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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 THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number I-91
Furniture Brands International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 43-033768
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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
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, 1999, was approximately $1,091,829,590.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
51,288,549 shares as of February 28, 1999
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 29, 1999 ................... Part III
PART I
Item 1. Business
(a) General Development of Business
On February 10, 1998, Haverty Furniture Companies, Inc. and Furniture Brands
International, Inc. (the "Company") jointly announced a strategic alliance
whereby Havertys will allocate, upon full implementation of the program, up
to one-half of its retail floor space in all of its stores to the prominent
display of product manufactured by the Company.
On February 10, 1999, the Company and Benchmark Home Furnishings, Inc.
announced a cooperative effort to develop a 160,000 square foot Benchmark
store in Kansas City dedicated exclusively to products manufactured by the
Company.
On February 17, 1999, the Company and Kittle's Home Furnishings, Inc.
announced a strategic alliance whereby Kittle's has agreed to expand its
commitment to products manufactured by the Company.
On February 26, 1999, the Company and Outlook International, Ltd. announced an
agreement in which Outlook will act as exclusive representative for the
Company for manufacture of products in the Far East.
(c) Narrative Description of Business
The Company, the largest manufacturer of residential furniture in the United
States, markets its products through its three operating subsidiaries:
Broyhill Furniture Industries, Inc.; Lane Furniture Industries, Inc.; and
Thomasville Furniture Industries, Inc.
PRODUCTS
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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 and accent items and
freestanding home entertainment centers and home office items, and (iv)
recliners, motion furniture and sleep sofas. The Company's brand name
positioning by price and product category is shown below.
UPHOLSTERY
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RECLINER/
PRICING CATEGORY CASE GOODS OCCASIONAL STATIONARY MOTION
---------------- ---------- ---------- ---------- -----------
PREMIUM Thomasville Thomasville Thomasville Lane
Lane Lane
BEST Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
Broyhill
BETTER Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
GOOD Broyhill Broyhill Broyhill Lane
PROMOTIONAL Founders
RTA Creative Interiors
BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium-priced bedroom, dining room,
upholstered and occasional furniture aimed at middle-income consumers.
Broyhill's wood furniture offerings consist primarily of bedroom, dining
room and living room furniture, occasional tables, accent items and free-
standing home entertainment centers. 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
colonial, country, traditional, contemporary and lifestyle designs.
The widely recognized Broyhill trademarks include Broyhill and Broyhill
Premier. The flagship Broyhill product line concentrates on bedroom, dining
room, upholstered and occasional furniture designed for the "good" and
"better" price categories. The Broyhill Premier product line enjoys an
excellent reputation for classically styled, complete furniture collections
in the "better" price category.
LANE FURNITURE INDUSTRIES
Lane manufactures and markets a broad range of high quality furniture
targeting the "better," "best" and "premium" price categories. Lane targets
niche markets with its six operating divisions, which participate in such
segments of the residential furniture market as motion furniture, 19th
century reproductions, wicker and rattan, cedar chests, finely tailored
upholstered furniture and home office furniture.
Action Industries manufactures and markets reclining chairs and motion
furniture in the "good," "better" and "best" 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 designs and manufactures the mechanisms
used in Action Industries' reclining furniture products.
Lane Division manufactures and sells cedar chests, living room, bedroom and
dining room furniture, wall systems, desks, console tables and mirrors and
other occasional wood pieces. Lane Division furniture is sold in the "better"
and "best" price categories.
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.
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.
Venture manufactures and markets moderately priced wicker, rattan and bamboo
furniture, tables, occasional wood pieces and two lines of upholstered
furniture. One line is composed of contemporary and modern upholstered
furniture and metal and glass occasional and dining tables, and the other
which is composed of traditional and contemporary upholstered furniture,
primarily sofas, loveseats, chairs and ottomans. Venture also manufactures a
line of outdoor and patio furniture featuring fast drying upholstered cushions
under the names WeatherMaster and Weathercraft, which have developed
significant consumer acceptance.
Hickory Business Furniture manufactures and sells a line of office furniture,
including chairs, tables, conference tables, desks and credenzas, in the
upper-medium price range.
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 under one brand name that targets the "best" and "premium" price
categories. 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.
Thomasville's Founders division offers assembled bedroom sets, bookcases and
home entertainment centers as well as RTA (ready-to-assemble) furniture such
as home entertainment centers, bookcases, bedroom and kitchen/utility
furniture and computer desks. Thomasville's Founders division markets
products under the Creative Interiors (RTA) and Founders (assembled) brand
names to a variety of retailers for sale to consumer end-users and certain
contract customers.
Effective January 1, 1999, the operations of Highland House, formerly a
division of Broyhill, were transferred to Thomasville. This transfer of
operations will benefit Thomasville due to the additional capacity available
to service its rapidly growing upholstery business. Highland House
manufactures upholstered products in the "better" and "best" price categories.
DISTRIBUTION
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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 service effectively national retailers such as J.C. Penney, Sears and
Heilig-Meyers and key regional retailers such as Havertys, Breuner's Home
Furnishings Corp. 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. The Company distributes its products through a diverse
network of independently-owned retail locations, which includes 105
free-standing stores, 1,171 galleries and 507 furniture centers.
Haverty Furniture Companies, Inc. and the Company have formed a strategic
alliance whereby Havertys will allocate, upon full implementation of the
program, up to one-half of its retail floor space in all of its stores to the
prominent display of product manufactured by the Company. This alliance
advances the Company's strategy of expanding distribution and dedicated
display space.
On February 10, 1999, the Company and Benchmark Home Furnishings, Inc.
announced a cooperative effort to develop a 160,000 square foot Benchmark
store in Kansas City dedicated exclusively to products manufactured by the
Company.
On February 17, 1999, the Company and Kittle's Home Furnishings, Inc.
announced a strategic alliance whereby Kittle's has agreed to expand its
commitment to products manufactured by the Company.
Broyhill, Lane and Thomasville 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 are dealer-owned, free-standing retail
locations that exclusively feature Thomasville furniture. 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. Management is currently
evaluating similar opportunities to jointly market Broyhill, Lane and
Thomasville products in dealer-owned retail stores.
Showrooms for the national furniture market are located in Thomasville and
High Point, North Carolina and for regional markets in Atlanta, Georgia;
Chicago, Illinois; and San Francisco, California.
BROYHILL FURNITURE INDUSTRIES
One of Broyhill's principal distribution channels is the Broyhill Showcase
Gallery program. This program, started in 1983, involves 351 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.
For the retailer that is currently not a participant in the gallery program,
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 promotional materials at nominal cost in order to
help increase consumer recognition on the local level. As part of the
Independent Dealer Program, Broyhill offers the Broyhill Furniture Center
Program to 507 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 Program.
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, Sears, May Department Stores, Federated Department Stores
and Dillard Department Stores.
Lane has established specialty gallery programs with 571 participating
dealers. This includes 255 dealer-owned Comfort Showcase Galleries
established by Action Industries. The Comfort Showcase Galleries average
approximately 4,200 square feet of retail space specifically dedicated to the
display, promotion and sale of Action Industries' products. Lane's other
gallery programs call for the display of Lane case goods and upholstered
furniture in settings that range from 200 square feet for a Cedar Chest
Boutique to 4,000 square feet for a Hickory Chair Gallery.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at 651 independently-owned retail locations,
including 249 Thomasville Galleries, 105 Thomasville Home Furnishings Stores
and 297 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.
Thomasville's Founders division sells promotional and RTA 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.
RTA customers include national chains such as Wal-Mart and Target, catalog
showrooms, discount mass merchandisers, warehouse clubs and home furnishings
retailers.
MARKETING AND ADVERTISING
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Advertising is used to increase consumer awareness of the Company's brand
names and is targeted to specific consumer segments through 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 consumers
utilizing information from databases and from callers to each operating
company's toll-free telephone number. Each of the operating companies has
recently developed and implemented national and regional television
advertising campaigns.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales. Broyhill's current marketing strategy
features national cable 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.
Action Industries 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. The other Lane
divisions began using television advertising in 1998. These commercials
featured the Eddie Bauer Lifestyles by Lane collection, produced by the Lane
Division and Lane Venture. Each of the Lane divisions advertises extensively
in trade and consumer publications targeting various niche markets.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville's current advertising campaign, appearing in household magazines
and periodic television commercials, emphasizes Thomasville fashion and
quality leadership through the use of dramatic photographs featuring
individual, high quality wood and upholstery pieces. Thomasville ads appear
in up-front positions in national household magazines, such as Better Homes
and Gardens, Good Housekeeping and House Beautiful.
To help retailers sell its products through to consumers, Thomasville offers a
full twelve month schedule of promotional support which includes promotional
concepts, selected product discounts, cooperative advertising funds for stores
that sell only Thomasville products, and a complete advertising package with
color newspaper layouts plus radio and television commercials dealers can use
as supplied. Thomasville runs national sale events to coincide with major
industry sale periods. These may include national print ads or Thomasville-
designed newspaper inserts for dealer use.
MANUFACTURING
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Broyhill operates 18 finished case goods and upholstery production and
warehouse facilities totalling over 5.1 million square feet. All finished
goods 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 14 finished case goods and upholstery production and warehouse
facilities in Virginia, North Carolina and Mississippi totalling over 5.7
million square feet. Since the late 1980s, significant capital expenditures
have been made to acquire technologically advanced manufacturing equipment
which has increased factory productivity.
Thomasville manufactures or assembles its products at 16 finished case goods
and upholstery production and warehouse facilities located in North Carolina,
Virginia, and Tennessee totalling over 5.7 million square feet. Each plant is
specialized, manufacturing limited product categories, allowing longer, more
efficient production runs and economies of scale.
The manufacturing process for Thomasville's Founders 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 stored in an automated warehouse to
provide quicker delivery to customers. Ninety percent of Creative Interiors
products are shipped within 14 days of production.
RAW MATERIALS AND SUPPLIERS
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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 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.
On February 26, 1999, the Company and Outlook International, Ltd. announced an
agreement in which Outlook will act as exclusive representative for the
Company for the manufacture of products in the Far East.
Other than Outlook International 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 relationships 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, Broyhill, Lane, and Thomasville have been
able to realize cost savings.
ENVIRONMENTAL MATTERS
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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
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The furniture manufacturing industry is highly competitive. The Company's
products compete with products made by a number of furniture manufacturers,
including Lifestyle Furnishings International Ltd., La-Z-Boy Incorporated,
Ladd Furniture, Inc., Bassett Furniture Industries, Inc., and Ethan Allen
Interiors, Inc. as well as approximately 600 smaller producers. The elements
of competition include pricing, styling, quality and marketing.
EMPLOYEES
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As of December 31, 1998, the Company employed approximately 20,700 people.
None of the Company's employees is represented by a union.
BACKLOG
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The combined backlog of the Company's operating companies as of December 31,
1998 aggregated approximately $220 million, compared to approximately $223
million as of December 31, 1997.
Item 2. Properties
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The Company owns or leases the following principal plants, offices and
warehouses:
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
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Furniture
Brands St. Louis, MO Headquarters 26,800 Leased
Broyhill Lenoir, NC Headquarters 136,000 Leased
Broyhill Lenoir, NC Plant/Warehouse 312,632 Owned
Broyhill Newton, NC Plant/Warehouse 382,626 Owned
Broyhill Lenoir, NC Plant/Warehouse 628,000 Owned
Broyhill Rutherfordton, NC Plant/Warehouse 575,656 Owned
Broyhill Lenoir, NC Plant/Warehouse 419,000 Owned
Broyhill Lenoir, NC Plant/Warehouse 381,820 Owned/
Leased
Broyhill Conover, NC Plant/Warehouse 316,542 Owned
Broyhill Lenoir, NC Plant/Warehouse 516,439 Owned
Broyhill Lenoir, NC Plant/Warehouse 256,318 Owned
Broyhill Lenoir, NC Plant 56,250 Leased
Broyhill Lenoir, NC Plant/Warehouse 252,380 Owned
Broyhill Taylorsville, NC Plant/Warehouse 212,754 Owned
Broyhill Lenoir, NC Plant 124,700 Leased
Broyhill Hickory, NC Plant/Warehouse 215,500 Leased
Broyhill Marion, NC Plant 22,712 Owned
Broyhill Lenoir, NC Warehouse 96,000 Owned
Broyhill Lenoir, NC Warehouse 252,250 Leased
Broyhill Lenoir, NC Warehouse 103,200 Leased
Lane Altavista, VA Plant/Warehouse 1,091,600 Owned
Lane Altavista, VA Headquarters 62,000 Owned
Lane Conover, NC Plant/Warehouse 231,250 Owned
Lane Conover, NC Plant/Warehouse 348,180 Owned
Lane Conover, NC Plant 195,130 Owned
Lane Hickory, NC Plant/Warehouse 641,214 Owned
Lane Hickory, NC Plant/Warehouse 179,902 Owned
Lane High Point, NC Plant/Warehouse 156,000 Owned
Lane Rocky Mount, VA Plant/Warehouse 598,962 Owned
Lane Rocky Mount, VA Plant 50,300 Owned
Lane High Point, NC Plant 187,162 Owned
Lane Pontotoc, MS Plant/Warehouse 358,652 Owned
Lane Verona, MS Plant/Warehouse 410,000 Owned
Lane Saltillo, MS Plant/Warehouse 570,328 Owned
Lane Tupelo, MS Plant/Warehouse 712,675 Owned
Thomasville Thomasville, NC Headquarters/ 256,000 Owned
Showroom
Thomasville Thomasville, NC Plant/Warehouse 412,000 Owned
Thomasville Thomasville, NC Plant 240,000 Owned
Thomasville Thomasville, NC Plant 325,000 Owned
Thomasville Thomasville, NC Plant 309,850 Owned
Thomasville Lenoir, NC Plant/Warehouse 828,000 Owned
Thomasville Winston-Salem, NC Plant/Warehouse 706,000 Owned
Thomasville West Jefferson, NC Plant/Warehouse 223,545 Owned
Thomasville Johnson City, TN Plant/Warehouse 284,120 Owned
Thomasville Statesville, NC Plant 158,600 Owned
Thomasville Troutman, NC Plant 238,200 Owned
Thomasville Conover, NC Plant 123,200 Owned
Thomasville Hickory, NC Plant 58,700 Owned
Thomasville Hickory, NC Plant 98,700 Owned
Thomasville Thomasville, NC Warehouse 731,000 Owned
Thomasville Appomattox, VA Plant/Warehouse 804,000 Owned
Thomasville Carysbrook, VA Plant 189,000 Owned
-----------------------
The Tupelo, Mississippi facility is encumbered by a mortgage and first lien
securing industrial 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 effectively utilized during 1998 at
moderate to high levels 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
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Item 5. Market for The Registrant's Common Equity and Related Stockholder
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Matters
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As of February 28, 1999, there were approximately 3,000 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 11 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, 1997 and 1998.
A discussion of restrictions on the Company's ability to pay cash dividends is
included in Note 6 to the consolidated financial statements of the Company.
Item 6. Selected Financial Data
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FIVE-YEAR CONSOLIDATED FINANCIAL REVIEW
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(Dollars in thousands Year Ended December 31,
except per share data) 1998 1997 1996 1995a 1994
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Summary of operations:
Net sales $1,960,250 $1,808,276 $1,696,795 $1,073,889 1,072,696
Gross profit 515,512 450,690 431,473 291,237 298,712
Interest expense 43,455 42,747 45,217 33,845 37,886
Earnings before income
tax expense, discontinued operations
and extraordinary item 152,143 107,254 88,292 57,038 48,841
Income tax expense 54,205 40,201 34,070 22,815 20,908
Earnings from continuing operations 97,938c 67,053 54,222 34,223b 27,933
Discontinued operations - - - - 10,339
Extraordinary item - - (7,417) (5,815) -
Net earnings $ 97,938 $ 67,053 $ 46,805 $ 28,408 $ 38,272
Per share of common stock - diluted:
Earnings from continuing operations $ 1.82c $ 1.15 $ 0.88 $ 0.67b $ 0.54
Discontinued operations - - - - 0.20
Extraordinary item - - (0.12) (0.11) -
Net earnings $ 1.82 $ 1.15 $ 0.76 $ 0.56 $ 0.74
Weighted average common shares
- diluted (in thousands) 53,809 58,473 61,946 50,639 51,495
Other information (continuing operations):
Working capital $ 509,148 $ 482,288 $ 462,661 $ 455,036 $ 308,323
Property, plant and equipment, net 293,777 294,061 301,962 306,406 181,393
Capital expenditures 44,358 40,004 40,344 35,616 21,108
Total assets 1,303,204 1,257,236 1,269,204 1,291,739 881,735
Long-term debt 589,200 667,800 572,600 705,040 409,679
Shareholders' equity $ 413,509 $ 323,322 $ 419,657 $ 301,156 $ 275,394
------------------------------------------------------------------------------------------------------
(a) On December 31, 1995 the Company purchased Thomasville. The Company's results of operations for
1995 do not include any of the operations of Thomasville since the acquisition occurred as of the
last business day of the year.
(b) Earnings from continuing operations before gain on insurance settlement, net of income tax
expense, and earnings per common share from continuing operations before gain on insurance
settlement, net of income tax expense, were $29,463 and $0.58, respectively.
(c) Earnings from continuing operations before nonrecurring gain, net of income tax expense, and
earnings per common share from continuing operations before nonrecurring gain, net of income tax
expense, were $90,077 and $1.67, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------------
Results of Operations
---------------------
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 1998, 1997 and 1996.
------------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
% of Net % of Net % of Net
Dollars Sales Dollars Sales Dollars Sales
------------------------------------------------------------------------------
Net sales $1,960.2 100.0% $1,808.3 100.0% $1,696.8 100.0%
Cost of operations 1,406.4 71.7 1,319.5 73.0 1,228.4 72.4
Selling, general and
administrative
expenses 314.8 16.1 286.1 15.8 283.4 16.7
Depreciation and
amortization 55.5 2.8 56.0 3.1 54.1 3.2
-----------------------------------------------------------------------------
Earnings from
operations 183.5 9.4 146.7 8.1 130.9 7.7
Interest expense 43.5 2.2 42.7 2.4 45.2 2.7
Other income, net 12.1 0.6 3.3 0.2 2.6 0.2
-----------------------------------------------------------------------------
Earnings before income
tax expense and
extraordinary item 152.1 7.8 107.3 5.9 88.3 5.2
Income tax expense 54.2 2.8 40.2 2.2 34.1 2.0
-----------------------------------------------------------------------------
Earnings before
extraordinary item $ 97.9 5.0% $ 67.1 3.7% $ 54.2 3.2%
=============================================================================
Gross profit (1) $ 515.5 26.3% $ 450.7 24.9% $ 431.5 25.4%
=============================================================================
(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,
-------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------
Net sales $1,960.2 $1,808.3 $1,696.8
Cost of operations 1,406.4 1,319.5 1,228.4
Depreciation (associated with cost of goods sold) 38.3 38.1 36.9
--------------------------------------------------------------------------------------------
Gross profit $ 515.5 $ 450.7 $ 431.5
============================================================================================
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales for 1998 were $1,960.2 million compared to $1,808.3 million for
1997, an increase of $151.9 or 8.4%. The improved sales performance for 1998
occurred at each operating company and ranged, in varying degrees, across all
product lines. The increase in net sales was achieved through continued
introductions of new products, emphasis on the Company's brand names and
expansion of distribution.
Cost of operations for 1998 was $1,406.4 million compared to $1,319.5
million for 1997, an increase of 6.6%. Cost of operations as a percentage of
net sales decreased from 73.0% for 1997 to 71.7% in 1998 primarily due to
improved manufacturing capacity utilization, reduced stock keeping units and
ongoing cost reduction programs.
Selling, general and administrative expenses increased to $314.8 million
in 1998 from $286.1 million in 1997, an increase of 10.0%. As a percentage
of net sales, selling, general and administrative expenses increased from
15.8% for 1997 to 16.1% for 1998 because of tight spending controls
implemented during the fourth quarter of 1997 to help offset an operational
restructuring at Thomasville and a temporary promotional product mix change.
Depreciation and amortization for 1998 was $55.5 million compared to
$56.0 million in 1997, a decrease of 0.9%. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $13.7 million and
$16.4 million in 1998 and 1997, respectively.
Interest expense for 1998 totaled $43.5 million compared with $42.7
million in 1997. The increase in interest expense reflects additional long-
term debt incurred at the end of the second quarter of 1997 to finance the
Company's repurchase of approximately 10.8 million shares of its common stock.
Other income, net for 1998 totaled $12.1 million compared to $3.3 million
for 1997. For 1998, other income consisted of interest on short-term
investments of $0.9 million, a cash dividend (nonrecurring) of $9.4 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 $1.8 million.
Income tax expense for 1998 totaled $54.2 million, producing an effective
tax rate of 35.6% compared with an effective tax rate of 37.5% for 1997. 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 1998 was favorably impacted by the reduced
effect of the nondeductible expenses as a percentage of pretax earnings and
the nontaxable portion of the $9.4 million cash dividend.
Net earnings per common share on a diluted basis were $1.82 and $1.15 for
1998 and 1997, respectively. Weighted average shares outstanding used in the
calculation of net earnings per common share on a basic and diluted basis were
52,095,000 and 53,809,000 in 1998, respectively, and 56,438,000 and 58,473,000
in 1997, respectively.
Gross profit for 1998 was $515.5 million compared with $450.7 million in
1997, an increase of 14.4%. The increase in gross profit margin to 26.3% in
1998 from 24.9% in 1997 was due to improved manufacturing capacity
utilization, reduced stock keeping units and ongoing cost reduction programs.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales for 1997 were $1,808.3 million compared to $1,696.8 million for
1996, an increase of $111.5 or 6.6%. The improved sales performance for 1997
occurred at each operating company and ranged, in varying degrees, across all
product lines. The increase in net sales was achieved through continued
introductions of new products, emphasis on the Company's brand names and
expansion of distribution.
Cost of operations for 1997 was $1,319.5 million compared to $1,228.4
million for 1996, an increase of 7.4%. Cost of operations as a percentage of
net sales increased from 72.4% for 1996 to 73.0% in 1997 primarily due to the
negative impact of a manufacturing plant closing and related production
realignment at Thomasville.
Selling, general and administrative expenses increased to $286.1 million
in 1997 from $283.4 million in 1996, an increase of 0.9%. As a percentage of
net sales, selling, general and administrative expenses decreased from 16.7%
for 1996 to 15.8% for 1997 reflecting the Company's ongoing implementation of
cost control and reduction programs.
Depreciation and amortization for 1997 was $56.0 million compared to
$54.1 million in 1996, an increase of 3.5%. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $16.4 million and
$16.3 million in 1997 and 1996, respectively.
Interest expense for 1997 totaled $42.7 million compared with $45.2
million in 1996. The reduced interest expense reflects lower long-term debt
balances during the first six months of the year, offset partially by
additional long-term debt incurred at the end of the second quarter to finance
the Company's repurchase of approximately 10.8 million shares of its common
stock.
Other income, net for 1997 totaled $3.3 million compared to $2.6 million
for 1996. For 1997, other income consisted of interest on short-term
investments of $0.9 million and other miscellaneous income and expense items
totaling $2.4 million.
Income tax expense for 1997 totaled $40.2 million, producing an effective
tax rate of 37.5% compared with an effective tax rate of 38.6% for 1996. The
effective tax rates for both periods were adversely impacted by certain
nondeductible expenses incurred and provisions for state and local income
taxes.
Earnings per common share before extraordinary item on a diluted basis
were $1.15 and $0.88 for 1997 and 1996, respectively. Weighted average shares
outstanding used in the calculation of net earnings per common share on a
basic and diluted basis were 56,438,000 and 58,473,000 in 1997, respectively,
and 59,172,000 and 61,946,000 in 1996, respectively.
Gross profit for 1997 was $450.7 million compared with $431.5 million in
1996, an increase of 4.5%. The decrease in gross profit margin to 24.9% in
1997 from 25.4% in 1996 was primarily due to the previously noted
manufacturing plant closing and related production realignment at Thomasville.
Financial Condition and Liquidity
Liquidity
Cash and cash equivalents at December 31, 1998 totaled $13.2 million
compared to $12.3 million at December 31, 1997. For 1998, net cash provided
by operating activities totaled $131.3 million. Net cash used by investing
activities totaled $43.1 million. Net cash used in financing activities
totaled $87.2 million, including the net payment of $85.8 million of long-term
debt.
Working capital was $509.1 million at December 31, 1998 compared to
$482.3 million at December 31, 1997. The current ratio was 4.1 to 1 at
December 31, 1998 compared to 4.5 to 1 at December 31, 1997. The modest
increase in working capital between years is primarily the result of the
Company's focus on efficient management of individual working capital
components.
At December 31, 1998, long-term debt totaled $589.2 million compared to
$667.8 million at December 31, 1997. The decrease in indebtedness was funded
by cash flow from operations, partially offset by the issuance of industrial
revenue bonds for the construction of a manufacturing plant addition at Action
Industries, Inc. (subsidiary of Lane Furniture Industries, Inc.). The
Company's debt-to-capitalization ratio was 58.8% at December 31, 1998 compared
to 67.4% at December 31, 1997.
Financing Arrangements
To meet short-term capital and other financial requirements, the Company
maintains a $600.0 million revolving credit facility as part of its Secured
Credit Agreement with a group of financial institutions. The revolving credit
facility allows for both issuance of letters of credit and cash borrowings.
Letter of credit outstandings are limited to no more than $60.0 million. Cash
borrowings are limited only by the facility's maximum availability less
letters of credit outstanding. At December 31, 1998, there were $370.0
million of cash borrowings outstanding under the revolving credit facility and
$41.0 million in letters of credit outstanding, leaving an excess of $189.0
million available under the revolving credit facility.
In January 1998, in order to reduce the impact of changes in interest
rates on its floating rate long-term debt, the Company entered into a four-
year interest rate swap agreement having a total notional amount of $300.0
million. The swap agreement effectively converts a portion of the Company's
floating rate long-term debt to a fixed rate. The Company pays the
counterparties a fixed rate of 5.50% per annum and receives payment based upon
the floating three-month LIBOR rate.
The Company believes its Secured Credit Agreement, 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
Secured Credit Agreement. Interest rate swaps are used to reduce the
Company's exposure to increases in interest rates.
Year 2000
The Company has completed a comprehensive review of all software,
hardware and equipment that could potentially be affected by the year 2000
issue and adopted a year 2000 plan to meet the needs of its customers and
business partners. The results of the review indicate that the Company will
be year 2000 compliant before the year 2000. At this time remediations are
being implemented and testing of the remediations has begun. The total cost
for year 2000 compliance activity will not be material to the Company's
results of operations and financial position. The Company is also in the
process of verifying compliance of critical suppliers with year 2000
standards. There can be no assurance that another company's failure to ensure
year 2000 compliance will not have a material adverse effect on the Company,
however this is a circumstance not currently expected to occur. The Company
will develop and implement contingency plans, if necessary, in the event it
appears that it or its key suppliers will not be year 2000 compliant and such
noncompliance is expected to have a material adverse impact on the operations
of the Company.
Recently Issued Statements of Financial Accounting Standards
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133) "Accounting for
Derivative Instruments and Hedging Activities." This statement standardizes
the accounting for derivative instruments by requiring that an entity
recognize these items as assets or liabilities in the statement of financial
position and measure them at fair value. SFAS No. 133 becomes effective for
fiscal years beginning after June 15, 1999; however, the Company does not
believe the adoption of this statement will have a material impact on its
financial statements.
Forward-Looking Statements
From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules, regulations and releases. The Company cautions
investors that any such forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements. The impact of the year 2000 on
the Company's order, production, distribution and financial systems and the
systems of its suppliers and customers is a factor which could cause actual
results to differ materially from estimates contained in the Company's
forward- looking statements.
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------
(Dollars in thousands) December 31, December 31,
1998 1997
----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 13,220 $ 12,274
Receivables, less allowances of $18,333
($13,793 at December 31, 1997) 324,164 293,975
Inventories (Note 3) 307,382 287,046
Prepaid expenses and other current assets 31,107 25,214
----------------------------------------------------------------------------
Total current assets 675,873 618,509
Property, plant and equipment:
Land 16,757 16,758
Buildings and improvements 188,874 178,245
Machinery and equipment 294,282 264,689
----------------------------------------------------------------------------
499,913 459,692
Less accumulated depreciation 206,136 165,631
----------------------------------------------------------------------------
Net property, plant and equipment 293,777 294,061
Intangible assets (Note 4) 316,998 330,549
Other assets 16,556 14,117
----------------------------------------------------------------------------
$1,303,204 $1,257,236
============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 67,381 $ 52,141
Accrued employee compensation 35,758 29,430
Accrued interest expense 5,608 7,451
Other accrued expenses 57,978 47,199
----------------------------------------------------------------------------
Total current liabilities 166,725 136,221
Long-term debt (Note 5) 589,200 667,800
Other long-term liabilities 133,770 129,893
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 52,277,066 and
52,003,520 shares at December 31, 1998 and
1997 (Note 6) 52,277 52,003
Paid-in capital 127,513 124,595
Retained earnings 244,662 146,724
Treasury stock at cost
(525,000 shares at December 31, 1998) (10,943) -
----------------------------------------------------------------------------
Total shareholders' equity 413,509 323,322
----------------------------------------------------------------------------
$1,303,204 $1,257,236
============================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------
(Dollars in thousands except per share data)
Year Ended December 31,
----------------------------------
1998 1997 1996
-----------------------------------------------------------------------------
Net sales $1,960,250 $1,808,276 $1,696,795
Costs and expenses:
Cost of operations 1,406,434 1,319,455 1,228,355
Selling, general and administrative
expenses 314,837 286,086 283,432
Depreciation and amortization (includes
$13,670, $16,369 and $16,285 related to
fair value adjustments) 55,469 55,995 54,082
-----------------------------------------------------------------------------
Earnings from operations 183,510 146,740 130,926
Interest expense 43,455 42,747 45,217
Other income, net 12,088 3,261 2,583
-----------------------------------------------------------------------------
Earnings before income tax expense
and extraordinary item 152,143 107,254 88,292
Income tax expense (Note 7) 54,205 40,201 34,070
-----------------------------------------------------------------------------
Earnings before extraordinary item 97,938 67,053 54,222
Extraordinary item - early extinguishment
of debt, net of tax benefit (Note 9) - - (7,417)
-----------------------------------------------------------------------------
Net earnings $ 97,938 $ 67,053 $ 46,805
=============================================================================
Net earnings per common share -
basic (Note 6):
Earnings before extraordinary item $ 1.88 $ 1.19 $ 0.92
Extraordinary item - early extinguishment
of debt - - (0.13)
-----------------------------------------------------------------------------
Net earnings per common share - basic $ 1.88 $ 1.19 $ 0.79
=============================================================================
Net earnings per common share -
diluted (Note 6):
Earnings before extraordinary item $ 1.82 $ 1.15 $ 0.88
Extraordinary item - early extinguishment
of debt - - (0.12)
-----------------------------------------------------------------------------
Net earnings per common share - diluted $ 1.82 $ 1.15 $ 0.76
=============================================================================
See accompanying notes to consolidated financial statements.
/TABLE
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31,
---------------------------------------
1998 1997 1996
------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 97,938 $ 67,053 $ 46,805
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Net loss on early extinguishment of debt - - 7,417
Depreciation of property, plant and
equipment 43,409 43,935 42,022
Amortization of intangible and other assets 12,060 12,060 12,060
Noncash interest expense 2,107 1,297 2,042
Increase in receivables (30,189) (10,558) (7,301)
Increase in inventories (20,336) (5,939) (11,430)
(Increase) decrease in prepaid expenses and
intangible and other assets (3,055) 3,655 13,695
Increase (decrease) in accounts payable,
accrued interest expense and other accrued
expenses 29,704 (7,405) 33,710
Increase (decrease) in net deferred tax
liabilities 2,624 (8,056) (7,972)
Increase (decrease) in other long-term
liabilities (2,956) 7,669 (15,628)
------------------------------------------------------------------------------
Net cash provided by operating activities 131,306 103,711 115,420
------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the disposal of assets 1,233 732 2,766
Additions to property, plant and equipment (44,358) (40,004) (40,344)
------------------------------------------------------------------------------
Net cash used by investing activities (43,125) (39,272) (37,578)
------------------------------------------------------------------------------
Cash flows from financing activities:
Payments for debt issuance costs (1,684) (3,342) (4,467)
Additions to long-term debt 218,000 220,000 380,000
Payments of long-term debt (295,800) (124,800) (530,279)
Proceeds from the sale of common stock - - 81,292
Proceeds from the issuance of common stock 3,192 10,734 9,290
Payment for the repurchase and retirement
of common stock - (168,056) -
Purchase of treasury stock (10,943) - -
Payments for the repurchase of common
stock warrants - (5,187) (19,961)
Payments for common stock offering expenses
of selling shareholders - (879) (764)
------------------------------------------------------------------------------
Net cash used by financing activities (87,235) (71,530) (84,889)
------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 946 (7,091) (7,047)
Cash and cash equivalents at beginning of
period 12,274 19,365 26,412
------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,220 $ 12,274 $ 19,365
==============================================================================
Supplemental Disclosure:
Cash payments for income taxes, net $ 49,889 $ 40,639 $ 33,126
==============================================================================
Cash payments for interest $ 42,974 $ 40,707 $ 37,960
==============================================================================
See accompanying notes to consolidated financial statements.
/TABLE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------------
(Dollars in thousands) Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
---------------------------------------------------------------------------------
Balance December 31, 1995 $50,120 $218,156 $ 32,880 $ - $301,156
Net earnings 46,805 46,805
Common stock activity:
Sale of common stock
- 10,000,000 shares 10,000 71,292 81,292
Stock option grants and
exercises (Note 6) 85 2,309 2,394
Warrant exercises - 1,227,052
shares 1,227 7,522 8,749
Warrant purchases - 3,578,399
shares (19,961) (19,961)
Common stock offering expenses of
selling shareholders (764) (764)
Foreign currency translations (14) (14)
---------------------------------------------------------------------------------
Balance December 31, 1996 61,432 278,554 79,671 - 419,657
Net earnings 67,053 67,053
Common stock activity:
Repurchase of common stock
- 10,842,299 shares (10,842) (157,214) (168,056)
Stock option exercises (Note 6) 174 1,302 1,476
Warrant exercises - 1,298,498
shares 1,298 7,960 9,258
Warrant purchases - 650,071
shares (5,187) (5,187)
Retirement of common stock
- 58,824 shares (59) 59 -
Common stock offering expenses
of selling shareholders (879) (879)
---------------------------------------------------------------------------------
Balance December 31, 1997 52,003 124,595 146,724 - 323,322
Net earnings 97,938 97,938
Common stock activity:
Stock option exercises (Note 6) 274 2,918 3,192
Purchase of treasury stock
- 525,000 shares (10,943) (10,943)
---------------------------------------------------------------------------------
Balance December 31, 1998 $52,277 $127,513 $244,662 $(10,943) $413,509
=================================================================================
See accompanying notes to consolidated financial statements.
/TABLE
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 the largest home furniture manufacturer in the United States.
During the year ended December 31, 1998, the Company had three primary
operating subsidiaries: Broyhill Furniture Industries, Inc.; Lane Furniture
Industries, Inc.; and Thomasville Furniture Industries, Inc.
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 section. 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 generally
accepted accounting principles 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 could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all 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 1998, 1997 and
1996 were 52-week, 53-week and 52-week years, respectively.
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
The excess of cost over net assets acquired in connection with the
acquisition of Thomasville totaled $93,110. This intangible asset is being
amortized on a straight-line basis over a 40-year period.
The Company emerged from Chapter 11 reorganization effective with the
beginning of business on August 3, 1992. In accordance with generally
accepted accounting principles, the Company was required to adopt "fresh-
start" reporting which included adjusting all assets and liabilities to
their fair values as of the effective date. The ongoing impact of the
adoption of fresh-start reporting is reflected in the financial statements
for all years presented.
As a result of adopting fresh-start reporting, the Company recorded
reorganization value in excess of amounts allocable to identifiable assets
of approximately $146,000. This intangible asset is being amortized on a
straight-line basis over a 20-year period.
Also in connection with the adoption of fresh-start reporting, the
Company recorded approximately $156,800 in fair value of trademarks and
trade names based upon an independent appraisal. Such trademarks and trade
names are being amortized on a straight-line basis over a 40-year period.
Long-lived assets are reviewed for impairment 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.
Interest rate swap agreements used by the Company to fix the interest
rate on a portion of its floating rate long-term debt are accounted for on
the accrual basis. Amounts to be paid or received under the interest rate
swap agreements are recognized in income as adjustments to interest
expense. The book value of the interest rate swap agreements at December
31, 1998 exceeded the fair value by approximately $5.5 million. The fair
value of the interest rate swap agreements is based upon market quotes from
the counterparties.
Revenue Recognition
The Company recognizes revenue when finished goods are shipped with
appropriate provisions for returns and uncollectible accounts.
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 bases. 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 prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
Reclassification
Certain 1997 and 1996 amounts have been reclassified to conform to the
1998 presentation.
3. Inventories
Inventories are summarized as follows:
--------------------------------------------------------------------------
December 31, December 31,
1998 1997
--------------------------------------------------------------------------
Finished products $122,993 $118,385
Work-in-process 57,915 53,536
Raw materials 126,474 115,125
--------------------------------------------------------------------------
$307,382 $287,046
==========================================================================
4. Intangible Assets
Intangible assets include the following:
--------------------------------------------------------------------------
December 31, December 31,
1998 1997
--------------------------------------------------------------------------
Intangible assets, at cost:
Reorganization value in excess of amounts
allocable to identifiable assets $146,063 $146,063
Trademarks and trade names 156,828 156,828
Excess of cost over net assets acquired 93,110 93,110
--------------------------------------------------------------------------
396,001 396,001
Less accumulated amortization 79,003 65,452
---------------------------------------------------------------------------
$316,998 $330,549
===========================================================================
5. Long-Term Debt
Long-term debt consists of the following:
--------------------------------------------------------------------------
December 31, December 31,
1998 1997
--------------------------------------------------------------------------
Secured credit agreement:
Revolving credit facility $370,000 $235,000
Term loan facility 200,000 200,000
Receivables securitization facility - 220,000
Other 19,200 12,800
--------------------------------------------------------------------------
$589,200 $667,800
==========================================================================
The following discussion summarizes certain provisions of the long-
term debt.
Secured Credit Agreement
The Secured Credit Agreement consists of a revolving credit facility
and a term loan facility. The revolving credit facility is a five-year
facility with an initial commitment of $475,000. On July 14, 1998, the
Company terminated its Receivable Securitization Facility. On this date
the Company also amended its Secured Credit Agreement to increase the
revolving credit facility commitment to $600,000 from $475,000 and to
eliminate the interim commitment reduction dates. The revolving credit
facility allows for issuance of letters of credit and cash borrowings.
Letter of credit outstandings are limited to no more than $60,000, with
cash borrowings limited only by the facility's maximum availability less
letters of credit outstanding.
Under the letter of credit facility, a fee of 0.875% per annum
(subject to reduction based upon the Company achieving certain leverage
ratios) 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 London Interbank Offered Rate (LIBOR) plus an applicable
margin which varies, depending upon the type of loan the Company executes.
The applicable margin over the base rate and LIBOR is subject to
adjustment based upon achieving certain leverage ratios. At December 31,
1998, all loans outstanding under the revolving credit facility were based
on the LIBOR rate, for a weighted average interest rate of 5.85%.
At December 31, 1998, there were $370,000 of cash borrowings and
$40,970 in letters of credit outstanding under the revolving credit
facility, leaving an excess of $189,030 available under the facility.
The revolving credit facility has no mandatory principal payments;
however, the commitment matures on September 15, 2001. In addition, the
facility requires principal payments from a portion of the net proceeds
realized from (i) the sale, conveyance or other disposition of collateral
securing the debt, or (ii) the sale by the Company for its own account of
additional subordinated debt and/or shares of its preferred and/or common
stock.
On June 27, 1997, the Company amended the Secured Credit Agreement to
include a new term loan facility of $200,000. The term loan facility is a
non-amortizing ten-year facility, bearing interest at a base rate plus
0.75% or at LIBOR rate plus 1.75%, depending upon the type of loan the
Company executes. At December 31, 1998, all loans outstanding under the
term loan facility were based on the LIBOR rate for an interest rate of
6.75%.
The common stock of the Company's principal subsidiaries and
substantially all of the Company's assets have been pledged or mortgaged
as security for the Secured Credit Agreement. (Due to achieving certain
leverage ratio requirements as of December 31, 1998, the mortgages on the
Company's property, plant and equipment have been released.) The Secured
Credit Agreement defines events of default and contains a number of
restrictive covenants , including covenants limiting capital expenditures
and incurrence of debt, and requires the Company to achieve certain
financial ratios, some of which become more restrictive over time.
Other
Other long-term debt consists of various industrial revenue bonds
with interest rates ranging from approximately 4.0% to 9.0%. Mandatory
principal payments are required through 2004.
Interest Rate Swap Agreements
The Company has entered into various interest rate swap agreements to
reduce the impact of changes in interest rates on its floating rate long-
term debt. The following table summarizes the terms of the interest rate
swap agreements in effect during 1998.
Notional Amount Maturity Date Fixed Rate Floating Rate
--------------------------------------------------------------------------
$100,000 February 1999 5.14% 3-month LIBOR
$200,000 February 1999 5.14% 3-month LIBOR
$300,000 January 2002 5.50% 3-month LIBOR
The swap agreements effectively convert the Company's floating rate
long-term debt to a fixed rate. The Company pays the counterparties the
fixed rate and receives payments based upon the floating rate. The
Company is exposed to credit loss in the event of nonperformance by the
counterparties; however, nonperformance is not anticipated.
Other Information
Maturities of long-term debt are $0, $0, $370,000, $0 and $0 for
years 1999 through 2003, respectively.
6. Common Stock
The Company's restated certificate of incorporation includes
authorization to issue up to 100.0 million shares of common stock with a
$1.00 per share stated value. As of December 31, 1998, 52,277,066 shares
of common stock were issued and outstanding. It is not presently
anticipated that dividends will be paid on common stock in the foreseeable
future and certain of the debt instruments to which the Company is a party
restrict the payment of dividends.
In October 1998, the Board of Directors authorized the repurchase of
up to $30,000 of the Company's common stock over the next twelve months.
As of December 31, 1998, the Company has repurchased 525,000 shares for
$10,943.
Shares of common stock were reserved for the following purposes at
December 31, 1998:
-------------------------------------------------------------------------
Number
of Shares
-------------------------------------------------------------------------
Common stock options:
Granted 4,018,581
Available for grant 830,609
-------------------------------------------------------------------------
4,849,190
=========================================================================
Under the Company's 1992 Stock Option Plan, certain key employees may
be granted nonqualified options, incentive options or combinations
thereof. Nonqualified and incentive options may be granted to expire up
to ten years after the date of grant. Options granted become exercisable
at varying dates depending upon the passage of certain time periods.
The 1992 Stock Option Plan authorizes grants of options to purchase
common shares at less than fair market value on the date of grant.
During 1996, option grants totaling 217,978 common shares were made by
the Company at less than market value. These options were issued to
Thomasville employees as compensation for forfeited deferred compensation
plans due to the acquisition; therefore, the cost of issuing the options
at less than market value was included in determining the excess of cost
over net assets acquired.
Changes in options granted and outstanding are summarized as follows:
------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------
1998 1997 1996
------------------ ---------------- --------------
Average Average Average
Shares Price Shares Price Shares Price
------------------------------------------------------------------------
Beginning of
period 3,897,930 $ 7.48 3,859,476 $ 6.63 2,498,000 $4.75
Granted 436,500 23.02 292,500 16.36 1,620,926 9.14
Exercised (273,546) 4.81 (173,964) 3.93 (85,050) 3.99
Cancelled (42,303) 5.56 (80,082) 6.62 (174,400) 4.29
------------------------------------------------------------------------
End of period 4,018,581 $ 9.37 3,897,930 $ 7.48 3,859,476 $6.63
========================================================================
Exercisable at
end of period 2,261,639 1,979,287 1,473,600
========================================================================
Weighted average
fair value of
options granted $11.04 $ 7.54 $4.79
========================================================================
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,
---------------------------------------------
1998 1997 1996
------------------------------------------------------------------------
Net earnings
As reported $97,938 $67,053 $46,805
Pro forma 96,180 65,907 46,112
Net earnings per share - basic
As reported $ 1.88 $ 1.19 $ 0.79
Pro forma 1.85 1.17 0.78
Net earnings per share - diluted
As reported $ 1.82 $ 1.15 $ 0.76
Pro forma 1.80 1.13 0.75
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
5.50%, 6.00% and 6.00% in 1998, 1997 and 1996, respectively; expected
dividend yield of 0% for all years; expected life of 7 years for all
years and expected volatility of 35%, 30% and 31% for 1998, 1997 and
1996, respectively.
Summarized information regarding stock options outstanding and
exercisable at December 31, 1998 follows:
------------------------------------------------------------------------------
Outstanding Exercisable
---------------------------------- ----------------------
Range of Average Average Average
Exercise Prices Shares Contractual Life Price Shares Price
-----------------------------------------------------------------------------
Up to $10 2,584,581 4.4 $ 5.63 1,921,139 $ 5.10
$10 - $20 1,042,500 6.9 12.72 329,500 12.26
Over $20 391,500 8.1 25.17 11,000 21.00
-----------------------------------------------------------------------------
4,018,581 5.4 $ 9.37 2,261,639 $ 6.22
=============================================================================
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires a reconciliation of the
numerator anddenominator of the net earnings per common share
calculations for all periods presented. The numerator for basic and
diluted net earnings per common share is net earnings for all periods
presented. The denominator for basic and diluted net earnings per
common share for 1998, 1997 and 1996 follows:
--------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------
Weighted average shares used for
basic net earnings per common share 52,095,451 56,438,465 59,172,153
Effect of dilutive securities:
Stock options 1,713,515 1,447,624 1,052,852
Warrants - 587,105 1,721,448
--------------------------------------------------------------------------
Weighted average shares used for
diluted net earnings per common share 53,808,966 58,473,194 61,946,453
==========================================================================
At December 31, 1996, the Company had outstanding approximately 2.0
million warrants to purchase common stock at $7.13 per share. The
warrants, which included a five-year call protection which expired on
August 3, 1997, were redeemed on August 15, 1997.
7. Income Taxes
Income tax expense was comprised of the following:
---------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------
1998 1997 1996
---------------------------------------------------------------------------
Current:
Federal $46,257 $43,680 $40,870
State and local 5,324 4,577 4,014
---------------------------------------------------------------------------
51,581 48,257 44,884
Deferred 2,624 (8,056) (10,814)
---------------------------------------------------------------------------
$54,205 $40,201 $34,070
===========================================================================
The following table reconciles the differences between the federal
corporate statutory rate and the Company's effective income tax rate:
--------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal tax benefit 1.8 2.3 2.3
Amortization of excess reorganization value 1.7 2.4 2.9
Other (2.9) (2.2) (1.6)
--------------------------------------------------------------------------
Effective income tax rate 35.6% 37.5% 38.6%
==========================================================================
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,
1998 1997
--------------------------------------------------------------------------
Deferred tax assets:
Expense accruals $ 20,296 $ 18,855
Valuation reserves 6,737 8,190
Employee postretirement benefits other
than pensions 3,134 3,648
Inventory costs capitalized 3,429 3,367
Employee pension plans 2,139 1,109
Other 1,648 2,208
--------------------------------------------------------------------------
Total gross deferred tax assets 37,383 37,377
Valuation allowance - -
--------------------------------------------------------------------------
Total net deferred tax assets 37,383 37,377
Deferred tax liabilities:
Fair value adjustments (73,867) (76,558)
Depreciation (7,924) (5,535)
Fair market value adjustments (7,421) (4,631)
Other (10,327) (10,185)
--------------------------------------------------------------------------
Total deferred tax liabilities (99,539) (96,909)
--------------------------------------------------------------------------
Net deferred tax liabilities $(62,156) $(59,532)
==========================================================================
The net deferred tax liabilities are included in the consolidated
balance sheet as follows:
December 31, December 31,
1998 1997
-----------------------------------------------------------------------
Prepaid expenses and other current assets $ 24,914 $ 19,214
Other long-term liabilities (87,070) (78,746)
-----------------------------------------------------------------------
$(62,156) $(59,532)
=======================================================================
8. Employee Benefits
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 1998, 1997
and 1996 was $7,773, $8,412 and $9,450, 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,
1998 1997
---------------------------------------------------------------------------
Change in projected benefit obligation:
Projected benefit obligation - beginning of year $273,487 $262,667
Service cost 7,419 7,120
Interest cost 19,856 19,026
Actuarial gain 168 57
Benefits paid (16,432) (15,383)
---------------------------------------------------------------------------
Projected benefit obligation - end of year $284,498 $273,487
---------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets - beginning of year $306,797 $279,054
Actual return on plan assets 41,591 42,531
Employer contributions 585 595
Benefits paid (16,432) (15,383)
--------------------------------------------------------------------------
Fair value of plan assets - end of year $332,541 $306,797
--------------------------------------------------------------------------
Funded status $ 48,043 $ 33,310
Unrecognized net gain (49,236) (33,558)
Unrecognized prior service cost 975 978
--------------------------------------------------------------------------
Prepaid (accrued) pension cost $ (218) $ 730
==========================================================================
Net periodic pension cost for 1998, 1997 and 1996 included the
following components:
--------------------------------------------------------------------------
Year Ended December 31,
------------------------
1998 1997 1996
--------------------------------------------------------------------------
Service cost-benefits earned during the period $ 7,419 $ 7,120 $ 6,792
Interest cost on the projected benefit obligation 19,856 19,026 18,102
Expected return on plan assets (25,464) (23,115) (20,886)
Net amortization and deferral (224) 212 246
--------------------------------------------------------------------------
Net periodic pension cost $ 1,587 $ 3,243 $ 4,254
==========================================================================
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 8.5% in 1998,
1997 and 1996. 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.
9. Extraordinary Item - Early Extinguishment of Debt
In conjunction with the September 6, 1996 refinancing of the Secured
Credit Agreement, the Company charged to results of operations $7,417,
net of tax benefit of $4,469, representing the deferred financing fees
and expenses pertaining to the refinanced facility. The charge was
recorded as an extraordinary item.
10. Commitments and Contingent Liabilities
Certain of the Company's real properties and equipment are operated
under lease agreements. Rental expense under operating leases totaled
$16,537, $15,699 and $14,758 for 1998, 1997 and 1996, respectively.
Annual minimum payments under operating leases are $12,980, $9,600,
$6,577, $5,352 and $4,111 for 1999 through 2003, respectively.
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.
11. Quarterly Financial Information (Unaudited)
Following is a summary of unaudited quarterly information:
--------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------
Year ended December 31, 1998:
Net sales $497,628 $487,178 $470,146 $505,298
Gross profit 130,996 128,258 125,435 130,823
Net earnings $ 24,669 $ 30,548 $ 21,107 $ 21,614
Net earnings per
common share:
Basic $ 0.48 $ 0.58 $ 0.40 $ 0.41
Diluted $ 0.46 $ 0.57 $ 0.39 $ 0.40
Common stock price
range:
High $ 27 1/4 $ 30 11/16 $ 33 11/16 $ 32 9/16
Low $ 13 1/2 $ 19 1/2 $ 23 1/16 $ 19 9/16
===================================================================================
Year ended December 31, 1997:
Net sales $473,597 $440,666 $444,152 $449,861
Gross profit 116,738 107,803 112,724 113,425
Net earnings $ 18,865 $ 14,614 $ 16,515 $ 17,059
Net earnings per
common share:
Basic $ 0.36 $ 0.28 $ 0.27 $ 0.28
Diluted $ 0.35 $ 0.27 $ 0.26 $ 0.27
Common stock price
range:
High $ 21 1/8$ 21 $ 19 3/8 $ 15 7/8
Low $ 15 7/8$ 17 1/2 $ 14 3/8 $ 13 7/8
=============================================================================
The Company has not paid cash dividends on its common stock during
the three years ended December 31, 1998. The closing market price of
the Company's common stock on December 31, 1998 was $27.25 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 section entitled "Nominees" of the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders on April 29, 1999 is incorporated herein
by reference.
Executive Officers of the Registrant
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Wilbert G. Holliman 61 President of the Subsidiary -
Action Industries, Inc. 1989
Chief Executive Officer of
the Subsidiary - Action
Industries, Inc. 1994
Director X 1996
President X 1996
Chief Executive Officer X 1996
Chairman of the Board X 1998
*Richard B. Loynd 71 Chairman of the Board of the
Former Subsidiary - Converse Inc. 1982
Vice-President 1987
Director X 1987
President 1989
Chief Operating Officer 1989
Chief Executive Officer 1989
Chairman of the Board 1990
Chairman of the Executive
Committee X 1998
John T. Foy 51 President and Chief Executive
Officer of the Subsidiary -
Action Industries, Inc. X 1996
Brent B. Kincaid 67 President and Chief Executive
Officer of the Subsidiary -
Broyhill Furniture Industries,
Inc. 1992
Director X 1997
Christian J. Pfaff 50 President and Chief Executive
Officer of the Subsidiary -
Thomasville Furniture Industries,
Inc. X 1997
Dennis R. Burgette 51 President and Chief Executive
Officer of the Subsidiary -
Broyhill Furniture Industries,
Inc. X 1999
David P. Howard 48 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Treasurer X 1996
Lynn Chipperfield 47 General Counsel X 1993
Vice-President and
Secretary X 1996
Steven W. Alstadt 44 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.
Item 11. Executive Compensation
--------------------------------
The sections entitled "Executive Compensation", "Executive Compensation
and Stock Option Committee Report on Executive Compensation", "Compensation
Committee Interlocks and Insider Participation", "Stock Options", "Retirement
Plans", "Incentive Agreements" and "Performance Graph" of the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on April
29, 1999 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 29, 1999, 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, 1998 and 1997
Consolidated statements of operations for each of the years in the
three-year period ended December 31, 1998
Consolidated statements of cash flows for each of the years in the
three-year period ended December 31, 1998
Consolidated statements of shareholders' equity for each of the years
in the three-year period ended December 31, 1998
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 Quarterly 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 November 17, 1994, as amended and
restated as of December 29, 1995; September 6, 1996; June 27,
1997; and July 14, 1998 among the Company, Broyhill Furniture
Industries, Inc., Lane Furniture Industries, Inc., Thomasville
Furniture Industries, Inc., Various Banks, Credit Lyonnais New
York Branch, as Documentation Agent, Nationsbank, N.A., as
Syndication Agent and Bankers Trust Company, 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, 1998.)
4(b) Agreement to furnish upon request of the Commission copies of
other instruments defining the rights of holders of long-term
debt of the Company and its subsidiaries which debt does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. (Incorporated by reference
to Exhibit 4(c) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended February 28, 1981.)
10(a) Furniture Brands International, Inc.'s 1992 Stock Option Plan,
as amended. (Incorporated by reference to Exhibit 4(c) to
Furniture Brands International, Inc.'s S-8 Registration
Statement, No. 333-39355.)
10(b) Form of Indemnification Agreement between the Company and
Richard B. Loynd, Donald E. Lasater and Lee M. Liberman.
(Incorporated by reference to Exhibit 10(h) to Furniture Brands
International, Inc.'s Annual Report on Form 10-K for the year
ended February 29, 1988.)
10(c) Written description of bonus plan for management personnel of
The Lane Company, Incorporated. (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, 1995.)
10(d) 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(e) 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, 1997.)
10(f) Furniture Brands International, Inc. Executive 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, 1997.)
10(g) Broyhill Furniture Industries, Inc. Executive Incentive Plan.
(Incorporated by reference to Exhibit 10(i) to Furniture Brands
International, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(h) Thomasville Furniture Industries, Inc. Executive Incentive Plan
(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, 1996.)
10(i) 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(j) Employment Agreement, dated as of January 1, 1999, between the
Company and Wilbert G. Holliman.
10(k) 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 Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.)
10(l) 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(m) Employment Agreement, dated as of August 1, 1996, between
Broyhill Furniture Industries, Inc. and Brent B. Kincaid.
(Incorporated by reference to Exhibit 10(e) to Furniture Brands
International Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
10(n) Employment Agreement, dated as of April 30, 1997 between the
Company and Richard B. Loynd. (Incorporated by reference to
Exhibit 10(c) to Furniture Brands International, Inc.'s
Quarterly Report on form 10-Q for the quarter ended March 31,
1997.)
10(o) Employment Agreement, dated as of January 29, 1998, between
Thomasville Furniture Industries, Inc. 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(p) Employment Agreement, dated as of January 1, 1999, between
Broyhill Furniture Industries, Inc. and Dennis R. Burgette.
10(q) Consulting Agreement, dated as of May 15, 1995, and Addendum
thereto, dated January 29, 1998, between Broyhill Furniture
Industries, Inc. and Brent B. Kincaid. (Incorporated by
reference to Exhibit 10(q) to Furniture Brands International,
Inc's Annual Report on Form 10-K for the year ended December
31, 1997.)
10(r) 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.
21 List of Subsidiaries of the Company
23 Consent of KPMG LLP
27 Financial Data Schedule
99(a) Distribution and Services Agreement, dated November 17, 1994,
between the Company and Converse Inc. (Incorporated by reference
to Exhibit 99(a) to Furniture Brands International, Inc.'s
Annual Report on Form 8-K, dated December 2, 1994.)
99(b) Tax Sharing Agreement, dated November 17, 1994, between the
Company and Converse Inc. (Incorporated by reference to
Exhibit 99(b) to Furniture Brands International, Inc.'s Annual
Report on Form 8-K, dated December 2, 1994.)
99(c) Distribution and Services Agreement, dated November 17, 1994,
among the Company, The Florsheim Shoe Company and certain of
its subsidiaries. (Incorporated by reference to Exhibit 99(c) to
Furniture Brands International, Inc.'s Annual Report on Form
8-K, dated December 2, 1994.)
99(d) INTERCO/Florsheim Tax Sharing Agreement, dated November 17,
1994, among the Company, The Florsheim Shoe Company and certain
of its subsidiaries. (Incorporated by reference to Exhibit
99(d) to Furniture Brands International, Inc.'s Annual Report
on Form 8-K, dated December 2, 1994.)
99(e) Amendment to Tax Sharing agreement, dated as of February 21,
1996, between the Company and Converse Inc. (Incorporated by
reference to Exhibit 99(e) to Furniture Brands International,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1996.)
(b) Reports on Form 8-K.
A Form 8-K was not required to be filed during the quarter ended
December 31, 1998.
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 Schedule
Page
No.
------
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997 18
Consolidated Statements of Operations for each of the years in
the three year period ended December 31, 1998 19
Consolidated Statements of Cash Flows for each of the years
in the three year period ended December 31, 1998 20
Consolidated Statements of Shareholders' Equity for each of
the years in the three-year period ended December 31, 1998 21
Notes to Consolidated Financial Statements 22
Financial Statement Schedule 38
Independent Auditors' Report 40
Consolidated Financial Statement Schedules:
Schedule
--------
Valuation and qualifying accounts II 39
Schedule II
----------
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in Thousands)
--------------------------------------------------------------------------------
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and from Acquired End of
Description of Period Expenses Reserves Company Period
----------- --------- ----------- ---------- ---------- ----------
Year Ended December 31, 1998
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $11,765 $ 5,054 $ (1,526)(a) $ - $15,293
Allowance for cash discounts/
chargebacks 2,028 1,555 (543)(b) - 3,040
------- ------- -------- -------- --------
$13,793 $ 6,609 $ (2,069) $ - $18,333
======= ======= ======== ======== ========
Year Ended December 31, 1997
----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $17,054 $ 5,098 $(10,387)(a) $ - $11,765
Allowance for cash discounts/
chargebacks 2,070 754 (796)(b) - 2,028
------- ------- --------- -------- --------
$19,124 $ 5,852 $(11,183) $ - $13,793
======= ======= ========= ======== ========
Year Ended December 31, 1996
-----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $17,961 $ 6,179 $(10,436)(a) $ 3,350 (c) $17,054
Allowance for cash discounts/
chargebacks 2,763 689 (1,382)(b) - 2,070
------- ------- -------- -------- --------
$20,724 $ 6,868 $(11,818) $ 3,350 $19,124
======= ======= ======== ======== =======
(a) Uncollectible accounts written off, net of recoveries.
(b) Cash discounts taken by customers and claims allowed to customers.
(c) Subsequent purchase accounting adjustment for acquired company.
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, 1998 and 1997,
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, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Furniture
Brands International, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG LLP
St. Louis, Missouri
January 29, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Furniture Brands International, Inc.
(Registrant)
By /s/ Wilbert G. Holliman
----------------------------------
Wilbert G. Holliman
Chairman of the Board,
President and Chief
Executive Officer
Date: March 29, 1999
Pursuant to the requirement 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 29, 1999.
Signature Title
--------- -----
/s/Wilbert G. Holliman President and Director
(Wilbert G. Holliman) (Principal Executive Officer)
/s/ Katherine Button Bell Director
(Katherine Button Bell)
/s/ Bruce A. Karsh Director
(Bruce A. Karsh)
/s/ Brent B. Kincaid Director
(Brent B. Kincaid)
/s/ Donald E. Lasater Director
(Donald E. Lasater)
/s/ Lee M. Liberman Director
(Lee M. Liberman)
/s/ Richard B. Loynd Director
(Richard B. Loynd)
/s/ Malcolm Portera Director
(Malcolm Portera)
/s/ Albert E. Suter Director
(Albert E. Suter)
/s/ David P. Howard Vice-President and Treasurer
(David P. Howard) (Principal Financial
Officer)
/s/ Steven W. Alstadt Controller
(Steven W. Alstadt) (Principal Accounting
Officer)