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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year
ended December 31,1999
[] TRANSACTION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from to
Commission file number 0-25246
WINSLOEW FURNITURE, INC.
(Exact name of registrant as specified in its charter)
Florida (State or other jurisdiction of incorporation or
organization)
63-1127982(I.R.S. Employer Identification No.)
160 Village Street,
Birmingham, Alabama (Address of principal executive offices)
35242 (Zip Code)
(Registrant's telephone number, including area code)
(205) 408-7600
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g) of
the Act: None
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such
shorter period that the registrant was required to
file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements
incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
The number of shares of Common Stock, $.01 par
value per share, of the registrant outstanding as of
March 1, 2000, was 780,000.
INDEX TO ITEMS
Page
PART I
ITEM 1. Business 3
ITEM 2. Properties 13
ITEM 3. Legal Proceedings 14
ITEM 4. Submission of Matters to a Vote of Security
Holders 15
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 16
ITEM 6. Selected Financial Data 17
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 24
ITEM 8. Financial Statements and Supplementary Data 25
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 46
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 47
ITEM 11. Executive Compensation 49
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 53
ITEM 13. Certain Relationships and Related Transactions 54
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 57
Signatures 60
PART I
ITEM 1. BUSINESS
GENERAL
We are a leading designer, manufacturer and distributor of a
broad offering of casual indoor and outdoor furniture and
seating products. We also manufacture certain ready-to-assemble
furniture products. Our casual furniture includes chairs, chaise
lounges, tables, umbrellas and related accessories, which are
generally constructed from aluminum, wrought iron, wood or
fiberglass. Our seating products include wood, metal and
upholstered chairs, sofas and loveseats, which are offered in a
wide variety of finish and fabric options. All of our casual
furniture and seating products are manufactured pursuant to
customer orders. We sell our furniture products to the
residential market and to the contract market, consisting of
commercial and institutional users.
Business
We market our casual furniture products to the residential
market under the Winston and Pompeii brand names through
approximately 25 independent sales representatives to over 800
active customers, which are primarily specialty patio furniture
stores located throughout the United States. In addition, we
market a broad line of casual furniture products in the contract
markets under the Texacraft, Tropic Craft and Pompeii brand
names, primarily through our in-house sales force, to lodging
and restaurant chains, country clubs, apartment developers and
property management firms, architectural design firms,
municipalities and other commercial and institutional users.
We market our seating products to a broad customer base in the
contract market under the Loewensteinr brand name (through
approximately 40 independent sales organizations, which employ
approximately 120 sales representatives). Our customers include
lodging and restaurant chains, architectural design firms,
professional sports complexes, schools, healthcare facilities,
office furniture dealers, retail store planners and other
commercial and institutional users in the contract market. We
manufacture over 300 distinct models of seating products ranging
from traditional to contemporary styles of chairs, as well as
reception area love seats, sofas and stools. We design, assemble
and finish our seating products with component parts from a
variety of suppliers, including a number of Italian
manufacturers.
Over the past several years, we have undertaken a number of
initiatives to strengthen and grow our core casual furniture and
seating businesses. We have focused resources on our core
business and disposed of non-core or unprofitable operations. In
1997, we sold our wrought iron furniture business, and in 1998
we discontinued and sold or liquidated certain of our ready-to-
assemble furniture operations. We also embarked on a focused
acquisition program to broaden our core product offering that,
to date, has resulted in the acquisitions of Tropic Craft, a
manufacturer of casual furniture sold into the contract markets,
and Pompeii, a manufacturer of upper-end casual furniture sold
into both the residential and contract markets. We have also
implemented a strategic operating plan to enhance operating
efficiencies and controls and improve our market position.
We were incorporated in the state of Florida on September 23,
1994. Our principal executive offices are located at 160 Village
Street, Birmingham, Alabama 35242, and our telephone number is
(205) 408-7600.
History
We were formed in December 1994 through the merger of
Winston Furniture Company, Inc., a designer, manufacturer and
distributor of casual furniture for both the residential and
contract markets, and Loewenstein Furniture Group, Inc., a
manufacturer of seating products for the contract markets and of
ready-to-assemble furniture products, with and into WinsLoew
Furniture, Inc., a newly-formed corporation that was organized
for the purpose of the merger. Prior to that merger, Winston and
Loewenstein were publicly held corporations whose common stock
traded on the Nasdaq National Market. From December 1994 through
August 1999, we were a publicly held corporation, and our common
stock traded on the Nasdaq National Market.
During the fourth quarter of 1995, we disposed of the
assets of our office seating business. During the third quarter
of 1997, we disposed of certain assets of our wrought iron
furniture manufacturing business in the casual furniture product
line. During 1997, we adopted a plan to dispose of our three
ready-to-assemble furniture businesses and recorded a pretax
non-cash charge totaling $12.4 million in the fourth quarter of
1997 relating to the disposal of our ready-to-assemble
operations. During 1998, we sold one of the businesses,
completed the liquidation of a second, our futon business, and
decided to retain the third ready-to-assemble business, Southern
Wood, due to improved profitability and, accordingly, have
reclassified our Southern Wood results to continuing operations.
During the third quarter of 1998, we acquired the stock of
Tropic Craft, a manufacturer of aluminum casual outdoor
furniture sold into contract markets.
Recent Developments
Purchase of Pompeii. In July 1999, we acquired all of the
stock of Pompeii, a manufacturer of upper-end aluminum casual
furniture sold into the contract and residential markets, for
$18.2 million in cash. Pompeii provides us with a leading brand
in the upper end of the casual furniture market and a
significant opportunity to achieve operating efficiencies. For
the year ended December 31, 1998, Pompeii had net revenues of
approximately $14.5 million and income from operations of
approximately $2.8 million. We funded the Pompeii acquisition
with available cash on hand and expect to fund the integration
costs with working capital. We accounted for the acquisition
under the purchase method and, accordingly, the operating
results of Pompeii have been included in our historical
consolidated operating results only since the date of the
acquisition.
Going Private Transaction.
On August 27, 1999, Trivest Furniture Corporation, an
affiliate of Trivest, merged with and
into us, and we were the surviving corporation. Trivest
Furniture Corporation was a newly formed Florida corporation
organized by an investor group led by Trivest, including two
private investment partnerships affiliated with Trivest and
members of our senior management, for the purpose of acquiring
WinsLoew. Trivest is a private investment firm specializing in
acquisitions, recapitalizations and other principal investing
activities and is controlled by Earl W. Powell, our Chairman of
the Board. As a result of the merger, each holder of outstanding
WinsLoew common stock, other than Trivest Furniture Corporation,
received $34.75 per share in cash, without interest, and the
holder of each outstanding option received a cash payment equal
to the difference between $34.75 and the exercise price of the
option. The cash merger consideration, option cancellation
payments and related fees and expenses, which totaled
approximately $282.6 million, were provided by the following
sources:
Approximately $66.2 million in cash equity contributions to
Trivest Furniture Corporation from its shareholders, which
consisted of two private investment partnerships affiliated
with Trivest, individuals affiliated with Trivest, members
of our senior management team and other employees and
investors;
Approximately $11.8 million in direct and indirect rollover
equity contributions valued at $34.75 per share to Trivest
Furniture Corporation from certain of our shareholders,
including members of our senior management team and other
employees;
Aggregate borrowings of $95.0 million of term loans under
our $155.0 million senior credit facility;
The proceeds from the sale of units consisting of the
original notes and warrants of approximately $102.5
million; and
Available cash on hand of approximately $7.1 million.
The equity contributions, the senior credit facility and the
net proceeds of the offering of the units closed
contemporaneously with the closing of the merger and were
conditioned on the completion of each other.
COMPETITIVE STRENGTHS
We believe that we have achieved our leading market position
by capitalizing on the following key competitive strengths.
Reputation for Producing High Quality Products. Our
reputation for providing customers with high quality products is
built upon our use of superior structural designs, aesthetic
styling, sophisticated manufacturing techniques and strict
quality control standards. Our dedication to quality begins with
a customer-oriented design process that is based upon
independent market research and the involvement of senior
management, independent designers, sales representatives,
dealers, our engineering department and suppliers. We also
employ a number of sophisticated manufacturing processes that
increase the quality of our products and differentiate them from
those of our competitors. For example, we use an
electrostatically applied ultraviolet cured wood finishing
system that produces one of the most consistent, durable and
vibrant finishes in the industry. Further, to ensure that only
the highest quality products are shipped to our customers, we
have established numerous check points where the quality of all
of the products is examined during the manufacturing process.
Our focus on quality is evidenced by our low level of actual
warranty claims. Our reputation for producing high quality
products is further evidenced by our receipt of the Casual
Furniture Retailer Association's prestigious "Manufacturer's
Leadership Award" three times and being recognized as a finalist
every year since the award was first given in 1990. The criteria
for this award include quality, design, merchandising, customer
service and ethics.
Unique Delivery Capabilities. We have tailored our operations
to meet the unique delivery requirements of our customers. On
time delivery is critical to our casual furniture retailers
because of their short selling season, general desire to
minimize inventory levels and need to offer their customers
products that will be available at the time of or soon after
their purchase. Our commitment to timely delivery to these
retailers is exemplified by our "Quick Ship" program under which
we, rather than the customer, pay the freight charges if
shipment is not made within 15 working days from credit approval
of a customer's order. Since we introduced this program in 1988,
we have never had to pay freight charges. Our ability to deliver
"in time, on time" is also important to our contract market
customers, who must receive our casual furniture or seating
products on a timely basis to meet their own construction or
operating deadlines. We believe that our "Quick Ship" program
and our ability to deliver our products "in time, on time" are
unique in the furniture manufacturing industry and distinguish
us from our competitors.
Continual Focus on Customer Service. We are dedicated to
providing the highest level of customer service through our
focus on complete customer satisfaction. We provide a variety of
services, which are geared towards assisting our customers to
improve the profitability of their business while strengthening
their loyalty to our products. For example, in our casual
furniture segment, we provide retailers with improved terms and
extended payment plans for products ordered prior to the main
selling season that ensures them product availability and
slightly lower costs. We also respond to customers' urgent
orders with our "red flag" service that gives such products
priority in our plants throughout the manufacturing process.
Moreover, in the event a customer requests a replacement part
that does not need to be manufactured; we guarantee delivery
within 24 hours of our receipt of the order. This level of
customer service is equally important to our seating customers.
Since our seating customers require unique product features, we
work closely with them to provide customized seating products
that meet their particular needs. We offer these customized
products quickly and cost effectively through our flexible
manufacturing processes and trained sales staff knowledgeable in
the design, manufacture, variety and decor applications of our
products. We also have a customer service department at each
manufacturing plant to respond directly to customer inquiries.
Efficient Operations and Variable Cost Structure. We
continually review our operations to identify ways to streamline
our manufacturing process and reduce our costs in order to
further increase efficiencies and profitability. Over the past
few years, we have:
improved our manufacturing capabilities through the use of
technologically advanced systems,
optimized our use of vertical integration and outsourcing,
as appropriate,
exited lower margin or non-core businesses, and
extensively reconfigured manufacturing processes within our
principal manufacturing facilities.
We operate our business with a highly variable cost structure
so we can react quickly to significant changes in market
conditions. Our manufacturing and other operations can be
rapidly adjusted, as appropriate, to reduce labor, raw
materials, general administrative and other costs. These
variable costs represent the majority of our total operating
expenses. Historically, our variable cost structure, combined
with our flexible manufacturing capabilities, has allowed us to
maintain our profit margins during periods of market weakness.
Experienced Management Team with Significant Ownership.
Our experienced and dedicated management team has been instrumental
in our success and represents one of our key competitive
advantages. Each member of our senior management team has worked
with us for over 10 years and has extensive experience in the
furniture manufacturing industry. Bobby Tesney, our President
and Chief Executive Officer, leads our management team and has
over 20 years of industry experience. We also benefit from the
experience and expertise of Trivest, a private investment firm
specializing in acquisitions, recapitalizations and other
principal investing activities, which has been an investor in
WinsLoew and its predecessors since 1985. Trivest provides
strategic consulting, acquisition and other advice to us. Earl
Powell, president and chief executive officer of Trivest, has
served as Chairman of the Board of WinsLoew and its predecessors
for over 10 years.
BUSINESS STRATEGY
Our strategic objective is to further enhance our leading
market position in the residential and contract furniture
markets. We plan on achieving this objective through the
continued implementation of the following strategies:
Increase Penetration of Existing Customers. We are constantly
working on ways to increase our sales to our existing customer
base. We believe that we can increase our penetration of
existing customers by continuing to emphasize high quality
products, timely delivery and customer service together with
innovatively styled new product designs. For example, through
these focused efforts our specialty retail customers are
dedicating increased retail floor space to our casual furniture
products, which generates increased sales for our products.
Similarly, we began selling seating products to a single
Marriott lodging chain in the early 1990's, and today, due to
our consistently superior performance, we are a preferred
provider of seating products to Marriott and several of its
affiliated lodging chains.
Attract New Customers. We have undertaken a number of
programs to expand our customer base in existing and new
markets. Examples of these efforts include the use of specific
market focused sales personnel, private labeling and the
targeting of national specialty stores. In our seating business,
we are in the process of establishing dedicated sales groups to
focus on attractive specialty end markets. We established our
first such group to focus exclusively on selling seating
products in the lodging industry. As a result of this effort, we
have entered into an agreement with another national lodging
chain to be a preferred supplier for its seating products.
Through our private labeling program, we are seeking to take
advantage of the trend towards outsourcing by selling our
seating products to several nationally recognized designers of
office furniture systems who in turn sell our products under
their own brand name. In the residential market, we are
targeting national specialty stores that offer home design
products, including casual furniture. The penetration of these
national specialty retailers allows us to take advantage of new,
expanding distribution channels and capitalize on the
significant marketing clout of these retailers without
significantly increasing our selling and marketing expenses or
cannibalizing our existing customer base.
Selectively Introduce New Products. We annually update and
expand our product line with new designs and styles, as well as
periodically introduce complementary products. Each year we
undergo a design process that results in the introduction of
newly designed products that make up a meaningful portion of our
product offering. Our design process involves personnel from all
areas of the Company including senior management, manufacturing
and sales, as well as our distributors and sales representatives
in an effort to design new furniture styles that are attractive
and innovative while cost effective to manufacture and have a
higher likelihood of success. We also periodically add new
products that complement our existing product offering. For
example, we recently expanded our product line to include tables
for lobbies and other common areas in the hospitality industry.
Selectively Pursue Complementary Acquisitions. We continually
review acquisition opportunities that augment or complement our
existing operations or provide entry into new geographic
markets. We also seek to improve the efficiency of our recent
acquisitions by reducing overhead, leveraging sales and
distribution, achieving raw material purchasing savings and
improving manufacturing operations. Tropic Craft for example,
which was acquired in 1998, provided us with an increased
presence in the contract market for casual furniture. Pompeii,
which we acquired on July 30, 1999, provides us with a leading
brand in the upper end of the casual furniture market and a
significant opportunity to achieve operating efficiencies.
PRODUCTS AND MARKETS
We design, manufacture and distribute three principal product
lines: casual furniture designed for residential, commercial and
institutional use; seating products designed for commercial and
institutional use; and ready-to-assemble furniture designed for
household use. For the year ending December 31,1999, our casual,
seating and ready-to-assemble furniture products accounted for
46.0%, 44.6% and 9.4%, respectively, of our net sales. The
following is a summary of our principal products, customers and
markets:
Brand Principal Products Principal Customers
and Markets
Winston Casual outdoor furniture, Over 800 active customers,
including chairs, chaise consisting of specialty
lounges,tables,umbrellas patio stores,full-line
and related accessories, furniture retailers and
constructed of extruded department stores in the
and tubular aluminum. residential market.
Texacraft Casual outdoor furniture, Lodging and restaurant
and including chairs,chaise chains,country clubs,
Tropic lounges,tables,umbrellas apartment developers and
Craft and related accessories, managers, architectural
constructed of aluminum, design firms,municipalities
wroughtiron, wood and and other commercial and
fiberglass. institutional users in the
contract market.
Pompei Casual indoor and outdoor Specialty patio stores,fine
furniture, including chairs, furniture stores,design
chaise lounges,tables,umbrellas showrooms and residential
and related accessories, designers in the residential
constructed of extruded and market; and architectural
tubular aluminum. design firms, commercial
design firms and specifiers
and purchasing agents in the
contract market.
Loewenstein Contemporary to traditional Lodging and restaurant chains,
seating products, such as wood arcgutectural design firms,
metal and upholstered chairs, sports facilities,schools,
sofas and loveseats. healthcare facilitites,office
furniture dealers,retail store
planners and other commercial
and institutional users in the
contract market.
Southern Ready to assemble furniture Mass Merchandisers and
Wood products, such as book shelves, catalog wholesalers.
Products entertainment centers,coffee
tables,end tables and wall units,
as well as case goods, such as
chest of drawers,changing towers
and hutches, all of which are
constructed of wood.
We market our casual furniture products, consisting
principally of medium to upper-end casual indoor and outdoor
furniture, under the Winston, Texacraft, Tropic Craft and
Pompeii brand names. We currently manufacture and sell over 25
separate style collections of casual furniture products that
include traditional, European, and contemporary design patterns.
Within each style collection there are multiple products
including chairs, tables, chaise lounges and accessory pieces
such as ottomans, cocktail tables, end tables, tea carts and
umbrellas constructed of extruded, tubular and cast aluminum,
steel, wrought iron, wood and fiberglass. We offer chairs with
glider action, adjustable positions and rocking and swivel
motions, as well as a selection of restaurant and indoor and
outdoor seating. Our casual seating products feature cushions
and vinyl strapping in a variety of colors and patterns. All of
our casual furniture products feature a durable painted finish,
which is also offered in a wide selection of colors. The
suggested retail prices for a residential table and four chairs
currently range from approximately $700 to $3,500. Our casual
furniture is generally used by residential customers indoors and
on patios, decks and poolsides, while our contract customers
generally use our products in restaurants and lodging, as well
as for outdoor purposes.
Our seating products are marketed under the Loewenstein
brand name and includes over 300 distinct models, ranging from
contemporary to traditional styles, of wood, metal and
upholstered chairs, reception area love seats, sofas and stools.
We assemble wood frames and finish them with one of our numerous
standard colors or, if requested, to the customer's
specification. Our metal chairs are available in chrome or in a
selection of standard powder coat finishes. For upholstered
products, the customer may select from a number of catalog
fabrics, vinyls and leathers or may specify or supply its choice
of materials. We maintain an inventory of unassembled chair
components that enables us to respond quickly to large quantity
orders in a variety of finish and fabric combinations. Our
seating products have a number of commercial and institutional
uses, including seating for in-room lodging, stadium luxury sky
boxes, restaurants, lounges and classrooms. We have excellent
and in many instances long-term relationships with our diverse
customer base, which includes, for example, Marriott
International. Moreover, we recently entered into a three year
contract with Marriott, effective January 1, 1999, under which
we are a preferred supplier of upholstered seating products for
certain of its affiliates, including Marriott's Lodging, Senior
Living Services and Marketplace businesses, as well as Host
Marriott Services Corporation. In addition, we have entered into
an agreement with another national lodging chain to be a
preferred supplier for its seating products. We also provide
seating for various retailers, as well as commercial and
institutional construction projects, such as professional sports
stadiums and arenas.
We sell our ready-to-assemble products under the Southern
Wood Products brand name to mass merchandisers and catalog
wholesalers. Our ready-to-assemble products include
promotionally priced traditional ready-to-assemble "flatline"
and "spindle" furniture and a new line of fully assembled case
goods furniture products designed for household use. "Flatline"
products include ready-to-assemble items that are constructed of
flat pieces of wood, such as book shelves, entertainment centers
and tape storage units. Our "spindle" products include ready-to-
assemble items that are constructed of flat pieces of wood
connected by decorative joints and brackets, such as coffee
tables, end tables, wall units and rolling carts. Case goods
products include fully assembled four drawer chests and three
drawer chest and changing towers, with an optional hutch.
MANUFACTURING
We produce our products at nine manufacturing facilities
located throughout the United States. See " Properties." We
have tailored our manufacturing processes to each business to
maximize efficiencies, create high quality products and maintain
operating flexibility. Our casual furniture facilities are
vertically integrated - we manufacture our casual furniture
products from basic raw materials such as aluminum rod and
fabric. In contrast, our seating facilities take advantage of
outsourcing opportunities - we assemble our seating products
from wood components received from our Italian and other
suppliers. In both cases, we maintain flexible manufacturing
processes that enable us to:
minimize finished goods inventory and warehousing costs;
efficiently expand our product lines to meet the demands of
a diverse customer base; and
effectively control the cost, quality and production time
of our products.
We believe that our facilities are among the most modern in
the furniture industry and that the efficiencies attributable to
these plants are a significant factor in our relatively low
manufacturing costs. These low manufacturing costs, combined
with our philosophy of strict cost controls in all areas of our
operations, have enabled us to continually increase gross
margins and income from operations without the necessity of
significant price increases.
Casual Furniture
In the manufacturing process for our casual furniture
products, we cut extruded aluminum tubes to size and shape or
bend them in specially designed machinery. The aluminum is then
welded to form a solid frame, and the frame is subjected to a
grinding and buffing process to eliminate any rough spots that
may have been caused during welding. After this process is
completed, the frame is cleaned, painted in a state-of-the-art
powder coating system and heat cured. We then add vinyl
strapping, cushions, fabric slings, or other accessories to the
finished frame, as appropriate. We then package the product with
umbrellas, tempered glass and other accessories, as applicable,
and ship it to the customer.
We believe that we manufacture the highest quality aluminum
casual furniture in our price range. Unlike manufacturers of
lower-end products that rivet or bolt major frame components, we
weld the major frame components of our aluminum furniture,
thereby increasing the durability and enhancing the appearance
of the aluminum product line. Our state-of-the-art powder coated
painting process results in an attractive and durable finish. To
ensure that only the highest quality products are shipped to
customers, our quality control department has established
numerous check points where the quality of all of our aluminum
products is examined during the manufacturing process. These
processes allow us to offer a two-year frame and finish
guarantee on all of our aluminum products for residential use.
Seating
We assemble most of our seating products to order, but do not
generally have the same level of vertical integration as is
present in the manufacture of our casual product lines. Instead,
we purchase component parts from a variety of suppliers,
including a number of Italian suppliers. We utilize these
component parts because they enable us to offer sturdy and
aesthetically appealing products, which incorporate unique
designs and sophisticated manufacturing techniques that are
generally unavailable or are not cost effective in the United
States. The principal elements of wood chair assembly include:
frame glue-up;
sanding;
seat assembly (in which upholstered seats are constructed
from component bottoms, foam padding and cloth coverings);
and
painting/lacquering.
To provide consistency and speed in this finishing process, we
utilize a state-of-the-art conveyorized paint line with
electrostatic spray guns and a three-dimensional ultraviolet
drying system. In particular, Loewenstein's finishing system
applies specially formulated materials via robotic reciprocators
and utilizes three advanced technologies:
electrostatic finish application, which is designed to
ensure that a significantly higher percentage of the actual
finishing material will adhere to the product, thereby
reducing raw material costs;
ultraviolet finishing materials, which allow a much higher
solids content, thereby reducing environmental concerns and
enhancing finish quality; and
high-powered ultraviolet light, which can cure chairs in
less than 60 seconds, thereby speeding inventory turn-over
and reducing warehouse requirements.
For upholstered products, the specified fabric cloth is
stretched to the chair frame over foam padding. We generally
assemble our metal chairs from imported components. After rework
and leveling, we carton our chairs to prevent damage in
transportation. The manufacturing process also includes a number
of product inspections and other quality control procedures.
Ready-to-Assemble Furniture
For the manufacture of our ready-to-assemble products, which
include "spindle," "flatline" and case goods products, we use
high density particle board, which we laminate with a variety of
wood grains and solid colors. For our "spindle" products, we
turn, stain and lacquer all of the spindles and then
individually box the products with spindles and board, along
with any necessary hardware and assembly instructions. For our
"flatline" products we individually box the cut laminated
particle board, along with necessary hardware and assembly
instructions. For our case goods products, the edges of the cut
laminated particle board may be "soft formed" for aesthetic
value. We then assemble the unit using glue, screws and
hardware, such as self-closing drawer runners, on all units.
Manufacturing Capacity
Management believes that the Company's manufacturing
facilities in the casual and contract seating product lines are
currently operating, in the aggregate, at approximately 75% of
capacity, assuming a one-shift basis. Management considers the
Company's present manufacturing capacity to be sufficient for
the foreseeable future and believes that, by adding multiple
shift operations, the Company can significantly increase the
total capacity of its facilities to meet growing product demand
with minimal additional capital expenditures. In addition, the
Company engages in an ongoing maintenance and upgrading program,
and considers its machinery and equipment to be in good
condition and adequate for the purposes for which they are
currently used.
In addition, during 1999 we purchased an additional 218,000
square foot facility in Haleyville, Alabama. This facility is
currently being retrofit for manufacturing capabilities. When
operational, this facility will increase our casual furniture
manufacturing capacity.
MARKETING AND SALES
We sell our products through both independent manufacturers
representatives and internal sales staff. We sell our
residential casual furniture through approximately 25
independent sales representatives and we sell our seating
products through approximately 40 independent sales
representative organizations that employ approximately 120 sales
associates. We have strong relationships with our independent
sales personnel. At Winston and Loewenstein, for example, our
independent sales representatives have been selling our products
for an average of approximately nine years. We primarily use an
internal sales staff to sell our casual furniture products into
the contract market, while our ready-to-assemble products are
sold exclusively by independent sales representatives. Senior
management is also involved in the sales process for all of our
furniture products.
Each independent representative:
promotes, solicits and sells our products in an assigned
territory;
assists in the collection of receivables; and
receives commissions based on the net sales made in his or
her territory.
We determine the prices at which our products will be sold and
may refuse to accept any orders submitted by a sales
representative for credit-worthiness or other reasons. Our
independent representatives do not carry directly competing
product lines.
We have developed a comprehensive marketing program to assist
our representatives in selling our products. Key elements of
this program include:
holding exhibitions at national and regional furniture
markets and leasing year-round showrooms at the Merchandise
Mart in Chicago, Illinois and High Point, North Carolina;
providing retailers with annual four-color catalogs of our
products, sample materials illustrating available colors and
fabrics, point of sale materials and special sales
brochures;
providing information directly to representatives at annual
sales meetings attended by senior management and
manufacturing personnel;
maintaining a customer service department at each of our
manufacturing facilities which ensures that we promptly
respond to the needs and orders of our customers;
maintaining regular contact with key retailers; and
conducting ongoing surveys to determine dealer
satisfaction.
BACKLOG
As of December 31, 1999, our backlog of orders was
approximately $21.6 million, compared to $21.8 million at
December 31, 1998. Management, in accordance with industry
practice, generally permits orders to be canceled prior to
shipment without penalty. Further, management does not consider
backlog to be predictive of future sales activity because of our
short manufacturing cycle and delivery time in both our casual
and seating segments and, especially in the case of casual
furniture, the seasonality of sales.
RAW MATERIAL AND SOURCING
Our principal raw materials consist of extruded aluminum
tubes, woven vinyl fabrics, paint/finishing materials, vinyl
strapping, cushion filler materials, cartons, glass table tops,
component parts for seating, particle board and other lumber
products and hardware. Although we have no long-term supply
contracts, we generally maintain a number of sources for our raw
materials and have not experienced any significant problems in
obtaining adequate supplies for our operations. In addition,
increases in the cost of our raw materials, such as fluctuations
in the costs of aluminum, lumber and other raw materials have
not historically had a material adverse effect on our results of
operations because we are generally able to pass through such
increases in raw material costs to our customers over time
through price increases. We believe that our policy of
maintaining several sources for most supplies and our large
volume purchases contribute to our ability to obtain competitive
pricing. Nevertheless, the market for aluminum is, from time to
time, highly competitive, and its price, as a commodity, is
subject to market conditions beyond our control. Accordingly,
future price increases could have a material adverse effect on
our business, financial condition, and results of operations or
prospects.
A significant portion of the Loewenstein raw materials consist
of component chair parts purchased from several Italian
manufacturers. We view our suppliers as "partners" and work with
such suppliers on an ongoing basis to design and develop new
products. We believe that these cooperative efforts, our long-
standing relationships with these suppliers and our experience
in conducting on-site, quality control inspections provide us
with a competitive advantage over many other furniture
manufacturers, including a competitive purchasing advantage in
times of product shortages. In addition, in the case of our
Italian suppliers, we generally contract for our purchases of
such component parts in such manner as to minimize our exposure
to foreign currency fluctuations. We have close working
relationships with our foreign suppliers and our future success
may depend, in part, on maintaining these or similar
relationships. Given the special nature of the manufacturing
capabilities of these suppliers, in particular certain wood-
bending capabilities, and sources of specialized wood types, our
Loewenstein division could experience a disruption in operations
in the event of any replacement of such suppliers. Situations
beyond our control, including political instability, significant
and prolonged foreign currency fluctuations, economic
disruptions, the imposition of tariffs and import and export
controls, changes in government policies and other factors could
have a material adverse effect on our business, financial
condition, results of operations or prospects.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is highly competitive and includes a
large number of manufacturers, none of which dominate the
market. Certain of the companies that compete directly with us
may have greater financial and other resources than we do. Based
on our extensive industry experience, we believe that
competition in casual furniture and seating is generally a
function of product design, construction quality, prompt
delivery, product availability, customer service and price.
Similarly, management believes that competition in our
promotional price niche of the ready-to-assemble furniture
industry is limited, and is based primarily on price, product
availability, prompt delivery and customer service.
We believe that we successfully compete in the furniture
industry primarily on the basis of our innovatively styled
product offerings, our unique delivery capabilities, the quality
of our products, and our emphasis on providing high levels of
customer service. We believe that our residential casual product
line has a leading share of the casual furniture market in the
geographic region east of the Mississippi River.
While sales of imported, foreign-produced casual furniture
have increased significantly in recent years, our sales have not
been adversely affected because our products generally do not
compete with such foreign products, which are typically: (i)
limited in design, styles and colors, (ii) of lesser quality
than our products, (iii) marketed in the lower-end price range
and (iv) not supported with competitive customer service and
responsiveness to customers' needs for quick delivery.
In the seating segment, we compete with many manufacturers,
ranging from large, national, publicly traded entities to small,
one-product firms selling to small, geographic markets.
TRADEMARKS AND PATENTS
We have registered the Winston, Loewenstein, Gregson,
Pompeii and Southern Wood Products trademarks with the United
States Patent and Trademark Office. We believe that our
trademark position is adequately protected in all markets in
which we do business. We also believe that our various trade
names are generally well recognized by dealers and distributors,
and are associated with a high level of quality and value.
We hold several design and utility patents; however, it is
no longer our policy to apply for design and utility patents, as
we do not believe that they are of significance to our business.
EMPLOYEES
At December 31, 1999, we had approximately 1,228 full-time
employees, of whom 31 were employed in management, 138 in sales,
general, and administrative positions, and 1,059 in
manufacturing, shipping, and warehouse positions.
The only employees subject to collective bargaining
agreements are approximately 115 of our hourly employees in
Haleyville, Alabama, who are represented by the Retail,
Wholesale, and Department Store Union. The labor agreement
between WinsLoew and such union, which expires on July 31, 2001,
provides that there shall be no strikes, slowdowns or lockouts.
Management considers its employee relations to be good.
ENVIRONMENTAL MATTERS
We believe that we comply in all material respects with all
applicable federal, state and local provisions relating to the
protection of the environment. The principal environmental
regulations that apply to us govern air emissions, water quality
and the storage and disposition of solvents. In particular, we
are subject to environmental laws and regulations regarding air
emissions from paint and finishing operations and wood dust
levels in our manufacturing operations. As is typical of the
furniture manufacturing industry, our finishing operations use
products that may be deemed hazardous and that pose an inherent
risk of environmental contamination. Compliance with
environmental protection laws and regulations has not had a
material adverse impact on our financial condition or results of
operations in the past and we do not expect compliance to have a
material adverse impact in the future.
ITEM 2. PROPERTIES
Properties
The following table provides information with respect to each
of our properties:
Approx. Square Leased or
Location Primary Use Feet Owned
Birmingham,AL Corporate Headquarters 9,800 Owned
Haleyville,AL Casual furniture manuf. and offices 155,000 Owned
Haleyville,AL Casual furniture and Manufacturing 218,000 Owned
Haleyville,AL Casual furniture warehouse 20,000 Owned
Haleyville,AL Casual furniture sewing plant 30,000 Owned
Chicago,IL Casual furniture merchandise showroom 12,000 Leased(1)
Las Vegas,NV Casual furniture merchandise showroom 1,300 Leased(2)
High Point,NC Casual furniture showroom 6,000 Leased(3)
Houston,TX Casual furniture manuf. and offices 89,500 Leased(4)
Miami,FL Casual furniture manuf. and offices 220,400 Leased(5)
Ocala,FL Casual furniture manuf. and offices 49,000 Owned
Pompano Beach,FL Seating manufacturing and offices 100,000 Owned
Pompano Beach,FL Seating warehouse 6,500 Leased(6)
Liberty,NC Seating warehouse 25,000 Leased(6)
Liberty,NC Seating manufacturing and offices 126,000 Owned
Chicago,IL Seating merchandise mart showroom 5,500 Leased(7)
Sparta,TN Ready-to-assemble manuf. and offices 94,300 Owned
Sparta,TN Ready-to-assemble manuf. and offices 63,300 Owned
(1) Lease expires August 31, 2002.
(2) Lease expires October 31, 2000
(3) Lease expires March 16, 2002.
(4) Lease expires April 15, 2005.
(5) Lease expires August 1, 2018.
(6) Lease is month-to-month.
(7) Lease expires June 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and
other claims arising in the ordinary course of our business. We
maintain insurance coverage against potential claims in an
amount that we believe to be adequate. Based primarily on
discussions with counsel and management familiar with the
underlying disputes and except as described below, we believe
that we are not presently a party to any litigation, the outcome
of which would have a material adverse effect on our business,
financial condition, results of operations or future prospects.
We and the members of our board of directors have been named
as defendants in a lawsuit filed on March 25, 1999 in the
Circuit Court of Jefferson County, Alabama, styled Craig Smith
v. WinsLoew Furniture, Inc., et al. The lawsuit purports to be
brought as a class action on behalf of all of our shareholders
prior to the merger except the defendants and was filed in
connection with the merger.
The principal substantive allegations set forth in the
complaint are that (i) the individual defendants breached
fiduciary duties owed by them as directors to the shareholder
plaintiffs, (ii) Mr. Powell and other members of our "management
group" breached fiduciary duties owed by them as allegedly
controlling shareholders to our other shareholders by, among
other things, attempting to acquire 100% equity ownership of
WinsLoew for an allegedly "grossly inadequate price" at the
alleged expense of our other shareholders, (iii) our
announcement of the initial $30.00 per share bid by Trivest
Furniture Corporation failed to disclose improving growth
prospects, (iv) by virtue of the equity holdings of our
"management group" and their alleged "overwhelming control" of
our board of directors, third parties were practically precluded
from making competing bids, and (v) the initial per share merger
consideration of $30.00 per share was unconscionable, unfair and
grossly inadequate and the terms of the merger constituted an
unfair and illegal business practice upon our then minority
shareholders. No other per share amount is specified in the
complaint.
The relief sought by the plaintiff is that (i) the court
declare the lawsuit to be a class action and certify the
plaintiff as class representative and his counsel as class
counsel, (ii) the merger be enjoined or, if not enjoined, that
the plaintiffs be granted rescission and rescissionary damages,
(iii) the plaintiff and the alleged class be awarded damages,
(iv) the plaintiff be awarded costs and disbursements of
bringing the lawsuit, together with fees and expenses of the
plaintiff's counsel and experts, and (v) the plaintiff and the
alleged class be granted such other relief as the court shall
deem just and proper. The complaint does not specify the amount
of any damages sought.
We have forwarded a claim with respect to this matter to our
directors' and officers' insurance carrier and, with the
approval of such carrier, have retained legal counsel to
represent us and the members of our board of directors.
On June 14, 1999, we and the members of the board of directors
filed a motion to dismiss the lawsuit or, in the alternative, to
grant summary judgment in our favor. After a hearing held on
November 11, 1999, the court granted our motion to dismiss but
gave the plaintiff 30 days' leave to file an amended complaint.
The plaintiff filed an amended complaint on December 15, 1999
and another motion to dismiss was filed on behalf of all
defendants on February 28, 2000. A hearing on the motion to
dismiss has been set for April 11, 2000.
We believe that the claims set forth in the lawsuit are without
merit and we intend to vigorously defend this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are
derived from the Consolidated Financial Statements of WinsLoew.
The following data has been restated to reflect Southern Wood as
a continuing operation (see Note 3 of Notes to Consolidated
Financial Statements). The following selected consolidated
financial data should be read in conjunction with WinsLoew's
Consolidated Financial Statements and related Notes,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information
included herein.
Year Ended December 31
1999 1998 1997 1996 1995
(In thousands) -------- -------- -------- -------- --------
Net sales 162,139 $141,360 $122,145 $117,405 $110,887
Cost of sales 96,384 87,232 79,431 78,029 78,710
------- -------- -------- -------- -------
Gross profit 65,755 54,128 42,714 39,376 32,177
Selling, general and
administrative expenses 25,674 23,124 21,427 21,472 19,303
Amortization 3,321 1,122 992 1,444 2,087
------- -------- -------- ------- -------
Operating income 36,760 29,882 20,295 16,460 10,787
Interest expense 8,910 635 2,296 3,083 3,841
------- ------- ------- ------- -------
Income from continuing
operations before income
taxes and
extraordinary item 27,850 29,247 17,999 13,377 6,946
Provision for income
taxes 11,339 10,947 6,838 4,834 3,489
------- ------- ------- ------- -------
Income from continuing
operations before
extraordinary item 16,511 18,300 11,161 8,543 3,457
Income(loss)from
discontinued operations,
net of taxes -- -- (718) (259) (9,199)
Gain(loss)from sale of
discontinued operations,
net of taxes 755 2,031 (8,200) -- --
Extraordinary item -- -- -- -- 1,698
-------- --------- ------ ------ --------
Net income (loss) 17,266 20,331 2,243 8,284 (4,044)
======== ======== ======= ======= ========
Other Financial Data
Depreciation and
amortization 4,845 2,618 2,634 2,979 3,486
Capital expenditures 3,265 942 425 1,351 2,702
Ratio of earnings to
fixed charges 3.9x 47.1x 8.8x 5.3x 2.8x
Balance Sheet Data: Year Ended December 31
1999 1998 1997 1996 1995
-------- ------- -------- -------- --------
(In thousands)
Working capital $26,721 $25,924 $29,937 $40,102 $58,78
Total assets 308,062 84,553 80,414 99,950 104,004
Long-term debt(less
current portion) 198,258 1,400 15,908 38,726 40,130
Total debt 201,958 1,447 16,423 40,681 41,941
Stockholder's equity 81,711 66,226 51,026 48,400 53,228
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
WinsLoew is a leading designer, manufacturer and distributor
of a broad offering of casual indoor and outdoor furniture and
seating products. Our casual furniture includes chairs, chaise
lounges, tables, umbrellas and related accessories which are
generally constructed from aluminum, wrought iron, wood, or
fiberglass. Our seating products include wood, metal and
upholstered chairs, sofas and loveseats that are offered in a
wide variety of finish and fabric options. All of our casual and
seating products are manufactured pursuant to customer orders.
We sell our furniture products to the residential market and to
the contract market consisting of commercial and institutional
users.
Sale of Wrought Iron Furniture Business. During the third
quarter of 1997, we disposed of certain assets of our wrought
iron business in the casual furniture product line. The sale
generated net cash proceeds of $2.1 million. This business
accounted for net sales of $11.0 million in 1996 and $5.7
million in 1997 through the sale date. The operating income of
this business was not material to consolidated operating income.
During the third quarter of 1997, we recorded approximately $0.2
million of costs associated with the sale in selling, general
and administrative expenses.
Discontinued Operations. During 1997 we also adopted a plan
to dispose of our ready-to-assemble operations. At that time,
our ready-to-assemble furniture products included ergonomically-
designed computer workstations, which we referred to as "space
savers," promotionally-priced coffee and end tables, wall units
and rolling carts and an extensive line of futons, futon frames
and related accessories. As a result of this decision, we
recorded a pre-tax non-cash charge totaling $12.4 million in the
fourth quarter of 1997 relating to the disposal of the ready-to-
assemble operations. The following is a summary of the
components of the charge :
Write-off of goodwill in connection with sale of assets $3,902,000
Reduction of inventory value 2,791,000
Reduction of property to net realizable value 2,067,000
Reduction of accounts receivable value 1,390,000
Other liabilities / reserves 1,050,000
Accrual for losses through disposition 1,200,000
-----------
Total $12,400,000
===========
The Company planned to sell two of the businesses and
liquidating the assets related to the futon business. During
1998 the Company sold one of the businesses, completed the
liquidation of the futon business and decided to retain its
Southern Wood business due to improved profitability (see Note 3
to Notes to the Consolidated Financial Statements). The amounts
reflected hereafter include Southern Wood as a continuing
operation.
Purchase of Tropic Craft. In June 1998, we purchased all of
the stock of Tropic Craft, a designer and manufacturer of casual
furniture sold into the contract markets, for $9.3 million in
cash. In addition, the seller is entitled to receive
aggregate contingent purchase price payments of up to $1.0
million upon achievement of targeted earning performance with
respect to the years ending June 30, 1999 and June 30, 2000.
During 1999 we made payments of $500,000 against this
contingency agreement. The acquisition resulted in goodwill of
$6.9 million. Funds for the acquisition were provided under our
existing credit facility. We accounted for the acquisition under
the purchase method and, accordingly, the operating results of
Tropic Craft have been included in our historical consolidated
operating results only since the date of acquisition.
Purchase of Pompeii. In July 1999, we acquired all of the
stock of Pompeii, a manufacturer of upper-end aluminum casual
furniture sold into the contract and residential markets, for
$18.2 million in cash. Pompeii provides us with a leading brand
in the upper end of the casual furniture market and a
significant opportunity to achieve operating efficiencies. For
the year ended December 31, 1998, Pompeii had net revenues of
approximately $14.5 million and income from operations of
approximately $2.8 million. We expect to spend approximately
$1.5 million over the next 12 to 18 months for certain
integration costs. We funded the Pompeii acquisition with
available cash on hand and expect to fund the integration costs
with working capital. We accounted for the acquisition under the
purchase method and, accordingly, the operating results of
Pompeii have been included in our historical consolidated
operating results only since the date of the acquisition.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and
gross margin as a percent of net sales for the years ended
December 31, 1999, 1998 and 1997 for each of the Company's
product lines (in thousands, except for percentages):
1999 1998 1997
-------------------------------------------------------------------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
------------------------------------------------------------------------------
Casual
furniture $74,586 $36,526 49.0% $59,733 $28,227 47.3% $56,363 $24,164 42.9%
Contract
seating 72,346 25,704 35.5% 69,938 23,439 33.5% 58,386 17,256 29.6%
RTA 15,207 3,525 23.2% 11,689 2,462 21.1% 7,396 1,294 17.5%
-------- ------ ------- ------ ------- ------
$162,139 $65,755 40.6% $141,360 $54,128 38.3% $122,145 $42,714 35.0%
The following table sets forth certain information relating
to the Company's operations expressed as a percentage of the
Company's net sales:
For the Years Ended December 31,
1999 1998 1997
Gross Profit 40.6% 38.3% 35.0%
Selling,general 15.8% 16.4% 17.5%
and admin expenses
Amortization 2.0% 0.8% 0.8%
Operating Income 22.7% 21.1% 16.6%
Interest expense 5.5% 0.4% 1.9%
Provision for
income taxes 7.3% 7.7% 5.6%
Income from
continuing operations 10.2% 12.9% 9.1%
before extraordinary
item
Loss from discontinued
operations, net of -- -- (0.6%)
taxes
Gain (loss) from sale
of discontinued
operations,net of tax 0.5% 1.4% (6.7%)
Net Income 10.6% 14.4% 1.8%
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Sales. WinsLoew's consolidated net sales for 1999
increased $20.7 million or 14.6% to $162.1 million, compared to
$141.4 million in 1998. Casual product line sales increased by
14.9% from 1998 net of the effect of the Pompeii acquisition.
When including the acquisition of Pompeii, casual sales
increased 24.9% over 1998. Management believes that due to its
high quality and innovative designs, existing retail customers
have continued to allocate more floor space, requiring larger
inventories of the Company's casual aluminum furniture. The
contract seating product line experienced a sales increase of
3.4% due to growth in the core business and increased demand
from the lodging industry. The RTA product line experienced a
sales increase of 30.1% due to increased demand as the Company
broadened it's product offering to include additional flat-line
products and case goods which allowed us to enter new markets.
Gross Profit. Consolidated gross profit increased $11.6
million in 1999 to $65.8 million compared to $54.1 million in
1998. The casual, contract seating and RTA product lines
experienced improved gross profits in 1999 due to greater
operating efficiencies, increased sales volumes and improved
raw material costs.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $2.6 million in
1999, compared to 1998, due to commission's expense and other
variable costs related to the increased sales volume in 1999.
Amortization. Amortization expense increased $2.2 million
in 1999, compared to 1998, due to amortization of goodwill
related to both the Pompeii acquisition and the going-private
transaction.
Operating Income. As a result of the above, we recorded
operating income of $36.8 million (22.7% of net sales) in 1999,
compared to operating income of $29.9 million (21.1% of net
sales) in 1998.
Interest Expense. Our interest expense increased $8.3
million in 1999, compared to 1998. The Company has increased
its debt by $200.7 million from December 31, 1998 as a result of
the going-private transaction. ( see Note 2 to the Notes to
Consolidated Financial Statements ).
Provision for Income Taxes. Our effective tax rate from
continuing operations of 37.4% in 1998 is greater than the
federal statutory rate due to the effect of state income taxes
and non-deductible goodwill amortization. The effective tax rate
from continuing operations of 40.6% in 1999 is greater than the
federal statutory rate due to the effect of state income taxes
and non-deductible goodwill amortization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Sales. Our consolidated net sales for 1998 increased
$19.3 million or 15.8% to $141.4 million, compared to $122.1
million in 1997. The casual product line sales increased by
17.9%, excluding sales for the Company's wrought iron business
sold during 1997. The Company believes that due to its high
quality and innovative designs, existing retail customers have
continued to allocate more floor space, requiring larger
inventories of the Company's casual aluminum furniture. The
contract seating product line experienced a sales increase of
19.8% due to growth in the core business and increased demand
from the lodging industry. The ready-to-assemble product line
experienced a sales increase of 58.0% due to increased demand as
the Company broadened it's product offering to include
additional flat-line products and case goods which allowed the
Company to enter new markets.
Gross Profit. Consolidated gross profit increased $11.4
million in 1998 to $54.1 million compared to $42.7 million in
1997. The casual, contract seating and RTA product lines each
generated increased gross profits in 1998 due to greater
operating efficiencies, increased sales volumes and improved raw
material costs.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $1.7 million in
1998 to $23.1 million ( 16.4 % of net sales ) compared to 1997
selling, general and administrative expense of $21.4 million (
17.5% of net sales ) due to commissions expense and other
variable costs related to the increased sales volume in 1998.
Amortization. Amortization expense increased $0.1 million
in 1998, compared to 1997, due to amortization of goodwill
related to the Tropic Craft acquisition.
Operating Income. As a result of the above, operating
income increased by $9.6 million, to $29.9 million (21.1% of net
sales) in 1998, compared to operating income of $20.3 million
(16.6% of net sales) in 1997.
Interest Expense. Our interest expense decreased $1.7
million in 1998, compared to 1997 due to the repayment of $15.0
million of indebtedness during the year.
Provision for Income Taxes. Our effective tax rate from
continuing operations of 37.4% in 1998 and 38.0% in 1997 is
greater than the federal statutory rate due to the effect of
state income taxes and non-deductible goodwill amortization.
SEASONALITY AND QUARTERLY INFORMATION
Sales of casual products are typically higher in the second
quarter of each year as a result of high retail demand for
casual furniture preceding the summer months. Weather conditions
during the peak retail selling season and the resulting impact
on consumer purchases of outdoor furniture products can also
affect sales of our casual products. During the third quarter of
1997 we sold our Lyon Shaw wrought iron division (see Note 4 of
the Notes to the Consolidated Financial Statements).
The following table presents the Company's unaudited
quarterly data for 1999 and 1998. Such operating results are
not necessarily indicative of results for future periods.
WinsLoew believes that all necessary and normal recurring
adjustments have been included in the amounts in order to
present fairly and in accordance with generally accepted
accounting principles the selected quarterly information when
read in conjunction with WinsLoew's Consolidated Financial
Statements included elsewhere herein. The results of operations
for any quarter are not necessarily indicative of results for a
full year.
( In thousands )
1999 Quarters First Second Third Fourth
--------- ------ ---------- -------
Net sales $32,910 $47,679 $40,147 $41,403
Gross profit 12,879 19,696 15,428 17,752
Operating income 6,838 11,833 8,403 9,686
Interest expense(income) 123 (46) 2,203 6,630
Income from continuing
operations 4,184 7,350 2,827 2,150
Gain on sale of
discontinued operations,
-- -- -- 755
net of taxes
Net income $4,184 $7,350 $2,827 $2,905
======== ======== ======== ========
( In thousands )
1998 Quarters First Second Third Fourth
--------- ------ ---------- -------
Net sales $27,576 $42,892 $36,258 $34,634
Gross profit 9,630 16,740 13,527 14,231
Operating income 4,871 10,282 6,265 8,464
Interest expense(income) 333 354 137 (189)
Income from continuing
operations 2,873 6,199 3,791 5,437
Gain on sale of
discontinued operations,
-- -- -- 2,031
net of taxes
Net income $2,873 $6,199 $3,791 $7,468
======== ======= ====== =======
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for debt
service and working capital, including accounts receivable and
inventory requirements. The Company has historically financed
its short-term liquidity needs with internally generated funds
and revolving line of credit borrowings. At December 31, 1999,
the Company had $26.7 million of working capital and under its
senior credit facility $34.3 million of unused and available
funds under its revolving credit facility and $20.0 million of
unused and available funds under the acquisition loan facility.
Cash Flows from Operating Activities. During 1999, net cash
provided by operations decreased to $20.8 million, compared to
$31.1 million in 1998. The decrease was primarily due to the
sale of assets of discontinued operations in 1998 and the
establishment of a federal tax refund receivable in 1999.
Cash Flows from Investing Activities. During 1999, we spent
$3.3 million on capital expenditures, $18.2 million on the
purchase of Pompeii (see Note 4 to the Audited Consolidated
Financial Statements) and $269.2 million for the merger with
Trivest Furniture Corporation. This is compared to capital
expenditures of $0.9 million and $9.3 million for the purchase
of Tropic Craft in 1998. Net cash used in investing activities
was $290.7 million and $11.3 million for the twelve months ended
December 31, 1999 and December 31, 1998 respectively.
Cash Flows From Financing Activities. Net cash provided by
financing activities during 1999 was $270.1 million compared to
$20.1 million used in financing activities in 1998. In 1999,
cash was primarily provided by proceeds from borrowings under
our senior credit facility and the issuance of units consisting
of the original notes and warrants. (see Notes 2 and 5 to the Audited
Consolidated Financial Statements) During 1998, we used cash
generated by operations to repay $15.0 million of debt and
purchase $6.1 million of our common stock .
We financed the merger with $78.0 million of cash and rollover
equity investment, approximately $7.1 million of available cash
on hand, term loan borrowings of approximately $95.0 million
under our $155.0 million senior credit facility and $102.5
million of proceeds from the sale of units consisting of the
original notes and warrants.
Our senior credit facility consists of three term loans
aggregating $95.0 million, all of which was borrowed at closing,
a $40.0 million revolving credit facility, none of which was
borrowed at closing, and a $20.0 million acquisition loan
facility, none of which was borrowed at closing. See " Senior
Credit Facility." As of December 31, 1999, we had undrawn
availability based on a borrowing base formula under the
revolving credit facility of approximately $34.3 million and
$20.0 million under the acquisition loan facility, both of which
are subject to certain conditions.
We have significant amounts of debt requiring interest and
principal repayments. The notes require semi-annual interest
payments commencing in February 2000 and will mature in August
2007. Borrowings under the senior credit facility require
monthly interest payments, which commenced in September 1999. Of
the term loans, $3.7 million mature in each of 2000 and 2001,
$6.7 million mature in each of 2002 and 2003, $7.7 million
mature in 2004, $33.25 million matures in each of 2005 and
2006. Amounts outstanding under the revolving credit
facility mature December 31, 2004. Amounts outstanding under the
acquisition loan facility at December 31, 2001 mature 20% in
2002, 30% in 2003 and 50% in 2004. As of December 31, 1999,
$5.7 million was outstanding under the revolving credit facility
and no amounts were outstanding under the acquisition loan
facility.
Our other liquidity needs relate to working capital, capital
expenditures and potential acquisitions. We intend to fund our
working capital, capital expenditures and debt service
requirements through cash flow generated from operations and
borrowings under our senior credit facility.
We believe that existing sources of liquidity and funds
expected to be generated from operations will provide adequate
cash to fund our anticipated working capital needs. Significant
expansion of our business or the completion of any material
strategic acquisitions may require additional funds which, to
the extent not provided by internally generated sources, could
require us to seek access to debt or equity markets.
Our anticipated capital needs through 2000 will consist
primarily of the following:
interest payments due on the notes and interest and
principal due under our senior credit facility,
increases in working capital driven by the growth of our
business, and
the financing of capital expenditures.
Aggregate capital expenditures are budgeted at
approximately $3.0 million in 2000 and will consist of
approximately $2.0 million to purchase a currently leased
facility, approximately $0.5 million to upgrade an additional
facility and approximately $0.5 million for general facility
improvements. To the extent available, funds will be used to
reduce outstanding borrowings under our senior credit facility.
Management believes that funds generated from operations and
funds available under our senior credit facility will be
sufficient to satisfy our debt service obligations, working
capital requirements and commitments for capital expenditures.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
We purchase some component parts for our seating products from
several Italian suppliers, which we pay for in local currency.
These purchases expose us to the effects of fluctuations in the
value of the U.S. dollar versus the Italian lira. If the U.S.
dollar declines in value versus the Italian lira, we will pay
more in U.S. dollars for these purchases. To reduce our exposure
to loss from such potential foreign exchange fluctuations, we
will occasionally enter into foreign exchange forward contracts.
These contracts allow us to buy Italian lira at a predetermined
exchange rate, thereby transferring the risk of subsequent
exchange rate fluctuations to a third party. However, if we are
unable to continue such forward contract activities, and our
inventories increase in connection with expanding sales
activities, a weakening of the U.S. dollar against the Italian
lira could result in reduced gross margins. We elected to hedge
a portion of our exposure to purchases to be made in 1999 by
entering into foreign currency forward contracts with a value of
approximately $2.3 million. At December 31, 1999, we did not
have any foreign currency forward contracts outstanding. We did
not incur significant gains or losses from these foreign
currency transactions. Our hedging activities relate solely to
our component purchases in Italy; we do not speculate in foreign
currency.
Inflation has not had a significant impact on us in the past
three years, and management does not expect inflation to have a
significant impact in the foreseeable future.
YEAR 2000
WinsLoew is now Year 2000 compliant and there were no
adverse events that occurred and no contingency plans were
required to be implemented relating to the year 2000 problem at
year end 1999.
As of the end of the fourth quarter of 1999, we had
completed testing and remediation of 100% of our continuing
operations business critical systems at an aggregated cost of
approximately $0.5 million, which represented approximately 20%
of our information technology budget for the last four years,
and was funded from internally generated funds. Approximately
59% of these costs were for replacement of existing software,
approximately 23% were for replacement and/or upgrade of
existing hardware, approximately 12% were for replacement of
non-information technology systems and equipment, and
approximately 6% were for repair and/or upgrade of existing
software. Non-information technology systems do not represent a
significant component of our operations. We deduct these costs
from income. Other non-Year 2000 technology efforts have not
been materially delayed and we do not anticipate any future
exposure related to the year 2000 issue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required by this item is contained in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." And in Note 1 of the Company's Consolidated
Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Ernst & Young LLP, Independent Auditors 26
Consolidated Balance Sheets as of
December 31, 1999 and 1998 27
Consolidated Statements of Income
For the Years Ended December 31, 1999,1998,
and 1997 28
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999,1998,
and 1997 29
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999,1998,
and 1997 30
Notes to Consolidated Financial Statements 31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders of WinsLoew Furniture, Inc.
We have audited the accompanying consolidated balance sheets of
WinsLoew Furniture, Inc. and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of WinsLoew Furniture, Inc. and Subsidiaries
at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Our audits also included the financial statement schedule of
WinsLoew Furniture, Inc. listed in Item 14(a)(2). This schedule
is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements as
a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 27,2000
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
--------------------------
1999 1998
---------- ----------
Assets
Cash and cash equivalents $ 710 $ 475
Cash in escrow 1,000 1,000
Accounts receivable, less allowances
for doubtful accounts of $2,098
and $1,694 at December 31, 1999
and 1998, respectively 25,706 23,647
Inventories 14,545 12,206
Refundable income taxes 6,908 --
Prepaid expenses and other
current assets 4,846 4,638
-------- --------
Total current assets 53,715 41,966
Property, plant and equipment, net 16,462 13,948
Goodwill, net 231,377 27,176
Other assets, net 6,508 1,463
-------- --------
Total assets $308,062 $ 84,553
======== ========
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 3,700 $ 47
Accounts payable 4,265 4,377
Accrued interest 5,560 24
Other accrued liabilities 13,469 9,928
Net liabilities of discontinued
operations -- 1,750
-------- --------
Total current liabilities 26,994 16,126
Long-term debt, net of current portion 198,258 1,400
Deferred income taxes 1,099 801
-------- --------
Total liabilities 226,351 18,327
-------- --------
Commitments and contingencies (note 9)
Stockholders' equity:
Preferred stock, par value
$.01 per share, none authorized,
and none issued at December 31, 1999
and 5,000,000 shares authorized,
none issued at December 31, 1998 -- --
Common stock- par value $.01 per
share, 1,000,000 shares
authorized at December 31, 1999 and
20,000,000 shares authorized at
December 31,1998 with 780,000 and
7,294,408 shares issued and outstanding
at December 31, 1999 and 1998,
respectively 8 73
Additional paid-in capital 79,392 19,797
Retained earnings 2,311 46,356
-------- --------
Total stockholder's equity 81,711 66,226
-------- --------
Total liabilities and
stockholder's equity $308,062 $84,553
-------- --------
See accompanying notes.
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Year Ended December 31
-----------------------------------------
1999 1998 1997
------------ ---------- -------------
Net sales $162,139 $141,360 $122,145
Cost of sales 96,384 87,232 79,431
-------- -------- --------
Gross profit 65,755 54,128 42,714
Selling, general and
administrative expenses 25,674 23,124 21,427
Amortization 3,321 1,122 992
-------- -------- --------
Operating income 36,760 29,882 20,295
Interest expense 8,910 635 2,296
-------- -------- --------
Income from continuing
operations before income
taxes 27,850 29,247 17,999
Provision for income taxes 11,339 10,947 6,838
-------- -------- --------
Income from continuing
operations 16,511 18,300 11,161
(Loss)from discontinued
operations, net of taxes -- -- (718)
Gain(loss)from sale of
discontinued operations,
net of taxes 755 2,031 (8,200)
-------- -------- --------
Net income (loss) $17,266 $20,331 $ 2,243
======== ======== ========
See accompanying notes.
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Additional
------------------ Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
Balance,
December 31, 1996 7,481,783 $75 $24,543 $23,782 $48,400
Exercise of stock options 94,725 1 872 -- 873
Repurchase and
cancellation
of stock (50,000) (1) (489) -- (490)
Net income -- -- -- 2,243 2,243
--------- ------ ---------- -------- -------
Balance,
December 31, 1997 7,526,508 75 24,926 26,025 51,026
Exercise of stock
options 63,900 1 924 -- 925
Repurchase and
cancellation
of stock (296,000) (3) (6,053) -- (6,056)
Net Income -- -- -- 20,331 20,331
--------- ------ ---------- -------- -------
Balance,
December 31, 1998 7,294,408 $73 $19,797 $46,356 $66,226
Exercise of stock
options -- -- 6,941 -- 6,941
Repurchase and
cancellation
of stock (112,500) (1) (3,185) -- (3,186)
Net income through
merger date -- -- -- 14,955 14,955
Going private
transaction (7,181,908) (72) (23,553) (61,311) (84,936)
Proceeds of stock issued 780,000 8 77,992 -- 78,000
Valuation of warrants
issued in connection
with senior
subordinated notes -- -- 1,400 -- 1,400
Net income from merger
date through year end -- -- -- 2,311 2,311
--------- ------ ---------- -------- -------
Balance,
December 31, 1999 780,000 $8 $79,392 $2,311 $81,711
========= ====== ========== ======== =======
See accompanying notes.
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
---------------------------------
1999 1998 1997
------- -------- -------
Cash flows from operating activities:
Net income (loss) $17,266 $20,331 $2,243
Adjustments to reconcile net
income to net cash provided
(used in) operating activities:
Depreciation and amortization 4,845 2,618 2,634
Provision for losses on accounts
receivable 392 1,331 42
Provision for excess and
obsolete inventory 465 702 1,267
Going private transaction expenses 201 -- --
Change in net assets held for sale -- 6,743 14,710
Changes in operating assets and
liabilities, net of effects
from acquistions and dispositions:
Accounts receivable (2,037) (2,210) 1,875
Inventories 891 (1,866) (85)
Prepaid expenses and
other current assets 61 2,779 (3,871)
Refundable income taxes (6,908) -- --
Other assets -- 843 691
Accounts payable (716) 792 (591)
Accrued interest 5,536 -- --
Other accrued liabilities 17 (357) 3,386
Deferred income taxes 792 (566) (310)
-------- -------- --------
Total adjustments 3,539 10,809 19,748
-------- -------- --------
Net cash provided by
(used in) operating
activities 20,805 31,140 21,991
------- -------- --------
Cash flows from investing activities:
Capital expenditures (3,265) (942) (425)
Proceeds from disposition of business -- -- 2,119
Proceeds from disposition of business
held in escrow -- (1,000) --
Going private transactions (269,201) -- --
Investment in subsidiary (18,207) (9,323) --
-------- -------- --------
Net cash provided by
(used in) investing
activities (290,673) (11,265) 1,694
-------- -------- --------
Cash Flows from financing activities:
Net borrowings(payments) under
revolving credit agreements 4,295 (10,837) (19,872)
Payments on long-term debt -- (4,139) (4,386)
Proceeds from issuance of
common stock, net -- 925 873
Repurchase and cancellation of stock (3,186) (6,056) (490)
Proceeds from issuance of long-term
debt 196,216 -- --
Proceeds from issuance of common stock
warrants and common stock, net 79,400 -- --
Deferred financing costs (6,622) -- --
-------- -------- ---------
Net cash provided by
(used in) financing
activities 270,103 (20,107) (23,875)
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents 235 (232) (190)
Cash and cash equivalents at
beginning of year 475 707 897
-------- -------- --------
Cash and cash equivalents at
end of year $710 $475 $707
======== ======== ========
Supplemental disclosures:
Interest paid $3,474 $695 $2,318
Income taxes paid $11,360 $9,579 $6,048
Investing activities including the
acquisiton of Pompeii in 1999 and
and Tropic Craft in 1998.
Assets acquired, liabilities assumed and
Consideration paid was as follows:
Fair value of assets acquired $20,082 $10,078
Cash acquired -- (43)
Liabilities assumed (1,875) (712)
-------- --------
$18,207 $9,323
======== ========
See accompanying notes.
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
WinsLoew Furniture, Inc. ("WinsLoew") and its subsidiaries (the
"Company"). All material intercompany balances and transactions
have been eliminated.
BUSINESS
WinsLoew is comprised of companies engaged in the design,
manufacture and distribution of casual, contract seating and
ready-to-assemble ("RTA") furniture. WinsLoew's casual
furniture products are distributed through independent
manufacturer's representatives, and are constructed of extruded
and tubular aluminum, wrought iron and cast aluminum. These
products are distributed through fine patio stores, department
stores and full line furniture stores nationwide. WinsLoew's
contract seating products are distributed to a customer base,
which includes architectural design firms, restaurant and
lodging chains. WinsLoew's RTA products include promotionally
priced coffee and end tables, wall units and rolling carts.
Distribution of RTA furniture products is primarily through mass
merchandisers, catalogue wholesalers and specialty retailers.
The Company performs periodic credit evaluations of its
customers' financial condition and determines if collateral is
needed on a customer by customer basis.
CASH AND CASH EQUIVALENTS
The Company classifies as cash and cash equivalents all highly
liquid investments which have maturities at the date of purchase
of three months or less. The Company maintains its cash in bank
deposit accounts, which, at times, may exceed the federally
insured limits. The Company has not experienced any losses in
such accounts. The Company's cash balance at December 31, 1999
and 1998 includes $1.0 million in an escrow account pending final
purchase price adjustments related to the sale of a discontinued
operation (see Note 3).
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined utilizing the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company
provides for depreciation on a straight-line basis over the
following estimated useful lives: building and improvements, 8
to 40 years; manufacturing equipment, 2 to 10 years; office
furniture and equipment, 3 to 7 years; and vehicles, 3 to 5
years.
GOODWILL
Goodwill is amortized on a straight-line basis over forty years
from the date of the respective acquisition. The carrying value
of goodwill is reviewed if the facts and circumstances suggest
it may be impaired. If the review, using undiscounted cash
flows over the remaining amortization period, indicates that the
cost of goodwill will not be recoverable, the Company's carrying
value is reduced.
DEFERRED COSTS (OTHER ASSETS)
Loan acquisition costs and related legal fees, included in other
assets, are deferred and amortized over the respective terms of
the related debt.
ADVERTISING EXPENSE
The Company expenses advertising as incurred. Advertising
expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $2,204,000, $2,309,000 and $1,819,000
respectively.
INCOME TAXES
Deferred income taxes are provided for temporary differences
between the basis of assets and liabilities for financial
reporting purposes and the related basis for income tax purposes
in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes.
REVENUE RECOGNITION
Sales are recorded at time of shipment from the Company's
facilities to customers.
USE OF ESTIMATES
The preparation of the consolidated financial statements
requires the use of estimates in the amounts reported. Actual
results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have
been reclassified to conform with the 1999 financial statement
presentation.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS
The Company follows the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees and related Interpretations to account for its stock
option plan. Under provisions of APB No. 25, no compensation
expense has been recognized for stock option grants.
FOREIGN CURRENCY FORWARD CONTRACTS
The Company has exposure to losses, which may result from
settlement of certain raw materials purchases denominated in a
foreign currency. To reduce this exposure, the Company has
entered into forward contracts to buy foreign currency. These
forward contracts are accounted for as hedges, therefore, gains
and losses from settlement of the forward contracts are used to
offset gains and losses from settlement of the liability for the
purchased raw materials. Gains and losses are recognized in the
same period in which gains or losses from the raw material
purchases are recognized. The Company is exposed to losses on
the forward contracts in the event it does not purchase the raw
materials, however, the Company does not anticipate this event.
At December 31, 1999 and 1998 the Company did not have any forward
contracts outstanding. There were no significant deferred gains
or losses and actual gains (losses) included in cost of sales
were ($33,000), ($12,000) and $30,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
During 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ( SFAS 133 ).
SFAS 133 as amended by SFAS 137, requires companies to record
derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS 133 is effective beginning June 15,
2000. The adoption of SFAS 133 is not expected to have a
material impact on the financial position or results of
operations of the Company.
2. GOING PRIVATE TRANSACTION
From December 19, 1994 through August 27, 1999, WinsLoew's
common stock was traded on the NASDAQ National Market under the
symbol "WLFI". On August 27, 1999, WinsLoew and Trivest
Furniture Corporation (Trivest Furniture), a newly formed
Florida corporation was merged with and into WinsLoew, with
WinsLoew being the surviving corporation. The merger was
approved by majority vote of the shareholders on August 27,
1999. Pursuant to the merger, each holder of the outstanding
WinsLoew common stock, other than stock held by Trivest
Furniture, received $34.75 per share in cash, without interest,
and the holder of each outstanding stock option received a cash
payment equal to the difference between $34.75 and the exercise
price of the option.
Funds to pay the cash merger consideration, option
cancellation payments and related fees and expenses were
provided by the following sources: (1) the net proceeds from
the sale of units consisting of
12 3/4% senior subordinated notes
due 2007 and warrants to purchase common stock; (2) borrowings
of term loans and drawings on a revolving line of credit under
our senior credit facility; (3) and equity.
The stock purchase described above was completed in one
transaction. The Company accounted for the transaction in
accordance with the purchase method of accounting and adjusted
the basis of the assets and liabilities based upon the purchase
price described above. WinsLoew continues to report its full
year of operations as it is the surviving corporation.
The following sets forth the sources and uses of the funds
for the transaction.
Uses
( In Thousands)
Cost of stock and stock options $268,256
Expense of transaction 14,350
-------------
Total $282,606
Sources
( In Thousands )
Senior Subordinated Notes and warrants $102,452
Senior Credit facility 95,000
Cash equity investment 66,167
Rollover equity investment 11,833
Available cash on hand 7,154
---------------
Total $282,606
The total amount of goodwill recorded as a result of the
transaction was $191,205,500. The amount of unamortized goodwill
resulting from the transaction at December 31, 1999 was
$189,554,300.
The write-off of unamortized loan costs related to the
Company's former credit facility in the amount of $0.2 million
is reflected in the accompanying consolidated statements of
income for the year ended December 31, 1999. ( See Note 4 ).
3. DISCONTINUED OPERATIONS
During 1997 the Company adopted a plan to dispose of its RTA
operations. WinsLoew's RTA products included ergonomically-
designed computer workstations, which the Company denoted as
"space savers", promotionally-priced coffee and end tables, wall
units and rolling carts and an extensive line of futons, futon
frames and related accessories. Distribution of RTA furniture
products was primarily through mass merchandisers, catalogue
wholesalers and specialty retailers. As a result of this
decision, the Company recorded a pre-tax non-cash charge
totaling $12.4 million ($8.2 million net of taxes) in the fourth
quarter of 1997 relating to the disposal of the RTA operations.
The charge can be summarized as follows:
Write-off of goodwill in connection
with sale of assets $3,902,000
Reduction of inventory value 2,791,000
Reduction of property to net realizable value 2,067,000
Reduction of accounts receivable value 1,390,000
Other Liabilities / Reserves 1,050,000
Accrual for losses through disposition 1,200,000
-----------
Total $12,400,000
===========
The Company planned to sell two of the businesses and liquidate
the assets related to the futon business. During 1998 the
Company sold one of the businesses and completed the liquidation
of the futon business. At the end of 1997 and during 1998, the
Company attempted to sell its remaining RTA facility but was
unable to obtain a satisfactory offer. The Company devoted
significant management time to the operation resulting in
improved profitability by the end of 1998. Due to the recovery,
the Company decided, during the fourth quarter of 1998, to
retain Southern Wood.
As a condition of the sale mentioned above, WinsLoew is required
to hold in escrow $1.0 million of the sales proceeds to provide
indemnification to the purchaser for claims arising from the
date of purchase to December 31, 1999. In January 2000, the
escrow amount was distributed to the company.
The operating results of the discontinued operations are
summarized as follows (dollars in thousands):
For the Years Ended December 31,
1999 1998 1997
Net sales $ -- $4,432 $15,921
Income before taxes -- -- (1,178)
Net Loss -- -- (718)
There were no net assets or liabilities related to discontinued
operations at December 31, 1999, while the net liabilities of
discontinued operations at December 31, 1998 were $1,750,000.
Under the provisions of SFAS No. 5, Accounting for
Contingencies, the Company evaluated the contingencies related
to the sale of its discontinued RTA operation and the
liquidation of its discontinued futon operations. This
evaluation resulted in a net liability at the end of 1998 of
$1,750,000 which was comprised of $1,160,000 for the settlement
of warranty claims and product returns in accordance with the
Company's warranty policy and contractual indemnity related to
the sale of the RTA operations, $200,000 in contingent
liabilities related to the closing of the sale of the RTA
operations, $250,000 of litigation involving a disputed trade
name and $140,000 of miscellaneous items. These contingencies
were settled during 1999 and there are no liabilities related to
the discontinued RTA operation or Futon operations at December
31, 1999.
The total assets and liabilities of the subsequently retained
Southern Wood operation for the period classified as a
discontinued operation were $4.0 million and $1.1 million,
respectively, at December 31, 1997.
The operating results of the subsequently retained Southern Wood
operation for each of the years the operation was reported as a
discontinued operation are summarized as follows (dollars in
thousands):
For the Years Ended December 31,
1998 1997
Net Sales $11,689 $7,396
Income before taxes 1,004 399
Net income 611 247
The Company recorded pre-tax income from the disposition of
discontinued operations totaling $1.2 million ($0.76 million net
of taxes) and $3.2 million ( $2.0 million net of taxes ) for
1999 and 1998 respectively. The components are as follows:
1999 1998
Gain on liquidation
of Futon operations 524,000 2,425,000
Reversal of reserves
related to Southern
Wood -- 1,857,000
Gain (loss) on sale of
remaining RTA operation 678,000 (1,093,000)
---------- -----------
Total $1,202,000 $3,189,000
========== ==========
The reversal of reserves is comprised of $1,157,000 related to
the write-down of assets to net realizable values, $400,000
estimated loss from operations, and $300,000 for estimated costs
of disposal. The amounts were a reversal of the amounts accrued
in 1997 for discontinued operations related to Southern Wood.
The loss on the sale of the remaining RTA operation is the
actual loss incurred on the sale of the business in 1998.
As a result of the Board's decision to retain Southern Wood, the
consolidated financial statements for 1997 have been
reclassified to reflect the results of operations of
Southern Wood as a continuing operation.
4. ACQUISITIONS AND DISPOSITION
During the third quarter of 1997 the Company disposed of certain
assets of its wrought iron business in the casual furniture
product line. The sale generated proceeds of $2.1 million.
This business accounted for net sales of $5.7 million and $11.0
million in the years ended December 31, 1997 and 1996,
respectively. The operating income of this business was not
material to consolidated operating income. During the third
quarter of 1997, the Company recorded approximately $230,000 of
costs associated with the sale in selling, general and
administrative expenses.
In June 1998, the Company purchased all of the stock of
Villella, Inc. d/b/a Tropic Craft Aluminum Furniture
Manufacturers ("Tropic Craft") for $9.3 million. In addition,
the seller is entitled to receive contingent purchase
price payments of up to $1.0 million upon achievement of targeted
earning performance with respect to the years ending June 30,
1999 and June 30, 2000. During 1999, the seller received a
payment of $500,000 based upon the earnings performance for the
year ended June 30, 1999. Tropic Craft is engaged in the design
and manufacture of contract casual furniture. The acquisition
resulted in goodwill of $6.9 million. Funds for the acquisition
were provided under WinsLoew's credit facility. The acquisition
was accounted for under the purchase method and, accordingly,
the operating results of Tropic Craft have been included in the
consolidated operating results since the date of acquisition.
On July 23, 1999, the Company purchased the stock of Miami Metal
Products d/b/a Pompeii Furniture Industries, Inc. and its
affiliate, Industrial Mueblera Pompeii De Mexico, S.A. De
C.V.(Pompeii), which are involved in the design and manufacture
of casual furniture sold in the residential and contract
markets. The purchase price of approximately $18.2 million,
including fees and expenses, was paid in cash and funded with
internally generated funds. The acquisition resulted in
goodwill of approximately $14.0 million and was accounted for
under the purchase method of accounting and accordingly, the
operating results of Pompeii have been included in the
consolidated operating results since the date of acquisition.
The following unaudited pro forma information has been
prepared assuming that the acquisitions of Tropic Craft and
Pompeii as well as the merger with Trivest Furniture (see Note 2)
occurred on January 1, 1998. Permitted pro forma adjustments
include only the effects of events directly attributable to the
transaction that are factually supportable and expected to have
a continuing impact. The pro forma results are not necessarily
indicative of what actually would have occurred if the
acquisition had been in effect for the entire period presented.
In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved
from combined operations.
(In thousands)
For the Years Ended December 31,
1999 1998
Net sales $170,267 $159,124
Income from continuing
operations $3,880 $443
Net income $4,635 $2,474
5. LONG-TERM DEBT
During 1999, proceeds from borrowings under the Company's new
senior credit facility and the sale of units, consisting of
12 3/4% senior subordinated notes due 2007 and warrants to purchase
common stock, were used to finance a portion of the
consideration in the merger of WinsLoew with Trivest Furniture.
(see Note 2).
Long-term debt consisted of the following at December 31, 1999
and 1998:
(In thousands) 1999 1998
Revolving line of credit $5,742 $1,400
Term Loan 95,000 47
Subordinated notes 101,216 --
------- -------
201,958 1,447
Less current portion 3,700 47
------- -------
$198,258 $1,400
======== ========
At December 31, 1999 and 1998, the carrying amounts of long-term
debt approximated their fair values.
SENIOR CREDIT FACILITY
In connection with the merger, WinsLoew entered into a
senior credit facility provided by a syndicate of financial
institutions. The facility, which matures in December 2004,
provides for borrowings of up to $155 million and is
collateralized by substantially all of the assets of the
Company. The facility consists of a working capital line of
credit (maximum of $40 million), term loans (aggregate of $95
million) and an acquisition line of credit (maximum of $20
million). The working capital line of credit allows the Company
to borrow funds up to a certain percentage of eligible
inventories and accounts receivable. At December 31, 1999, the
carrying value of the working capital line of credit, $5.7
million, approximated its fair value. The term loans consist of
three loans, with principal balances and applicable interest
rates at December 31, 1999, as follow:
Term Loan A Term Loan B Term Loan C
---------------------------------------------
Principal Balance $25 million $62.5 million $7.5 million
Eurodollar rate 8.9375% 9.4375% 9.4375%
Maturity date December 21,2004 June 30,2006 June 30,2006
At the option of the Company, the interest rates under the
facility are either: (1) the base rate, which is the higher of
the prime, lending rate or 0.5% in excess of the federal funds
effective rate, plus a margin, or (2) the adjusted Eurodollar
rate plus a margin. The margins of different loans under the
facility vary according to a pricing grid. The margins for base
rate loans range from zero to 1.0% for the working capital line
of credit, term loan A and the acquisition line of credit and
from 1.0% to 1.5% for term loan B and term loan C, in each case
depending on WinsLoew's consolidated leverage ratio. The
margins for Eurodollar rate loans range from 2.0% to 3.0% for
the working capital line of credit, term loan A and the
acquisition line of credit and from 3.0% to 3.5% for term loan B
and term loan C, in each case depending on WinsLoew's
consolidated leverage ratio. As of December 31, 1999, the
loans are priced at the Eurodollar rate plus a margin of 3.0%
for the working capital line of credit, term loan A and
acquisition line of credit and a margin of 3.5 % for the term
loan B and term loan C.
The outstanding balance of term loan A is due 12.0% in
2000, 12.0% in 2001, 24.0% in 2002, 24.0% in 2003 and 28.0% in
2004. The outstanding balance of term loan B is due 1.12% in
each of 2000, 2001, 2002, 2003 and 2004,53.2% in 2005 and 41.2%
in 2006.The entire outstanding balance of the term loan C
is due in 2006. Amounts outstanding under the acquisition line
of credit at December 31, 2001 convert to a term loan with the
balance payable 20.0% in 2002, 30.0% in 2003 and 50.0% in 2004.
The Company must pay commitment fees (1) at a rate per
annum equal to 0.5% or the undrawn amounts of the working
capital line of credit, subject to a reduction to 0.375% per
annum depending upon its consolidated leverage ratio and (2) at
a rate per annum of 0.75% on the undrawn amount of the
acquisition line of credit during the resolving period, subject
to a reduction to 0.5% (or 0.375% depending upon its
consolidated leverage ratio) per annum from and after the date
on which at least $10.0 million is outstanding under the
acquisition line of credit.
The facility contains customary covenants and restrictions
on the Company's and its subsidiaries' ability to issue
additional debt or engage in certain activities and includes
customary events of default. In addition, the facility
specifies that the Company must meet or exceed defined fixed
charge and interest coverage ratios and must not exceed
defined leverage ratios. At December 31, 1999, the Company was
in compliance with such covenants.
The facility is secured by a pledge of the capital stock of
all the Company's domestic subsidiaries.
SENIOR SUBORDINATED NOTES AND WARRANTS
In connection with the merger, the Company issued 105,000
units ("Units") consisting of $105 million aggregate principal
amount at maturity of 12 3 / 4 % senior subordinated notes due 2007
("Notes") and warrants ("Warrants") to purchase an aggregate of
24,129 shares of its capital stock. Each Unit consists of
$1,000 aggregate principal amount at maturity of Notes and a
Warrant to purchase 0.2298 shares of common stock at an exercise
price of $0.01 per share. The issue price of each Unit was
$975.73, of which the Company allocated $962.40 to the Notes and
$13.33 to the Warrant. The total amount of discount recorded on
the notes was $3,948,350 and is being amortized on a straight
line basis to interest expense over the life of the Notes.
The Notes are general unsecured obligations of the Company and
are junior in the right of payment to the Company's debt that does
not expressly provide that it ranks equally with or junior to the
Notes, including the Company's obligations under its senior
credit facility. The Notes are unconditionally guaranteed by
the direct and indirect domestic subsidiaries of WinsLoew and
bear interest at 12 3 / 4%, which is payable semi-annually on
February 15 and August 15 beginning on February 15, 2000. The
Notes will mature on August 15, 2007.
On or after August 15, 2003, the Company may redeem the
Notes, in whole or in part, at any time at the following
redemption prices:
YEAR PERCENTAGE
2003 106.375%
2004 104.250%
2005 102.125%
2006 and thereafter 100.000%
The Company may, at its option, at any time prior to August
15, 2002, redeem up to 25% of the Notes using the net proceeds
of an underwritten public offering of capital stock.
The Warrants are exercisable on or after the occurrence of
certain events. Assuming full exercise of the Warrants, the
aggregate number of shares would approximate 3% of the common
stock of WinsLoew. The Warrants expire on August 15, 2007. The
Company estimates the value of the Warrants at $1.4 million,
which is reflected as "additional paid-in capital" in the
accompanying consolidated balance sheet.
The indenture under which the Notes are issued requires the
Company to meet a minimum fixed charge coverage ratio and
includes other provisions generally common in such indentures
including restrictions on dividends, additional indebtedness and
asset sales. At December 31, 1999, the Company was in
compliance with such covenants.
Maturities of long-term debt for the five years succeeding
December 31, 1999 are $3.7 million in 2000, $3.7 million in
2001, $6.7 million in 2002, $6.7 million in 2003 and $7.7
million in 2004.
6. CAPITAL STOCK
On January 23, 1998, the Board approved a plan authorizing the
repurchase of 1,000,000 shares of the Company's stock in the
open market at times and prices deemed advantageous. During
1998, the Company retired 296,000 shares of common stock
purchased for $6.1 million. In 1999, prior to going-private the
Company purchased 112,500 shares at a cost of $2.2 million. As
part of the going private transaction the Company purchased all
of the remaining 7,181,908 shares outstanding at a cost of
$268.3 million, which includes the exercise of stock options.
Also, in connection with the going-private transaction WinsLoew
has authorized 1,000,000 shares of $0.01 par value common stock.
At December 31, 1999 there were 780,000 shares issued and
outstanding.
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the
following:
For the Years Ended December 31,
(in thousands) 1999 1998 1997
-----------------------------------
Provision for taxes
related to continuing
operations $11,339 $10,947 $6,838
Benefit for taxes
related to
discontinued
operations -- -- (375)
Provison (benefit)
for taxes related to
loss on sale of
discontinued operations 447 1,158 (4,200)
--------------------------------------
Total provision
for taxes $11,786 $12,105 $2,263
======================================
For the Years Ended December 31,
(In thousands) 1999 1998 1997
Federal:
Current $10,696 $10,128 $3,985
Deferred 48 856 (1,936)
State:
Current 742 989 496
Deferred 300 132 (282)
-----------------------------------
$11,786 $12,105 $2,263
===================================
At December 31, 1999 and 1998, deferred tax assets and
liabilities consisted of the following:
(In thousands) 1999 1998
-----------------------
Deferred tax assets:
Capitalized inventory costs $162 $173
Reserves and accruals 2,876 2,894
State net operating loss
carryforwards 9 304
-----------------------
Deferred tax assets 3,047 3,371
-----------------------
Deferred tax liabilities:
Intangible asset basis
difference (430) (191)
Excess of tax over
book depreciation (660) (611)
Prepaid Expenses (91) (94)
Other (243) (504)
-----------------------
Deferred tax liabilities (1,424) (1,400)
------------------------
Deferred income taxes, net $1,623 $1,971
=========================
Included in:
Other current
assets/liabilities $2,722 $2,772
Deferred income taxes (1,099) (801)
------------------------
$1,623 $1,971
The following table summarizes the differences between the
federal income tax rate and the Company's effective income tax
rate for financial statement purposes:
For the Years Ended December 31,
1999 1998 1997
--------------------------------------
Federal income tax rate 35.0% 35.0% 34.0%
State income taxes 2.3% 3.4% 4.7%
Goodwill Amortization 2.7% 2.1% 9.3%
Other 0.6% (3.4&) 2.2%
-----------------------------------
Effective tax rate 40.6% 37.1% 50.2%
===================================
8. RELATED PARTY TRANSACTIONS
In October 1994, WinsLoew entered into a ten-year agreement (the
"Investment Services Agreement") with Trivest, Inc. ("Trivest").
Trivest and the Company have certain common shareholders,
officers and directors. Pursuant to the Investment Services
Agreement, Trivest provides corporate finance, financial
relations, strategic and capital planning and other management
advice to the Company. The base compensation was $500,000,
subject to cost of living increases and increases for additional
businesses acquired. During 1999, in conjunction with the merger
with Trivest Furniture Company, the Investment Services
Agreement was amended to adjust the annual base compensation
from $500,000 to $350,000. For 1999, 1998 and 1997, the amount
expensed was $458,000, $641,000 and $628,000 respectively.
Under the agreement, the Company also paid Trivest $375,000 in
connection with the Pompeii acquisition ( see Note 4 ) and
$3,000,000 in connection with the going-private transaction (
see Note 2 ).
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space, manufacturing
facilities and various items of equipment under operating
leases. Some leases for office and manufacturing space contain
renewal options and provisions for increases in minimum payments
based on various measures of inflation. Rental expense amounted
to approximately $1,009,000, $830,000, and $769,000, for the
years ended December 31, 1999, 1998 and 1997, respectively.
Operating lease agreements in effect at December 31, 1999 have
the following remaining minimum payment obligations:
(In thousands)
2000 $1,391
2001 1,461
2002 1,247
2003 988
2004 797
2005-2008 1,207
-------
7,091
=======
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain employees.
The agreements provide for minimum salary levels and bonuses
based on a percentage of pre-tax operating income, as defined in
the agreements.
EMPLOYEE BENEFIT PLANS
The Company has two employee benefit plans established under the
provisions of Section 401(k) of the Internal Revenue Code.
Full-time employees who meet various eligibility requirements
may voluntarily participate in the plans. The plans provide
for voluntary employee contributions through salary reductions,
as well as discretionary employer contributions. Company
contributions were $202,000, $161,000 and $143,000 in 1999, 1998
and 1997 respectively.
STOCK OPTIONS
In 1994, the Company established a Stock Option Plan (the
"Plan") as a means to retain and motivate key employees and
directors. The Compensation Committee of the Board of Directors
administers and interprets the Plan and is authorized to grant
options to all eligible employees of the Company and non-
employee directors. The Plan provides for both incentive stock
options and non-qualified stock options. Options are granted
under the Plan on such terms and at such prices as determined by
the Compensation Committee, except that the per share exercise
price of incentive stock options cannot be less than the fair
market value of the Company's common stock on the date of grant.
The Company has reserved 1,500,000 shares of common stock for
issuance upon exercise of stock options. All options which have
been granted have a term of ten years and vest ratably over five
years.
Pro forma net income and earnings per share have been determined
as if the Company had accounted for its employee stock options
as compensation expense based on their fair value. Fair value
was estimated at the date of grant using a Black-Scholes option
pricing model for 1998 and 1997 assuming a risk-free
interest rate of 4.83%, and 6.45% for 1998 and 1997,
respectively, a volatility factor for the Company's common stock
of .608 and .411 in 1998 and 1997, respectively and
a weighted-average expected life of the options of six years.
The pro forma information is not likely to be representative of
the effects of options on pro forma net income in future years
because the Company is required to include only options granted
since 1994 in the pro forma information.
For the Years Ended December 31,
(In thousands) 1998 1997
--------------------------------
Pro forma net income $20,035 $2,068
===============================
Information with respect to WinsLoew's Plan is as follows:
1999
-----------------------
Weighted
Average Exercise
Options Price 1998 1997
-------------------------------------------------------
Options outstanding
at January 1 742,900 $9.89 784,850 671,550
Granted 22,500 $24.34 40,000 250,000
Exercised (765,400) $10.34 (63,900) (94,725)
Canceled -- -- (18,050) (41,975)
--------------------------------------------------------
Options outstanding
at December 31 -- -- 742,900 784,850
========== =========================
Exercise prices
per share $5.88-$24.38 $5.88-$23.44 $5.88-$16.06
Options exercisable
at December 31 -- -- 422,060 407,100
=========== ==========================
Options available
for grant at
December 31 -- 573,375 595,325
=========== ==========================
Upon consummation of the merger on August 27,1999, all outstanding options
were cancelled, with holders entitled to payment of the difference between
the option exercise price and $34.75.
We have no stock option plans or outstanding stock options at December 31,1999.
LITIGATION AND LIABILITY CLAIMS
The Company is, from time to time, involved in routine litigation icluding
general liability and worker's compensation claims. It is the opinion of
management that sufficient insurance has been purchased to cover current and
potential general liability and worker's compensation claims. None of such
litigation in which the Company is presently involved is believed to be material
to its liquidity, financial position or results of operations.
OPERATING SEGMENTS
The Company has three segments organized and managed based on the products
sold. These reportable segments are described in Note 1.
The Company evaluates performance and allocates resources based on
gross profit. The accounting policies are the same as those described
in the summary of significant accounting policies. There are no
intersegment sale/transfers. Export revenues are not material.
For the Years Ended December 31,
1999 1998 1997
(In thousands) ---------------------------------
REVENUES:
Casual Products $74,586 $59,733 $56,363
Contract seating products 72,346 69,938 58,386
Ready to assemble products 15,207 11,689 7,396
-----------------------------------
Total Revenues $162,139 $141,360 $122,145
===================================
SEGMENT GROSS PROFIT
Casual products $36,526 $28,227 $24,164
Contract seating products 25,704 23,439 17,256
Ready to assemble products 3,525 2,462 1,294
------------------------------------
Total segment gross profit 65,755 54,128 42,714
Reconciling items:
Selling, general and
administrative expenses 25,674 23,124 21,427
Amortization 3,321 1,122 992
-------------------------------------
Operating income 36,760 29,882 20,295
Interest expense,net 8,910 635 2,296
-------------------------------------
Income from continuing
operations before
income taxes $27,850 $29,247 $17,999
=====================================
DEPRECIATION AND
AMORTIZATION:
Casual products $2,073 $1,550 $1,532
Contract seating products 374 425 411
Ready to assemble products 312 309 341
--------------------------------------
Total 2,759 2,284 2,284
Reconciling items:
Corporate 2,086 334 350
--------------------------------------
Total depreciation
and amortization $4,845 $2,618 $2,634
======================================
EXPENDITURES FOR For the Years Ended December 31,
(DISPOSAL OF) LONG 1999 1998 1997
LIVED ASSETS, NET: -------------------------------------
Casual products $1,834 (24) 790
Contract seating products 146 129 236
Ready to assemble products 55 103 (576)
-----------------------------------
Total 2,035 208 450
Reconciling items:
Corporate 1,230 734 (25)
-----------------------------------
Total expenditures for long
lived assets, net $3,265 $942 $425
===================================
SEGMENT ASSETS:
Casual products $71,079 $51,880 $41,964
Contract seating products 24,156 23,486 21,836
Ready to assemble products 7,379 6,496 3,974
-----------------------------------
Total 102,614 81,862 67,774
Reconciling items:
Corporate 205,448 2,691 6,622
Assets held for sale -- -- 6,018
-----------------------------------
Total consolidated assets $308,062 $84,553 $80,414
====================================
The Company has one contract seating customer that accounted for
15%, 17% and 16%of consolidated revenues in the years ended
December 31,1999,1998 and 1997, respectively.
11.SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items
specified below:
December 31,
1999 1998
--------------------
(In thousands)
Inventories:
Raw materials $11,502 $9,288
Work in process 1,751 1,521
Finished goods 1,292 1,397
---------------------
$14,545 $12,206
=====================
Property,plant,and
equipment:
Land $2,628 $2,628
Buildings and
improvements 8,590 10,838
Manufacturing equipment 3,660 9,464
Office equipment 611 1,953
Construction in progress 240 81
Vehicles/Airplane 1,243 176
------------------------
16,972 25,140
Accumulated depreciation (510) (11,192)
------------------------
$16,462 $13,948
========================
Other accrued liabilities:
Compensation, commisions
and employee benefits $2,900 $3,063
Customer deposits 1,505 1,749
Income Taxes 1,339 1,546
Other 7,725 3,570
-----------------------
$13,469 $9,928
Depreciation expense for continuing operations was $1,524,000,
$1,496,000, and $1,642,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
Accumulated amortization at December 31, 1999 and 1998 related
to goodwill was $8,704,000 and $6,348,000, respectively.
Accumulated amortization at December 31, 1999 and 1998 related
to other intangible assets was $486,000 and $1,110,000,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No events or occurrences required to be disclosed in this
Item 9 have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as
follows:
Name Age Position
- -------------------------------------------------------------
Earl W. Powell 61 Chairman of the Board
Bobby Tesney 55 President,Chief Executive Officer and Director
Stewart Long 42 Executive Vice President-Contract Seating
Jerry Camp 34 Executive Vice President-Casual Furniture
Vincent A. Tortorici, Jr 46 Vice President and Chief Financial Officer
Rick J. Stephens 45 Vice Presidnet-Operations
William F.Kaczynski, Jr 40 Director
David Soloman 37 Director
We were incorporated in September 1994, and in December
1994, acquired our principal operating subsidiaries, Winston and
Loewenstein, each of which was a publicly held corporation whose
common stock traded on the Nasdaq National Market. Our common
stock traded on the Nasdaq National Market from December 1994
through August 1999. On August 27, 1999, Trivest Furniture
Corporation, a newly formed corporation organized by an investor
group led by Trivest, merged with and into us. In the merger,
the shares of Trivest Furniture Corporation were converted to
our shares, and all other shares of our common stock were
converted into the right to receive $34.75 per share in cash. As
a result of the merger, the shareholders of Trivest Furniture
Corporation became our sole shareholders. Each of our directors
and executive officers, other than Mr. Solomon, were also
directors or executive officers of ours and our predecessors,
Winston or Loewenstein, as described below
Mr. Powell, Chairman of the Board of the Company since
October 1994, serves as President and Chief Executive Officer of
Trivest, Inc. ("Trivest"), which is a private investment firm
specializing in management services and acquisitions,
dispositions and leveraged buyouts, which was formed by Messrs.
Powell and George in 1981. Trivest is an affiliate of the
Trivest Partnerships and Trivest Manager. Mr. Powell has also
served as Chairman of the Board of Atlantis Plastics, Inc., an
American Stock Exchange company whose subsidiaries are engaged
in the plastics industry ("Atlantis"), since founding that
company in February 1984, as Chief Executive of Atlantis from
its organization until February 1995 and as President of
Atlantis from November 1993 to February 1995. Mr. Powell has
served as Chairman of the Board of Biscayne Apparel, Inc., a
company whose principal subsidiaries are engaged in the apparel
industry ("Biscayne"), since October 1985 and presently serves
as Chief Executive Officer of Biscayne. The common stock of
Biscayne is quoted on the NASD OTC Bulletin Board. Biscayne
filed a voluntary Chapter 11 bankruptcy petition in February
1999. Mr. Powell also served as Chairman of the Board of
Winston from December 1988 to December 1994, Chairman of the
Board of Loewenstein from February 1985 to December 1994 and as
Loewenstein's President and Chief Executive Officer from May
1994 to December 1994. From 1971 until 1985, Mr. Powell was a
partner with KPMG Peat Marwick, Certified Public Accountants
("Peat Marwick"), where his positions included serving as
managing partner of Peat Marwick's Miami office.
Mr. Tesney, President, Chief Executive Officer and a
director of the Company since October 1994, served as President,
Chief Executive Officer and a director of Winston from December
1993 to December 1994, General Manager of Winston from 1985 to
December 1993 and as Senior Vice President-Operations of Winston
from January to December 1993. Mr. Tesney also served as Vice
President of Winston from 1979 until January 1992.
Mr. Tortorici, the Company's Vice President and Chief
Financial Officer since October 1994, served as Winston's Vice
President-Finance and Administration and Chief Financial Officer
from March 1988 to December 1994. Mr. Tortorici is a certified
public accountant and was employed by Arthur Andersen & Co. from
1976 until March 1988.
Mr. Camp, the Company's Executive Vice President-Casual
Furniture since October 1999, served as Vice President - Casual
Furniture Operations from May 1999 to October 1999, served as
the Company's Vice President of Operations from September 1998
to May 1999, served as Director of Safety, Environmental and
Human Resources from October 1994 to September 1998, served as
Director of Engineering at Winston from September 1988 to
October 1994, and served in various other capacities with
Winston, including Project Engineer, from May 1984 to September
1988.
Mr. Kaczynski was elected director of the Company in
January 1998. Mr. Kaczynski has served as an executive officer
of Trivest since January 1998 and is presently a Managing
Director. From July 1996 until December 1997, he was Chief
Financial Officer of WebSite Management Company, Inc. d/b/a
FlashNet Communications, an Internet service provider. From May
1994 until July 1996, he was Chief Financial Officer of Colorado
Mountain Express, Inc., an airport transportation company.
Prior to that he was with Heller Financial, Inc. from 1986 until
1994, most recently as Senior Vice President-Corporate Finance
Group, Dallas, Texas.
Mr. Stephens, the Company's Vice President - Operations
since May 1999, served as vice president - operations at Winston
from January 1995 to May 1999 and served as vice president and
general manager at Winston from December 1993 to January 1995.
Mr. Solomon, a director since September 1999, is a
managing director with Goldman, Sachs & Co. He joined Goldman,
Sachs in September 1999 as co-head of the firm's leveraged
finance businesses in the Fixed Income Currencies & Commodities
division. From January 1991 until September 1999 Mr. Solomon
worked at Bear, Stearns & Co., Inc., most recently as a member
of its Management & Compensation Committee and co-head of the
Investment Banking Division. Prior to joining Bear Stearns, Mr.
Solomon worked at Salomon Brothers and at Drexel Burnham Lambert
in various capacities in each firm's high yield businesses.
Prior to joining Drexel Burnham Lambert, Mr. Solomon worked for
Irving Trust Company in its financial institutions group and
Irving Securities, Inc.
Mr. Long, the Company's Executive Vice President-
Contract Seating since December 1999, served as Vice president -
Contract Seating Operations from February 1996 to November 1999.
Prior to joining the company Mr. Long worked for Allsteel, Inc.
in the capacity of General manager for three years. Mr. Long
started his career with Herman Miller, Inc. in the finance area
and served as Controller from 1984 to 1991, and from 1991 to
1993 as Director of Manufacturing.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation awarded to,
earned by or paid to the Company's Chief Executive Officer, and
each of the Company's other executive officers on December 31,
1999 and to former executive officers whose total 1999 salary
and bonus from the Company was $100,000 or more (the Chief
Executive Officer and such other executive officers are referred
to herein as the "Named Executive Officers").
Long Term
Annual Compensation Awards
--------------------------------------------------
Number
Of
Fiscal Annual Other Annual Options
Name and Principal Year Salary Bonus Compensation(1) Granted
Position
- ------------------
Bobby Tesney 1999 $275,000 $275,000 $97,259 --
President and Chief 1998 250,150 250,150 88,471 --
Executive Officer 1997 245,000 183,750 49,221 40,000
Stephen C. Hess 1999 205,672 174,803 42,556 --
Former Executive Vice 1998 204,200 173,570 42,256 --
President-Casual(2) 1997 200,000 150,000 20,935 30,000
Vincent A. Tortorici 1999 162,000 105,300 14,056 --
Vice President and 1998 148,050 96,233 12,845 --
Chief Financial 1997 145,000 72,500 12,669 25,000
Officer
Rick J. Stephens 1999 123,552 61,776 11,338 --
Vice President- 1998 123,552 61,776 9,121 --
Operations 1997 120,240 48,096 7,567 7,500
Jerry C. Camp 1999 138,750 45,938 23,925 --
Executive Vice 1998 94,096 28,800 7,820 --
President-Casual 1997 85,770 8,900 5,908 5,000
Stewart Long 1999 121,530 41,293 12,097 --
Executive Vice 1998 112,692 49,875 -- --
President-Seating 1997 95,748 39,066 -- --
R. Craig Watts 1999 189,111 167,741 10,626 --
Former Executive 1998 185,824 157,803 21,067 --
Vice President- 1997 166,138 121,103 20,357 25,000
Seating(2)
(1) "Other Annual Compensation" represents amount paid by the
Company on behalf of the Named Executive Officer under the
Company's Non-Qualified Supplemental Executive Retirement Plan
established in October 1996. Under the terms of this Plan,
selected employees make after-tax contributions of their
salary to one or more investment alternatives available under
such Plan. The Company then matches the employee contribution
(up to 10% of compensation on an after-tax basis) depending on
the employee's length of service (up to 50% for 15 years of
continuous service). The employee is vested at all times in
the deferred compensation and is vested immediately in the
matching contribution.
(2) Resigned in October 1999 to assume other responsibilities
within the company.
Option Grants
No stock options were granted to any Named Executive
Officers in 1999. Upon the consummation of the going private
transaction on August 27, 1999, all outstanding options were
cancelled, with holders entitled to payment of the difference
between the option exercise price and $34.75. We have no stock
option plans or outstanding stock options at December 31,1999.
401 (k) Plans
Effective January 1, 1997, we established the WinsLoew
Furniture, Inc. 401(k) Plan. Our employees and our subsidiaries'
employees are eligible to participate in the 401(k) Plan
following the later to occur of (i) the employee's completion of
one year of service or (ii) the employee's 21st birthday.
Eligible employees may make a salary reduction contributions to
the 401(k) Plan on a pretax basis. For each calendar year, we
and the other participating employees may make matching
contributions to the 401(k) Plan based on a discretionary
matching percentage to be determined each year by management. In
addition, we and the other participating employers may make a
discretionary profit sharing contribution to the plan on behalf
of each participant who completes more than 500 hours of service
during the year or who is employed on the last day of the year.
This latter contribution is allocated proportionately based on
each participants compensation. An employee's vested benefits
are payable upon his retirement, death, disability, or other
termination of employment or upon the attainment of age 59 . An
employee is always fully vested in his account balance
attributable to his own contributions to the 401(k) Plan. The
employee's interest in the account attributable to his employers
contributions and earnings thereon becomes fully vested upon the
earlier of the attainment of his normal retirement date (age
65), his death, his permanent and total disability, or his
completion of six years of service. If an employee terminates
employment for reasons other than retirement, death, or
disability, his vested interest is based on a graduated vesting
schedule which provides for 20% vesting after two years of
service and 20% for each year thereafter. Employees forfeit
nonvested amounts.
As a result of the Pompeii acquisition in July 1999, an
additional 401-k plan is in effect. Employees of Pompeii are
eligible to participate in the Plan immediately after hire.
Eligible employees may make salary reduction
contributions to the Plan on a pretax basis. For each calendar
year, the Company may make matching contributions to the Plan
based on a discretionary matching percentage to be determined
each year by the Company.
Employees are not eligible for the company match until completion
of one year of service. In addition, the Company may make a
discretionary profit sharing contribution to the plan on behalf
of each participant who completes more than 1000 hours of
service during the year and who is employed on the last day of
the year. This latter contribution is allocated proportionately
based on each participant's compensation. An employee's vested
benefits are payable upon his retirement, death, disability, or
other termination of employment. An employee is always fully
vested in his account balance attributable to his own
contributions to the Plan. The employee's interest in the
account attributable to his employers contributions and earnings
thereon becomes fully vested upon his completion of seven years
of service. If an employee terminates employment for reasons
other than retirement, death, or disability, his vested interest
is based on a graduated vesting schedule that provides for 20%
vesting after three years of service and 20% for each year
thereafter. Nonvested amounts are forfeited.
Long Term Incentive and Pension Plans
The Company has no Long Term Incentive or Pension Plans.
Director Compensation
We pay each non-Trivest/employee director an annual
retainer of $12,000, payable in quarterly installments of $3,000
and a $500 fee for each meeting of the board of directors
attended. We reimburse all directors for all travel-related
expenses incurred in connection with their activities as
directors.
Employment Contracts, Termination of Employment and Change
in Control Arrangements
We have entered into five-year employment agreements with each
of Messrs. Tesney and Tortorici effective as of August 27, 1999.
The employment agreements provide for us to pay Mr. Tesney a
1999 base salary of $275,000, and Mr. Tortorici a 1999 base
salary of $162,000. The employment agreements provide for us to
pay Mr. Tesney a 2000 base salary of $300,000 and Mr. Tortorici
a 2000 base salary of $175,000, in each case subject to
subsequent annual cost of living adjustments. The employment
agreements also provide for annual incentive compensation
payments of up to a specified portion of the executive's then
base salary, 100% in the case of Mr. Tesney and 65% in the case
of Mr. Tortorici, based on the operating earnings, adjusted to
exclude the effect of goodwill amortization, of WinsLoew. None
of these officers will receive any incentive compensation
payment under his employment agreement for any particular year
unless the relevant operating earnings for such year are at
least 75% of the target earnings for such year. Each employment
agreement also provides that the executive will receive six
months base salary if his employment is terminated without cause
as defined in the employment agreements, and prohibits the
executive from directly or indirectly competing with us for one
year after termination of his employment, or, if he is
terminated by us without cause, six months after termination.
We have also entered into a five-year employment agreement
with Mr. Long effective as of December 6, 1999. The employment
agreement provides for us to pay Mr. Long a 2000 base salary of
$160,000, subject to subsequent annual cost of living
adjustments. The employment agreement also provides for annual
incentive compensation payments of up to 50% of the executive's
then base salary, based on the operating earnings, adjusted to
exclude the effect of goodwill amortization, of our seating
division. Mr. Long will not receive any incentive compensation
payment under his employment agreement for any particular year
unless the relevant operating earnings for such year are at
least 75% of the target earnings for such year. Mr. Long's
employment agreement also provides that the executive will
receive six months base salary if his employment is terminated
without cause as defined in the employment agreements, and
prohibits the executive from directly or indirectly competing
with us for one year after termination of his employment, or, if
he is terminated by us without cause, six months after
termination.
Severance Agreements
On August 27, 1999 we entered into severance agreements with
each of Messrs. Tesney and Tortorici, under which we have agreed
to provide them with severance pay and benefits if their
employment is terminated by us following a change in control as
defined in the agreement. Under each agreement, if we terminate
employment either for cause as defined in the agreement, because
of the employee's death, or if the employee terminates his
employment other than for good reason as defined in the
agreement, following a change in control, we must pay the
employee his full base salary through the date of termination
plus all other benefits he may be entitled to under any
retirement plan we may then have.
If, on the other hand, at any time during the 180 day period
following a change in control we terminate the employee's
employment other than for cause or due to their disability, as
these terms are defined in the agreement, or if the employee
terminates his employment during this period for good reason as
defined in the agreement, we must pay the employee his full base
salary through the date of termination, any accrued bonus and a
lump sum severance payment equal to his annual salary.
Additionally, we must provide life, disability, accident and
group health insurance benefits substantially similar to those
provided to the employee prior to termination of employment for
a period of one year after termination, at a cost to the
employee no greater than the cost prior to termination. The
employee's rights under any retirement plan we may then have
will be governed by the terms of the plan. We must also pay the
employee's legal fees and expenses incurred by him as a result
of termination of his employment. We must make these severance
payments not later than the fifth day following termination.
The agreements remain in effect through December 31, 2000 and
are automatically extended for additional one-year periods
unless we provide notice by October 1 of the preceding year that
we do not wish to extend the agreements, and provided that if a
change in control occurs during the original or extended term of
the agreements, the agreements will continue in effect for not
less than 180 days after the last day of the month in which the
change in control occurred.
Compensation Committee Interlocks and Insider Participation
Mr. Powell, the Company's Chairman, also serves on the
Board of Directors of CHC International, Inc., a hotel and
casino development and management company. See "Directors and
Executive Officers of WinsLoew."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SHAREHOLDERS
We have outstanding 780,000 shares of common stock. The
following table sets forth information regarding the beneficial
ownership of our common stock by (1) each person known by us to
beneficially own more than 5% of the outstanding shares, (2)
each of our directors who owns any shares, (3) each Named
Executive Officer, and (4) all directors and executive officers
as a group.
Beneficial Ownership
of Common Stock (1)(2)
-------------------------------
Number of Shares Percentage
-----------------------------
Earl W. Powell (3)(4) 718,729 89.4%
Phillip T. George, M.D. (3)(5) 321,443 40.0
Trivest II, Inc.(6) 377,081 46.9
Trivest Equitites, Inc (7) 311,648 38.8
Bobby Tesney 11,580 1.4
R.Craig Watts 9,000 1.1
Vincent A. Tortorici,Jr 7,000 0.9
Rick J. Stephens 7,000 0.9
Jerry C. Camp 2,000 0.3
All directors and executive officers
as a group (7 persons)(8) 765,104 98.1%
__________
(1) Except as otherwise indicated below, the address of each
beneficial owner is 160 Village Street, Birmingham, Alabama
35242.
(2) Except as otherwise indicated below, all shares are owned
directly and each person has sole voting and investment power
with respect to all shares. In computing the aggregate number
of shares beneficially owned by the individual shareholders
and groups of shareholders described above and the percentage
ownership of such individuals and groups, the 24,129 shares of
common stock issuable upon the exercise of the currently
exercisable warrants issued with the original notes are deemed
to be outstanding.
(3) The beneficial owner's address is 2665 South Bayshore
Drive, Suite 800, Miami, Florida 33133.
(4) Includes 30,000 shares held of record directly, 377,081
shares held of record by Trivest Furniture Partners, Ltd. and
311,648 shares held of record by Trivest Fund II Group, Ltd.
See notes (6) and (7) below.
(5) Includes 9,795 shares held of record directly and 311,648
shares held of record by Trivest Fund II Group, Ltd. See notes
(6) and (7) below.
(6) Includes 377,081 shares held of record by Trivest Furniture
Partners, Ltd., a privately-held investment partnership.
Trivest II, Inc. serves as the sole general partner of TFP,
Ltd., which in turn is the sole general partner of Trivest
Furniture Partners, Ltd. Mr. Powell is its sole director and
controlling shareholder.
(7) Includes 311,648 shares held of record by Trivest Fund II
Group, Ltd., a privately-held investment partnership. Trivest
Equities, Inc. serves as the sole general partner of Trivest
Fund II Group, Ltd. Messrs. Powell and George are executive
officers and the sole directors of Trivest Equities, Inc. Mr.
Powell is its controlling shareholder.
(8) Includes 377,081 shares held of record by Trivest Furniture
Partners, Ltd. and 311,648 shares held of record by Trivest
Fund II Group, Ltd. See notes (6) and (7).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENT SERVICES AGREEMENT WITH TRIVEST
In December 1994, we entered into a ten-year investment
services agreement with Trivest, pursuant to which Trivest
provided us with corporate finance, strategic and capital
planning and other management advice, including (1) conducting
relations on our behalf with accountants, attorneys, financial
advisors and other professionals, (2) providing reports to us
with respect to the value of our assets, and (3) rendering
advice with respect to acquisitions, dispositions, financing and
refinancing. Under the investment services agreement, Trivest
received a base annual fee of $0.5 million in 1994, subject to
annual cost-of-living increases. In addition, for each
additional business we acquired, Trivest's base compensation
generally increased by the greater of (1) $0.1 million, and (2)
the sum of 5% of the additional business' projected annual
earnings before income taxes, interest expense and amortization
of goodwill, or EBITA, for the fiscal year in which it was
acquired, up to $2.0 million of EBITA, plus 3.5% of EBITA in
excess of $2.0 million. Moreover, subject to the approval of our
board, including a majority of disinterested directors, for each
acquisition or disposition of any business operation by us
introduced or negotiated by Trivest, we generally paid Trivest a
fee of up to 3% of the purchase price. We paid Trivest an
aggregate of approximately $0.6 million in 1996, $0.6 million in
1997 and $0.9 million in 1998 under the investment services
agreement. We paid Trivest a fee of approximately $0.4 million
in 1999 in connection with the closing of the Pompeii acquisition.
MERGER WITH TRIVEST FURNITURE CORPORATION
In August 1999, Trivest Furniture Corporation merged with and
into us. We are the surviving corporation of the merger. Trivest
Furniture Corporation was a newly formed corporation organized
by an investor group led by Trivest. The members of our senior
management have retained the positions they held prior to the
merger. See "Management." Pursuant to the merger agreement, each
holder of previously outstanding shares of WinsLoew common
stock, other than Trivest Furniture Corporation, received $34.75
per share in cash, without interest, and the holder of each
outstanding option received a cash payment equal to the
difference between $34.75 and the exercise price of the option.
The cash merger consideration, option cancellation payments and
related fees and expenses, which totaled approximately $282.6
million, were provided by (1) an aggregate of $78.0 million in
cash and rollover equity contributions valued at $34.75 per
share, to Trivest Furniture Corporation from two private
investment partnerships affiliated with Trivest, individuals
affiliated with Trivest, members of our senior management team,
other employees and additional investors, (2) aggregate
borrowings of approximately $95.0 million under our senior
credit facility, (3) the proceeds from the sale of the units
consisting of original notes and warrants of approximately
$102.5 million and (4) cash on hand
of approximately $7.1 million. The members of our board of
directors and senior management team received cash payments in
respect of common stock and options they held prior to the
merger and contributed cash and shares of our common stock to
Trivest Furniture Corporation.
EMPLOYMENT AGREEMENTS AND SEVERANCE AGREEMENTS WITH MEMBERS OF
MANAGEMENT
Effective with the merger, our prior employment agreements
with each of Messrs. Tesney and Tortorici terminated. We have
entered into a new employment agreement with each of Messrs.
Tesney, and Tortorici. In addition, effective with the merger,
we entered into severance agreements with each of Messrs.
Tesney, and Tortorici providing for payments in the event of
specified change of control events. See "Management."
MANAGEMENT AGREEMENT WITH TRIVEST
Effective with the merger, we entered into a new ten-year
management agreement with Trivest. Under the management
agreement, Trivest provides us with corporate finance, strategic
and capital planning and other management advice for an annual
fee, payable quarterly in advance, of approximately $0.4
million, subject to annual cost-of-living adjustments. Under the
management agreement, for each additional business operation we
acquire that has EBITDA of $2.0 million or more, Trivest's
annual base compensation will generally increase by an amount
equal to the greater of (1) $50,000 and (2) an amount determined
in good faith by Trivest and a majority of our disinterested
directors. In addition, for each acquisition of any business
operation introduced or negotiated by Trivest and for each
disposition of any of our business operations negotiated by
Trivest, we generally will pay Trivest a fee equal to up to 3.0%
of the purchase price.
TRIVEST LEGAL DEPARTMENT
During 1999 Trivest maintained an internal legal
department. The Trivest legal department accounted for its time
on an hourly basis and billed Trivest and its affiliates
including the Company, for services rendered at prevailing
rates. In 1999 the Company paid Trivest $145,430.08 for services
rendered by the Trivest legal department. The Company believes
that the fees charged by the Trivest legal department in 1999
were no less favorable than fees charged by unaffiliated third
parties for similar services.
FINANCIAL ADVISORY FEE PAID TO TRIVEST
We paid a financial advisory fee to Trivest of $3.0 million when
we completed the merger. Trivest assisted us in (1) reviewing,
analyzing and negotiating the financial and business terms of
the merger, (2) negotiating with and selecting the initial
purchasers for the offering of the original notes and preparing
the offering memorandum, (3) obtaining and negotiating our new
senior credit facility, and (4) reviewing the services provided
by our attorneys, accountants and other professionals.
INVESTOR'S AGREEMENT WITH CERTAIN INVESTORS
Effective upon the consummation of the merger, all of our
shareholders listed under "Principal Shareholders," as well as
several individuals affiliated or associated with Trivest,
entered into an investors' agreement with us in connection with
the merger and his or its acquisition of our common stock. The
investors' agreement includes "right of first offer," "right of
first refusal" and other restrictions on the ability of the
investors to transfer common stock. The investors' agreement
generally provides that Trivest Fund II Group, Ltd., one of our
new Trivest investors, will afford to the other investors the
right to proportionally participate in proposed transfers of
common stock. In addition, all the other investors agree to
participate in sales of common stock and other significant
corporate transactions entered into by Trivest Fund II Group,
Ltd., provided that all investors receive the same consideration
for their common stock. All of the foregoing restrictions will
terminate on the date of an underwritten public offering of
common stock in which the aggregate gross proceeds we receive
are at least $20.0 million at a price per share of not less than
$10.00. The investors' agreement also provides that if,
subsequent to a qualified public offering, we determine to
effect the registration of any equity securities under the
Securities Act, other than in connection with employee benefit
plans or certain reclassifications, mergers, consolidations or
acquisitions, we will be required to include in the filing, and
to use all our commercially reasonable efforts to register, all
or any specified portion of the registrable shares of common
stock held by the investors or their successors or assigns. The
registration rights are subject to certain conditions and
limitations, including our right to reduce pro rata the amount
of such registrable shares included in an underwritten public
offering if the underwriter determines that the aggregate
requested participation will adversely affect the marketing of
the securities to be sold. We also agree that, upon the request
of holders of at least 20% of the then outstanding registerable
shares of our common stock, so long as we are able to file a
registration statement on Form S-3 or a successor form, we will
use all commercially reasonable efforts to effect the
registration on Form S-3 or any successor form of all or any
specified portion of the common stock held by such requesting
shareholders. The investors' agreement also provides board
observation rights for individuals designated by the Trivest
partnerships, as well as their limited partners, which will
terminate upon a qualified public offering.
SHAREHOLDERS AGREEMENTS WITH EACH OF OUR SHAREHOLDERS
In addition, each of our other shareholders, which are comprised
of employees and independent sales representatives, entered into
a separate shareholders' agreement with us in connection with
the merger and his or her acquisition of common stock. Under the
shareholders' agreements, we have the right to repurchase all
common stock owned by the shareholder upon the termination of
his or her employment, which right may be exercised by Trivest
Fund II Group, Ltd. if we do not do so. The shareholders'
agreements include certain "right of first offer," "right of
first refusal" and other restrictions on the ability of the
shareholders to transfer common stock, all of which restrictions
will terminate upon (1) a sale of all or substantially all of
our assets, (2) the sale of our common stock in a transaction or
series of transactions resulting in any person or group of
affiliated persons other than the current shareholders owning
more than 50% of our common stock outstanding, (3) the
registered public sale of common stock the net proceeds of which
are at least $15.0 million, or (4) our merger or consolidation
with or into another corporation if, after giving effect to the
merger or consolidation, holders of our voting securities
immediately prior thereto own voting securities of the surviving
corporation representing less than a majority of ordinary voting
power to elect directors. The shareholders' agreements also
provide that the shareholders will participate in sales of our
common stock to an independent third party approved by holders
of a majority of our outstanding common stock, as well as other
significant corporate transactions, and agree to consent to and
raise no objections against the sale, as long as all
shareholders receive the same consideration for their common
stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
Reference is made to the index set forth on
page 25 of this Annual Report on Form 10-K
(2) Financial Statements Schedules:
The following consolidated financial statement
schedule is filed herewith:
Sequential
Page Number
Schedule II - Valuation of Qualifying Accounts 61
Any required information not included in the above-
described schedule is included in the consolidated financial
statements and notes thereto contained herein. All other
schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions are otherwise
not applicable and therefore have been omitted.
(3) Exhibits: (An asterisk to the left of an
exhibit number denotes a management contract or
compensatory plan or arrangement required to be
filed as an exhibit to the Annual Report on
Form 10-K)
EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER
Exhibit Description
3.1.1 Registrant's Restated Articles of Incorporation(1)
3.2 Registrant's Bylaws(1)
4.1 Indenture dated as of August 24, 1999 between WinsLoew
Escrow Corp.
(whose obligations have been assumed by the
Registrant) and American Stock Transfer & Trust
Company, including form of 12 _% Senior Subordinated
Note Due 2007(1)
4.2 Supplemental Indenture dated as of August 27,1999
among Trivest
Furniture Corporation, the Registrant, the
Registrant's domestic subsidiaries and American Stock
Transfer & Trust Company(1)
4.3 Registration Rights Agreement dated as of August 24,
1999 among WinsLoew Escrow Corp. (whose obligations have been
assumed by the Registrant) and Bear, Stearns & Co.,
Inc. BancBoston Robertson Stephens Inc. and First
Union Capital Markets Corp.(1)
4.4 Form of Registered Note (included in Exhibit 4.1)(1)
10.1 Form of Indemnification Agreement entered into between
the Registrant and each of the registrant's executive officers and
directors(1)
10.2 Business Lease dated November 18, 1993 between
Loewenstein, Inc. and Emanuel Vanzo(1)
10.3 Lease Agreement commencing December 15, 1995 between
Teachers
Insurance and Annuity Association and Winston
Furniture Company of Alabama, Inc.(1)
10.4 Lease dated April, 1996 between La Salle National
Trust, N.A. and
Winston Furniture Company of Alabama, Inc.(1)
10.5 Lease dated May 24, 1996 between La Salle National
Trust, N.A. and
Winston Furniture Company of Alabama, Inc.(1)
10.6 Agreement dated August 1, 1996 between Winston
Furniture Company of Alabama, Inc. and the Retail,
Wholesale and Department Store Union, AFL-CIO(1)
10.7 Contract for Sale and Purchase dated June 29, 1998
between Villella, Inc. and Thomas L. Villella, as
Trustee of the Thomas L. Villella Family Trust(1)
10.8 Stock Purchase Agreement dated June 30, 1998 between
Thomas Villella and Winston Furniture Company of
Alabama, Inc.(1)
10.9 Employment Agreement dated June 30, 1999 between Peter
Villella and Tropic Craft, Inc.(1)
10.10 Stock Purchase Agreement dated as of June 30, 1998
between the Registrant and Vertiflex Company(1)
10.11 Pricing Agreement dated December 1, 1998 between
Loewenstein, Inc. Gregson Furniture Industries and
Marriott International, Inc.(1)
10.12 Lease dated August 1, 1998 between Nitram Partners,
Ltd. and Miami Metal Products, Inc. as amended.(1)
10.13 Stock Purchase Agreement, dated as of November 23,
1998 among Winston Furniture Company of Alabama, Inc.
and Miami Metal Products, Inc. Industrial Mueblera
Pompeii de Mexico, S.A. de C.V. and certain named
sellers, as amended(1)
10.14 Lease Agreement dated March 1, 1999 between E.V.
Ferrell, Jr., Sarah T. Ferrell and Pompeii Furniture
Industries
10.15 Employment Agreement dated July 30, 1999 between
Winston Furniture Company of Alabama, Inc. and Perry
B. Martin(1)
10.16 Consulting Agreement dated July 30,1999 between
Winston Furniture Company of Alabama, Inc. and Leo
Martin(1)
10.17 Purchase Agreement dated August 19, 1999 among
WinsLoew Escrow Corp., Trivest Furniture Corporation
(each of whose obligations have been assumed by the
Registrant) and Bear, Stearns & Co. Inc., BancBoston
Robertson Stephens Inc. and First Union Capital
Markets Corp.(1)
10.18 Warrant Agreement dated as of August 24, 1999 between
WinsLoew Escrow Corp. (whose obligations have been
assumed by the Registrant) and American Stock Transfer
& Trust Company(1)
10.19 Loan and Security Agreement dated as of August 27,
1999 among the Registrant, its domestic subsidiaries,
the lenders named therein, BancBoston, N.A. as
administrative agent, Heller Financial, Inc. and CIBC,
Inc. as co-agents for the lenders(1)
10.20 Investors Agreement dated August 27, 1999 among
Trivest Furniture Corportion, Trivest Furniture
Partners, Ltd., Trivest Fund II Group, Ltd., and
various investors identified therein(1)
10.21 Exchange and Subscription Agreement dated August 27,
1999 among Trivest Furniture Corporation and various
investors identified therein(1)
10.22 WinsLoew 1999 Key Employee Equity Plan(1)
10.23 Form of Subscription Agreement (included in Exhibit
10.22)(1)
10.24 Form of Shareholders' Agreement (included in Exhibit
10.22)(1)
10.25 Management Agreement dated August 27, 1999 between the
Registrant and Trivest II, Inc.(1)
10.26 Employment Agreement dated August 27, 1999 between the
Registrant and Bobby Tesney(1)
10.27 Employment Agreement dated August 27, 1999 between the
Registrant and Vincent A. Tortorici, Jr.(10.28)(1)
10.28 Severance Agreement dated August 27, 1999 between the
Registrant and Bobby Tesney(10.29)(1)
10.29 Severance Agreement dated August 27, 1999 between the
Registrant and Vincent A. Tortorici, Jr.(10.30)(1)
10.30 Employment Agreement dated December 6, 1999 between
the Registrant and Stewart Long(2)
12.1 Statement of Computation of Ratio of
Earnings to Fixed Charges(2)
21.1 Subsidiaries of the Registrant(2)
(1)Incorporated by reference to the exhibits, shown
in parentheses and filed with the Registrant's S-
4 Filed November 18, 1999 ( No.333-90499 )
(2) Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the last quarter of the period covered by
this report.
(c) Exhibits required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item
14(a)(3) of this report and not incorporated by
reference follows the "Signatures" section hereof
and is incorporated herein by reference.
(d) Financial Statements Schedules required by
Regulation S-X
The financial statement schedules required by
Regulation S-X are included herein. See Item 14(a)2
for index.
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.
WINSLOEW FURNITURE, INC.
Date: March 29, 2000 By: /s/Bobby Tesney
------------------
Bobby Tesney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Acr of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities, and on the dates indicated.
Signature Title Date
- ----------------------- ---------------- -----------------
/s/Bobby Tesney President,Chief
Bobby Tesney Executive Officer
and Director
(Principal Executive
Officer)
/s/Vincent A. Tortorici, Jr. Vice President and
Vincent A. Tortorici, Jr. Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/Earl W. Powell Chairman of the Board
Earl W. Powell
/s/William F. Kaczynski, Jr. Director
William F. Kaczynski, Jr.
/s/David M. Solomon_ Director
David M. Solomon