonus Percentage. Each Plan Year the
Committee will establish a minimum percentage (the "Minimum
Percentage") with respect to each Goal, which Minimum Percentage
will be 35% unless the Committee shall determine otherwise. The
Minimum Percentage will be paid regardless of achievement below
that level with respect to that Goal.
Each year the Committee will also establish a maximum bonus
percentage (the "Maximum Percentage") with respect to each Goal,
which Maximum Percentage will be 125% unless the Committee shall
determine otherwise. No amount greater than the Maximum
Percentage will be paid with respect to any Goal notwithstanding
performance greater than that percentage.
Under certain circumstances, the Committee may establish Goals
the achievement of which contemplate reducing rather than
increasing an amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage which will be
applied to the Weighted Target Amount for such Goal will be
inversely proportional to the performance against the Goal. For
example, if a Goal is a year-end debt amount and the actual
year-end debt is 105% of the Goal, the percentage of Weighted
Target Amount to be paid with respect to that Goal would be 95%.
In these circumstances, the minimum and maximum performance
percentages will be expressed in terms of figures greater than or
less than 100%, respectively.
(4) Calculation of Award. The percentage of Henredon's achievement of
each Goal will be applied to the Weighted Target Amount for that
Goal to determine the amount of the award payable with respect to
that Goal. Awards will be calculated separately for each Goal,
but will be aggregated and paid as one award check. The examples
set forth in Exhibit I illustrate this calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective is to recognize
the performance of Henredon through a more qualitative evaluation, rather than a
quantitative evaluation. This could occur, for example, if Henredon does not
achieve one or more Goals due to business or economic reasons beyond its control
but, given these adverse circumstances, nonetheless performed well. Under such
circumstances, a special award may be granted at the discretion of the
Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately deductible as
compensation expense by Henredon for federal income tax purposes, less
appropriate withholdings, will be paid by check as soon as practical after the
audited close of a fiscal year. To the extent all or any portion of an award is
not immediately deductible as compensation expense by Henredon for federal
income tax purposes, payment of such award or portion thereof, as the case may
be, will be deferred until following termination of employment of the
participant, whereupon such award or such portion thereof, as the case may be,
plus simple interest at Henredon's effective borrowing rate for the period of
deferral, less appropriate withholdings, will be paid by check as soon as the
same shall become immediately deductible as compensation expense by Henredon for
federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not be
considered an agreement to employ a participant for any period of time or in any
position.
EXHIBIT I
Assumptions:
Participant's Base Salary $100,000
Bonus Percentage x 20% (of base salary)
---------
Aggregate Target Amount $20,000
Weighted Henredon Goals:
Goal 1 (e.g., Net Sales) Weighted 25%
Goal 2 (e.g., Pretax Profit) Weighted 75%
Weighted Target Amounts:
Goal 1 ($20,000 x 20%) $ 5,000
Goal 2 ($20,000 x 40%) $ 15,000
--------
TOTAL $ 20,000
Example:
Henredon Goal Achievement:
Goal 1 90% of Goal
Goal 2 110% of Goal
Award Payable:
Goal 1 (90% x $5,000) $ 4,500
Goal 2 (110% x $15,000) $ 16,500
--------
TOTAL $ 21,000
EXHIBIT II
HENREDON FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Participation Form
PARTICIPANT: _______________________________________________
BONUS PERCENTAGE FOR [YEAR]: ____________ % OF BASE SALARY
GOALS FOR [YEAR] AMOUNT WEIGHTING
Net Sales $000,000,000 00%
Pretax Earnings $000,000,000 00%
Exhibit 10(k)
DREXEL HERITAGE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted January 24, 2002
TABLE OF CONTENTS
INTRODUCTION................................................................ 1
OBJECTIVES OF PLAN.......................................................... 1
Objectives......................................................... 1
Award Achievement.................................................. 1
PARTICIPATION............................................................... 2
Eligibility........................................................ 2
Participation...................................................... 2
Non-Eligibility.................................................... 2
Plan Year.......................................................... 2
HOW THE PLAN WORKS.......................................................... 2
Plan Factors....................................................... 2
Notification of Participation...................................... 3
Setting Drexel Heritage Goals...................................... 3
MECHANICS OF DETERMINING AWARDS............................................. 3
Definitions of Terms............................................... 3
Mechanics of Determining Awards.................................... 4
DISCRETIONARY AWARDS PROGRAM................................................ 4
PAYMENT OF AWARDS........................................................... 5
NO CONTRACT OF EMPLOYMENT................................................... 5
EXHIBIT I.......................................................... 6
EXHIBIT II......................................................... 7
DREXEL HERITAGE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for those
management persons at the corporate offices of Drexel Heritage Furniture
Industries, Inc. ("Drexel Heritage") who directly and substantially influence
achievement of certain corporate goals. The Plan provides monetary awards for
the achievement of those goals. In select cases, the Plan provides for
additional special discretionary awards.
The Plan is in addition to and assumes the existence of a base salary which
is competitive, equitable, and subject to periodic performance-related
adjustments.
Drexel Heritage believes that the total annual income of key employees
should be influenced by their individual and collective effort, and that rewards
should directly relate to the achievement of planned, meaningful results.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan is designed
to:
(1) provide for monetary awards of significant value related directly
to measurable Drexel Heritage results;
(2) motivate participating individuals to achieve results beyond the
routine of position responsibilities; and
(3) be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary
and monetary awards under the Plan, is designed to be competitive
with total compensation for similar positions in American
industry.
3. PARTICIPATION
A. Eligibility. Only management persons whose performance directly and
substantially influences the annual results of Drexel Heritage will be
considered for participation in the Plan. Ordinarily the extent of
such influence will be reflected in the Bonus Percentage (as herein
defined).
B. Participation
(1) At the start of each Plan Year Drexel Heritage management will
submit a list of proposed participants and Bonus Percentages for
review and approval by the Executive Compensation and Stock
Option Committee of the Furniture Brands International Board of
Directors (the "Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated a participant
for the Plan Year and must participate effectively for a minimum
of eight full months of the Plan Year.
(3) A participant who has lost time due to illness, or dies, retires
or becomes totally disabled during the Plan Year, will be
considered for an award under the Plan provided that his/her
influence on goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any time during
the Plan Year by reason of voluntary or encouraged resignation,
or who is discharged, will not receive an award.
(2) Any individual who has been demoted at any time during the Plan
Year to a position not included in the Plan will not receive an
award.
D. Plan Year. The Plan Year will correspond with the Drexel Heritage
calendar fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be measured in order to
determine an award: opportunity and Drexel Heritage performance.
(1) Opportunity is the potential impact that a participant may have
on the achievement of goals. This is expressed by the Bonus
Percentage.
(2) Drexel Heritage Performance is the result of achievement. This is
measured by the percentage of attainment of Drexel Heritage's
goals.
B. Notification of Participation. Each participant's target Bonus
Percentage will be communicated each Plan Year by delivery of the
Participation Form (see Exhibit II).
C. Setting Drexel Heritage Goals. At or prior to the beginning of each
Plan Year, Drexel Heritage management will recommend to the Committee
for approval, one or more objective measurable performance goals for
Drexel Heritage (the "Goals") for such year, and the weighting to be
assigned to each Goal. The Goals will be realistic, yet rigorous. They
will be attainable, but attainment will require above average
performance. The Committee may, in its discretion, approve
management's recommendations or change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be expressed as a
percentage (not less than 10% and not more than 100%) of the
participant's base salary. That percentage will increase with
significant increases in responsibility, thus recognizing the
direct relationship between position responsibility and influence
on Drexel Heritage results. Participants who are promoted during
a Plan Year to a position with a higher Bonus Percentage will
receive a prorated award based on the percentage of the Plan Year
spent in each position.
(2) Aggregate Target Amount. The Aggregate Target Amount will be
expressed as a dollar amount, calculated by multiplying the
participant's base annual salary rate (in effect at the end of
the Plan Year) by the Bonus Percentage. The result will be the
total award to which the participant will be entitled if Drexel
Heritage achieves 100% of all Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted Target Amount
will be calculated by multiplying the Aggregate Target Amount by
the weighted percentage applicable to the Goal. The result for
each Goal will be the portion of the total award to which the
participant will be entitled if Drexel Heritage achieves 100% of
that Goal for that Plan Year. The sum of the Weighted Target
Amounts will equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
(1) Drexel Heritage Performance. Drexel Heritage's performance
against the Goals will be measured by the percentage of
achievement of each Goal. Drexel Heritage's performance with
respect to each Goal will be based upon audited results.
(2) Achievement of Target. The Plan is designed to provide the
participant with 100% of his/her Weighted Target Amount with
respect to each Goal if Drexel Heritage achieves 100%
satisfaction of that Goal.
(3) Minimum and Maximum Bonus Percentage. Each Plan Year the
Committee will establish a minimum percentage (the "Minimum
Percentage") with respect to each Goal, which Minimum Percentage
will be 35% unless the Committee shall determine otherwise. The
Minimum Percentage will be paid regardless of achievement below
that level with respect to that Goal.
Each year the Committee will also establish a maximum bonus
percentage (the "Maximum Percentage") with respect to each Goal,
which Maximum Percentage will be 125% unless the Committee shall
determine otherwise. No amount greater than the Maximum
Percentage will be paid with respect to any Goal notwithstanding
performance greater than that percentage.
Under certain circumstances, the Committee may establish Goals
the achievement of which contemplate reducing rather than
increasing an amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage which will be
applied to the Weighted Target Amount for such Goal will be
inversely proportional to the performance against the Goal. For
example, if a Goal is a year-end debt amount and the actual
year-end debt is 105% of the Goal, the percentage of Weighted
Target Amount to be paid with respect to that Goal would be 95%.
In these circumstances, the minimum and maximum performance
percentages will be expressed in terms of figures greater than or
less than 100%, respectively.
(4) Calculation of Award. The percentage of Drexel Heritage's
achievement of each Goal will be applied to the Weighted Target
Amount for that Goal to determine the amount of the award payable
with respect to that Goal. Awards will be calculated separately
for each Goal, but will be aggregated and paid as one award
check. The examples set forth in Exhibit I illustrate this
calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective is to recognize
the performance of Drexel Heritage through a more qualitative evaluation, rather
than a quantitative evaluation. This could occur, for example, if Drexel
Heritage does not achieve one or more Goals due to business or economic reasons
beyond its control but, given these adverse circumstances, nonetheless performed
well. Under such circumstances, a special award may be granted at the discretion
of the Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately deductible as
compensation expense by Drexel Heritage for federal income tax purposes, less
appropriate withholdings, will be paid by check as soon as practical after the
audited close of a fiscal year. To the extent all or any portion of an award is
not immediately deductible as compensation expense by Drexel Heritage for
federal income tax purposes, payment of such award or portion thereof, as the
case may be, will be deferred until following termination of employment of the
participant, whereupon such award or such portion thereof, as the case may be,
plus simple interest at Drexel Heritage's effective borrowing rate for the
period of deferral, less appropriate withholdings, will be paid by check as soon
as the same shall become immediately deductible as compensation expense by
Drexel Heritage for federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not be
considered an agreement to employ a participant for any period of time or in any
position.
EXHIBIT I
Assumptions:
Participant's Base Salary $100,000
Bonus Percentage x 20% (of base salary)
---------
Aggregate Target Amount $20,000
Weighted Drexel Heritage Goals:
Goal 1 (e.g., Net Sales) Weighted 25%
Goal 2 (e.g., Pretax Profit) Weighted 75%
Weighted Target Amounts:
Goal 1 ($20,000 x 20%) $ 5,000
Goal 2 ($20,000 x 40%) $ 15,000
--------
TOTAL $20,000
Example:
Drexel Heritage Goal Achievement:
Goal 1 90% of Goal
Goal 2 110% of Goal
Award Payable:
Goal 1 (90% x $5,000) $ 4,500
Goal 2 (110% x $15,000) $ 16,500
--------
TOTAL $ 21,000
EXHIBIT II
DREXEL HERITAGE FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Participation Form
PARTICIPANT: _______________________________________________
BONUS PERCENTAGE FOR [YEAR]: ____________ % OF BASE SALARY
GOALS FOR [YEAR] AMOUNT WEIGHTING
Net Sales $000,000,000 00%
Pretax Earnings $000,000,000 00%
Exhibit 10(l)
MAITLAND-SMITH FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Adopted January 24, 2002
TABLE OF CONTENTS
INTRODUCTION................................................................. 1
OBJECTIVES OF PLAN........................................................... 1
Objectives.......................................................... 1
Award Achievement................................................... 1
PARTICIPATION................................................................ 2
Eligibility......................................................... 2
Participation....................................................... 2
Non-Eligibility..................................................... 2
Plan Year........................................................... 2
HOW THE PLAN WORKS........................................................... 2
Plan Factors........................................................ 2
Notification of Participation....................................... 3
Setting Maitland-Smith Goals........................................ 3
MECHANICS OF DETERMINING AWARDS.............................................. 3
Definitions of Terms................................................ 3
Mechanics of Determining Awards..................................... 4
DISCRETIONARY AWARDS PROGRAM................................................. 4
PAYMENT OF AWARDS............................................................ 5
NO CONTRACT OF EMPLOYMENT.................................................... 5
EXHIBIT I........................................................... 6
EXHIBIT II.......................................................... 7
MAITLAND-SMITH FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
1. INTRODUCTION
This Executive Incentive Plan (the "Plan") has been designed for those
management persons at the corporate offices of Maitland-Smith Furniture
Industries, Inc. ("Maitland-Smith") who directly and substantially influence
achievement of certain corporate goals. The Plan provides monetary awards for
the achievement of those goals. In select cases, the Plan provides for
additional special discretionary awards.
The Plan is in addition to and assumes the existence of a base salary which
is competitive, equitable, and subject to periodic performance-related
adjustments.
Maitland-Smith believes that the total annual income of key employees
should be influenced by their individual and collective effort, and that rewards
should directly relate to the achievement of planned, meaningful results.
2. OBJECTIVES OF PLAN
A. Objectives. The Plan has been created with several objectives in mind:
(1) to emphasize achievement of planned strategic objectives;
(2) to reinforce the importance of annual growth; and
(3) to motivate and challenge participating executives through
meaningful compensation opportunities.
B. Award Achievement. To achieve these objectives, the Plan is designed
to:
(1) provide for monetary awards of significant value related directly
to measurable Maitland-Smith results;
(2) motivate participating individuals to achieve results beyond the
routine of position responsibilities; and
(3) be appropriate for both the level of responsibility and total
compensation for the position.
Total compensation, resulting from the combination of base salary
and monetary awards under the Plan, is designed to be competitive
with total compensation for similar positions in American
industry.
3. PARTICIPATION
A. Eligibility. Only management persons whose performance directly and
substantially influences the annual results of Maitland-Smith will be
considered for participation in the Plan. Ordinarily the extent of
such influence will be reflected in the Bonus Percentage (as herein
defined).
B. Participation
(1) At the start of each Plan Year Maitland-Smith management will
submit a list of proposed participants and Bonus Percentages for
review and approval by the Executive Compensation and Stock
Option Committee of the Furniture Brands International Board of
Directors (the "Committee"). The Committee may in its discretion
change the participants and Bonus Percentages.
(2) To earn an award, an individual must be designated a participant
for the Plan Year and must participate effectively for a minimum
of eight full months of the Plan Year.
(3) A participant who has lost time due to illness, or dies, retires
or becomes totally disabled during the Plan Year, will be
considered for an award under the Plan provided that his/her
influence on goal achievement can be identified and that
achievement of results can be measured.
C. Non-Eligibility
(1) Any individual whose employment is terminated at any time during
the Plan Year by reason of voluntary or encouraged resignation,
or who is discharged, will not receive an award.
(2) Any individual who has been demoted at any time during the Plan
Year to a position not included in the Plan will not receive an
award.
D. Plan Year. The Plan Year will correspond with the Maitland-Smith
calendar fiscal year.
4. HOW THE PLAN WORKS
A. Plan Factors. There are two factors which will be measured in order to
determine an award: opportunity and Maitland-Smith performance.
(1) Opportunity is the potential impact that a participant may have
on the achievement of goals. This is expressed by the Bonus
Percentage.
(2) Maitland-Smith Performance is the result of achievement. This is
measured by the percentage of attainment of Maitland-Smith's
goals.
B. Notification of Participation. Each participant's target Bonus
Percentage will be communicated each Plan Year by delivery of the
Participation Form (see Exhibit II).
C. Setting Maitland-Smith Goals. At or prior to the beginning of each
Plan Year, Maitland-Smith management will recommend to the Committee
for approval, one or more objective measurable performance goals for
Maitland-Smith (the "Goals") for such year, and the weighting to be
assigned to each Goal. The Goals will be realistic, yet rigorous. They
will be attainable, but attainment will require above average
performance. The Committee may, in its discretion, approve
management's recommendations or change the Goals and/or weightings.
5. MECHANICS OF DETERMINING AWARDS
A. Definitions of Terms
(1) Bonus Percentage. The Bonus Percentage will be expressed as a
percentage (not less than 10% and not more than 100%) of the
participant's base salary. That percentage will increase with
significant increases in responsibility, thus recognizing the
direct relationship between position responsibility and influence
on Maitland-Smith results. Participants who are promoted during a
Plan Year to a position with a higher Bonus Percentage will
receive a prorated award based on the percentage of the Plan Year
spent in each position.
(2) Aggregate Target Amount. The Aggregate Target Amount will be
expressed as a dollar amount, calculated by multiplying the
participant's base annual salary rate (in effect at the end of
the Plan Year) by the Bonus Percentage. The result will be the
total award to which the participant will be entitled if
Maitland-Smith achieves 100% of all Goals for that Plan Year.
(3) Weighted Target Amounts. For each Goal a Weighted Target Amount
will be calculated by multiplying the Aggregate Target Amount by
the weighted percentage applicable to the Goal. The result for
each Goal will be the portion of the total award to which the
participant will be entitled if Maitland-Smith achieves 100% of
that Goal for that Plan Year. The sum of the Weighted Target
Amounts will equal the Aggregate Target Amount.
B. Mechanics of Determining Awards.
(1) Maitland-Smith Performance. Maitland-Smith's performance against
the Goals will be measured by the percentage of achievement of
each Goal. Maitland-Smith's performance with respect to each Goal
will be based upon audited results.
(2) Achievement of Target. The Plan is designed to provide the
participant with 100% of his/her Weighted Target Amount with
respect to each Goal if Maitland-Smith achieves 100% satisfaction
of that Goal.
(3) Minimum and Maximum Bonus Percentage. Each Plan Year the
Committee will establish a minimum percentage (the "Minimum
Percentage") with respect to each Goal, which Minimum Percentage
will be 35% unless the Committee shall determine otherwise. The
Minimum Percentage will be paid regardless of achievement below
that level with respect to that Goal.
Each year the Committee will also establish a maximum bonus
percentage (the "Maximum Percentage") with respect to each Goal,
which Maximum Percentage will be 125% unless the Committee shall
determine otherwise. No amount greater than the Maximum
Percentage will be paid with respect to any Goal notwithstanding
performance greater than that percentage.
Under certain circumstances, the Committee may establish Goals
the achievement of which contemplate reducing rather than
increasing an amount, such as a reduced debt level or reduced
SG&A expenses. In any such case, the percentage which will be
applied to the Weighted Target Amount for such Goal will be
inversely proportional to the performance against the Goal. For
example, if a Goal is a year-end debt amount and the actual
year-end debt is 105% of the Goal, the percentage of Weighted
Target Amount to be paid with respect to that Goal would be 95%.
In these circumstances, the minimum and maximum performance
percentages will be expressed in terms of figures greater than or
less than 100%, respectively.
(4) Calculation of Award. The percentage of Maitland-Smith's
achievement of each Goal will be applied to the Weighted Target
Amount for that Goal to determine the amount of the award payable
with respect to that Goal. Awards will be calculated separately
for each Goal, but will be aggregated and paid as one award
check. The examples set forth in Exhibit I illustrate this
calculation.
6. DISCRETIONARY AWARDS PROGRAM. To recognize special needs, a
discretionary awards program is part of this Plan. Its objective is to recognize
the performance of Maitland-Smith through a more qualitative evaluation, rather
than a quantitative evaluation. This could occur, for example, if Maitland-Smith
does not achieve one or more Goals due to business or economic reasons beyond
its control but, given these adverse circumstances, nonetheless performed well.
Under such circumstances, a special award may be granted at the discretion of
the Committee.
7. PAYMENT OF AWARDS. Awards, to the extent immediately deductible as
compensation expense by Maitland-Smith for federal income tax purposes, less
appropriate withholdings, will be paid by check as soon as practical after the
audited close of a fiscal year. To the extent all or any portion of an award is
not immediately deductible as compensation expense by Maitland-Smith for federal
income tax purposes, payment of such award or portion thereof, as the case may
be, will be deferred until following termination of employment of the
participant, whereupon such award or such portion thereof, as the case may be,
plus simple interest at Maitland-Smith's effective borrowing rate for the period
of deferral, less appropriate withholdings, will be paid by check as soon as the
same shall become immediately deductible as compensation expense by
Maitland-Smith for federal income tax purposes.
8. NO CONTRACT OF EMPLOYMENT. Participation in the Plan shall not be
considered an agreement to employ a participant for any period of time or in any
position.
EXHIBIT I
Assumptions:
Participant's Base Salary $100,000
Bonus Percentage x 20% (of base salary)
---------
Aggregate Target Amount $20,000
Weighted Maitland-Smith Goals:
Goal 1 (e.g., Net Sales) Weighted 25%
Goal 2 (e.g., Pretax Profit) Weighted 75%
Weighted Target Amounts:
Goal 1 ($20,000 x 20%) $ 5,000
Goal 2 ($20,000 x 40%) $ 15,000
--------
TOTAL $20,000
Example:
Maitland-Smith Goal Achievement:
Goal 1 90% of Goal
Goal 2 110% of Goal
Award Payable:
Goal 1 (90% x $5,000) $ 4,500
Goal 2 (110% x $15,000) $ 16,500
--------
TOTAL $21,000
EXHIBIT II
MAITLAND-SMITH FURNITURE INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Participation Form
PARTICIPANT: _______________________________________________
BONUS PERCENTAGE FOR [YEAR]: ____________ % OF BASE SALARY
GOALS FOR [YEAR] AMOUNT WEIGHTING
Net Sales $000,000,000 00%
Pretax Earnings $000,000,000 00%
Exhibit 21
LIST OF SUBSIDIARIES
OF
FURNITURE BRANDS INTERNATIONAL, INC.
Name of Subsidiary Jurisdiction of Incorporation
Action Transport, Inc. Delaware
Broyhill Furniture Industries, Inc. North Carolina
Broyhill Transport, Inc. North Carolina
Cebu Agency Limited Hong Kong
Classic Design Furnishings, Inc. Virginia
Decorative Hardware Solutions Ltd. Vanuatu
Design Agency Limited Hong Kong
D-H Retail Space, Inc. Delaware
Drexel Heritage Furniture Industries, Inc. Delaware
Fayette Enterprises, Inc. Mississippi
Furniture Brands Export Co., Ltd. Barbados
HDM Furniture Industries, Inc. Delaware
Henredon Furniture Industries, Inc. Delaware
Henredon Transportation Company North Carolina
Lane Furniture Industries, Inc. Mississippi
Laneventure, Inc. Delaware
Maitland-Smith Asia Holdings Limited Vanuatu
Maitland-Smith Cebu, Inc. Philippines
Maitland-Smith Furniture Industries, Inc. Delaware
Maitland-Smith Home Furnishings, Inc. Delaware
Maitland-Smith Limited Hong Kong
P.T. Maitland-Smith Indonesia
Perabut Bermutu (L) Bhd. Malaysia
The Lane Company, Incorporated Virginia
Thomasville Furniture Industries, Inc. Delaware
Thomasville Home Furnishings, Inc. Delaware
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Furniture Brands International, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-65714, 333-6990, 333-39355, 333-80189) on Form S-8 of Furniture Brands
International, Inc. of our report dated January 24, 2002, relating to the
consolidated balance sheets of Furniture Brands International, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows and the related
schedule for each of the years in the three-year period ended December 31, 2001,
which report appears in the December 31, 2001 annual report on Form 10-K of
Furniture Brands International, Inc.
St. Louis, Missouri
March 25, 2002