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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
[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 31,2000 [] 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 63-1127982 (State or other jurisdiction (I.R.S. Employer of
incorporation or organization) Identification No.)
160 Village Street, Birmingham, Alabama 35242 (Address of principal executive
offices) (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, 2001 was 850,350.
1
INDEX TO ITEMS
Page
PART I
ITEM 1. Business 3
ITEM 2. Properties 18
ITEM 3. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote of Security
Holders 20
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 21
ITEM 6. Selected Financial Data 22
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 25
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 33
ITEM 8. Financial Statements and Supplementary Data 34
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 66
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 67
ITEM 11. Executive Compensation 70
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 75
ITEM 13. Certain Relationships and Related Transactions 77
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 80
Signatures 85
2
PART I
ITEM 1. BUSINESS
On August 27, 1999, Trivest Furniture Corporation, an affiliate of Trivest,
merged with and into us, and we were the surviving corporation. For financial
reporting purposes, the merger is considered effective August 27, 1999 and our
operations prior thereto and thereafter are respectively classified as
predecessor company and successor company operations. The operations of the
successor company represent 100% of the businesses of the predecessor.
Therefore, certain operational data for the twelve months ended December 31,
1999 have been presented on a combined basis because such information is
comparable to the historical data of the predecessor and the current data of the
successor.
The historical financial statements of the successor company and its
predecessor are presented separately as described in Note 1 to the Consolidated
Financial Statements included under Item 8.
GENERAL
We are a leading designer, manufacturer and distributor of a broad offering of
casual indoor and outdoor furniture and contract and hospitality 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. In addition, our casual line includes a variety of tables,
chairs, benches and swings for the site amenity market. 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, excluding Wabash, and contract and hospitality products are
manufactured pursuant to customer orders. We sell our furniture products to the
residential market and to the contract and hospitality 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. We also 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. In addition, we
market a variety of products under Wabash brand name. These products are
targeted at educational facilities, municipality and recreation centers, hotels
and motels and other institutional and corporate users.
We market our seating products to a broad customer base in the contract and
hospitality market under the Loewenstein, Lodging By Loewenstein, Stuart Clark
and Charter brand names through approximately 24 regional independent sales
organizations. 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 and hospitality 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.
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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 in the casual segment that, to date, has resulted in the
acquisitions of Tropic Craft, a manufacturer of casual furniture sold into the
contract markets; Pompeii, a manufacturer of upper-end casual furniture sold
into both the residential and contract markets and Wabash Valley, a manufacturer
of site amenities products in the institutional and corporate markets. Our
balanced approach to growth has also resulted in acquisitions to complement our
seating segment. These acquisitions included Stuart Clark and Charter, both of
which manufacture upholstered furniture for the hospitality industry. We also
continue to operate under a strategic 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 and hospitality markets, and Loewenstein Furniture
Group, Inc., a manufacturer of seating products for the contract and hospitality
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.
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.
4
Going Private Transaction.
As mentioned above, 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.
Recent Developments
Purchase of Wabash. In March 2000, we acquired all of the stock of Wabash Valley
Manufacturing, a manufacturer of site amenity furniture sold into the
institutional and corporate markets. The purchase price of approximately $35.5
million was paid in cash and financed with $7.1 million of equity investment
from the sellers and Trivest Furniture, borrowings of $20.0 million under the
acquisition loan and $8.4 million under the revolving credit facility. The
acquisition resulted in goodwill of $22.5 million and was accounted for under
the purchase method of accounting. The operating results of Wabash have been
included in our historical consolidated operating results only since the date of
the acquisition.
Purchase of Stuart Clark. On June 16, 2000 the Company purchased certain assets
of Stuart Clark, Inc. and its affiliates. Stuart Clark is a manufacturer of mid
price point upholstered furniture for the hospitality industry. The purchase
price of approximately $3.1 million was paid in cash and financed with $0.3
million of equity investment from the sellers and borrowings of $2.8 million
under the Company's revolving credit facility. The assets and operations of
Stuart Clark were merged into our existing seating facility in Liberty, North
Carolina. The acquisition resulted in goodwill of approximately $2.8 million and
was accounted for under the purchase method of accounting. The operating results
of Stuart Clark have been included in the consolidated operating results since
the date of acquisition.
5
Purchase of Charter Furniture. On August 11, 2000 the Company purchased all of
the stock of Charter Furniture. Charter provides high quality upholstered
furniture for rooms, suites and common areas of premier hospitality companies.
The purchase price of approximately $18.5 million was paid in cash and financed
with $3.3 million of equity investment and $15.2 million under the revolving
credit facility. The acquisition resulted in goodwill of $18.7 million and was
accounted for under the purchase method of accounting. The operating results of
Charter have been included in the consolidated operating results since the date
of acquisition.
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 checkpoints
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" four times,most recently for 2000, 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.
6
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. 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.
7
BUSINESS STRATEGY
Our strategic objective is to further enhance our leading market position in the
residential and contract and hospitality 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. 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. In addition, the acquisitions of Wabash, Stuart
Clark and Charter Furniture in 2000, have broadened our product offering and
placed us in a position to service all price points in the lodging market.
8
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, 2000, our
casual, seating and ready-to-assemble furniture products accounted for 57.2%,
36.8% and 6.0%, 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.
Pompeii 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.
Wabash Site amenity products Educational facilities,municipality
including:tables,chairs, and recreation centers,hotels,
benches, swings and related motels and other institutional
accessories constructed of and corporate users.
sheet steel or expanded
steel mesh that is
coated with heat fused
plastisol.
Loewenstein Contemporary to traditional Lodging and restaurant chains,
seating products, such as wood architectural 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 and hospitality market.
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Charter, Custom and semi-custom Hotel and other
Lodging By upholstered furnishings such hospitality markets.
Loewenstein, as,sofas, benches, chaises,
Stuart Clark chairs, lounge chairs and
ottomans.
Southern Ready to assemble furniture Mass Merchandisers and
Wood products, such as book shelves, catalog wholesalers.
Products entertainment centers,coffee
tables,end tables, computer
stations 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 $5,000. 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 casual segment also includes site amenity products under the Wabash Valley
brand name. The Wabash product line includes a wide variety of tables, chairs,
benches and swings as well as accessory items such as tree grates, basket
trucks, bike loops, planters, ash urns, and litter receptacles. All of these
products are constructed of either expanded steel mesh, welded wire or sheet
steel, which provide the highest degree of strength and durability. Components
are covered with a 1/4" of homogeneous heat fused plastisol or in the case of
framework, a baked-on polyester dry powder, which provides a superior coating
and appearance. Our amenity products are generally used by governmental,
healthcare, educational, recreational and corporate customers.
10
Our seating products are marketed under the Loewenstein, Lodging By Loewenstein,
Stuart Clark and Charter brand names and include over 300 distinct models,
ranging from contemporary to traditional styles, of wood, metal and upholstered
chairs, reception area love seats, sofas, ottomans, chaises 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 and common areas, stadium luxury skyboxes,
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 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. 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 and computer 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 residential and contract 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.
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Casual Furniture
In the manufacturing process for our residential and contract 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 checkpoints where the quality of all of our aluminum
products is examined during the manufacturing process. These processes allow us
to offer a fifteen-year frame and finish guarantee on all of our aluminum
products for residential use beginning with our 200-01 season.
Wabash Valley acts as designer, manufacturer and finisher of all our site
amenity products. The fabrication process includes cutting, punching, forming,
bending, sawing, welding and grinding. We have invested heavily in our
fabrication capabilities in the past few years, with focus in CNC technology.
This includes a roll forming line, robotic welding, CNC plasma, CNC punching and
cutting as well as CNC tube bending. All CNC equipment instructions are
downloaded from our on-site drafting and engineering department.
All fabricated weldments enter into a grinding area for inspection and
deburring. After this process is completed the parts enter a wash, rinse and
prime cycle. Upon exiting this phase of the manufacturing process the parts flow
either to powder coating booths or our plastisol dip tanks. Throughout the
manufacturing process all parts and components are carefully inspected to ensure
the highest degree of quality. This commitment to quality allows us to offer a
five-year limited warranty, which we believe to be one of the most comprehensive
in the industry.
Contract and Hospitality (Designated as "Seating" in previous filings)
We assemble most of our contract and hospitality 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.
12
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 particleboard, 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 particleboard, along with necessary hardware and assembly
instructions. For our case goods products, the edges of the cut laminated
particleboard 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 and hospitality 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, to augment our casual furniture capabilities, in 1999 we purchased
an additional 218,000 square foot facility in Haleyville, Alabama. This facility
was retrofit for manufacturing capabilities and went on-line in 2000.
13
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 24 independent sales representatives. We have
strong relationships with our independent sales personnel. We primarily use an
internal sales staff to sell our casual furniture products into the contract
market. Our site amenity and 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.
14
BACKLOG
As of December 31, 2000, our backlog of orders was approximately $23.4 million,
compared to $21.6 million at December 31, 1999. 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, expanded mesh
steel, sheet and tube steel, 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.
15
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, Pompeii, Southern Wood
Products and Wabash Valley 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, 2000, we had approximately 1,523 full-time employees, of whom
124 were employed in management, 177 in sales, general, and administrative
positions, and 1,222 in manufacturing, shipping, and warehouse positions.
The only employees subject to collective bargaining agreements are approximately
138 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.
16
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.
17
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)
Miami, FL ....... Casual furniture manufacturing 3,608 Leased(2)
High Point, NC .. Casual furniture showroom 6,000 Leased(3)
Houston, TX ..... Casual furniture manuf. and offices 89,500 Owned
Miami, FL ....... Casual furniture manuf. and offices 220,400 Leased(4)
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(9)
Liberty, NC ..... Seating warehouse 25,000 Leased(5)
Liberty, NC ..... Seating manufacturing and offices 126,000 Owned
Chicago,IL ...... Seating merchandise mart showroom 5,500 Leased(6)
Sparta, TN ...... Ready-to-assemble manuf. and offices 94,300 Owned
Sparta, TN ...... Ready-to-assemble manuf. and offices 63,300 Owned
Silver Lake, IN . Amenities product manuf. and offices 240,000 Owned
El Monte, Ca .... Seating manufacturing and offices 57,000 Leased(7)
El Monte, Ca .... Seating manufacturing 19,450 Leased(8)
(1) Lease expires August 31, 2002
(2) Lease expires July 31, 2008
(3) Lease expires March 16, 2002
(4) Lease expires August 1, 2009
(5) Lease is month-to-month
(6) Lease expires June 30, 2001
(7) Lease expires December 31, 2001
(8) Lease expires March 31, 2002
(9) Lease expires August 31, 2001
18
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 was set for April 11, 2000. The court subsequently
denied the Company's motion to dismiss and a status conference was scheduled for
November 28, 2000.
19
On January 11,2001 the Honorable Thomas Woodall entered an order giving
preliminary approval to a proposed settlement of this action. The proposed
settlement provides for no additional benefit to be bestowed upon the class and
possible payment by the Company of attorney fees in an amount not to exceed
$575,000.00. A final hearing to approve the settlement is scheduled for April
24, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Not applicable.
21
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
2000 1999 1998 1997 1996
(In thousands) -------- -------- -------- -------- --------
Net sales ..................... $ 188,963 $ 162,139 $ 141,360 $ 122,145 $ 117,405
Cost of sales ................. 110,941 96,384 87,232 79,431 78,029
--------- --------- --------- --------- ---------
Gross profit ............... 78,022 65,755 54,128 42,714 39,376
Selling, general and
administrative expenses 30,063 25,674 23,124 21,427 21,472
Amortization .................. 6,957 3,321 1,122 992 1,444
--------- --------- --------- --------- ---------
Operating income ........... 41,002 36,760 29,882 20,295 16,460
Interest expense .............. 27,114 8,910 635 2,296 3,083
--------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes and
extraordinary item .......... 13,888 27,850 29,247 17,999 13,377
Provision for income
taxes ....................... 7,151 11,339 10,947 6,838 4,843
--------- --------- --------- --------- ---------
Income from continuing
operations .................. 6,737 16,511 18,300 11,161 8,543
(Loss)from
discontinued operations,
net of taxes ........ -- -- -- (718) (259)
Gain(loss)from sale of
discontinued operations,
net of taxes ................. -- 755 2,031 (8,200) --
--------- --------- --------- --------- ---------
Net income .................... $ 6,737 $ 17,266 $ 20,331 $ 2,243 $ 8,284
========= ========= ========= ========= =========
Other Financial Data
Depreciation and
amortization ............... $ 10,561 $ 4,845 $ 2,618 $ 2,643 $ 2,979
Capital expenditures .......... 6,021 3,265 942 425 1,351
Ratio of earnings to
fixed charges .............. 1.5x 3.9x 47.1x 8.8x 5.3x
22
Balance Sheet Data: Year Ended December 31
2000 1999 1998 1997 1996
-------- ------- -------- -------- --------
(In thousands)
Working capital $33,784 $26,721 $25,924 $29,937 $40,102
Total assets 367,622 308,062 84,553 80,414 99,950
Long-term debt(less
current portion) 238,147 198,258 1,400 15,908 38,726
Total debt 242,172 201,958 1,447 16,423 40,681
Stockholder's equity 97,876 81,711 66,226 51,026 48,400
23
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements about our financial
condition, results of operations and business within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can find many of these statements by looking for words like "will,"
"should," "believes," "expects," "anticipates," "estimates," "intends," "may,"
"pro forma," or similar expressions used in this prospectus. These
forward-looking statements are subject to assumptions, risks and uncertainties,
including those relating to the following:
o our level of leverage;
o our ability to meet our debt service obligations;
o the subordination of the registered notes to our senior indebtedness,
which is secured by substantially all of our assets;
o the restrictions imposed upon us by our indenture and our senior credit
facility;
o our ability to identify suitable acquisition opportunities and to
finance, complete and integrate acquisitions;
o the competitive and cyclical nature of the furniture manufacturing
industry; and
o general domestic and global economic conditions.
Because these statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
these statements, which speak only as of the date of this filing.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this filing. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this filing.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As described in the Notes to Consolidated Financial Statements, on August 27,
1999, WinsLoew and Trivest Furniture Corporation, a newly formed Florida
corporation was merged with and into WinsLoew, with WinsLoew being the surviving
corporation. WinsLoew 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. Accordingly, the financial statements
for the period subsequent to August 26, 1999 are presented on the Company's new
basis of accounting, while the results of operations for the period ended August
26, 1999 and years ended December 31, 1998 and 1997 reflect historical results
of the predecessor company. The operations of the successor company represent
100% of the businesses of the predecessor. Therefore, certain operational data
for the twelve months ended December 31, 1999 have been presented on a combined
basis because such information is comparable to the historical data of the
predecessor and the current data of the successor.
The merger resulted in a significant increase in net goodwill and debt recorded
in WinsLoew's financial statements. The increases resulted in materially higher
charges for amortization and interest after August 27, 1999.
GENERAL
WinsLoew is a leading designer, manufacturer and distributor of a broad offering
of casual indoor and outdoor furniture, site amenities 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 site amenity product line, which is part of our casual
segment, includes tables, chairs, benches, swings and complimentary items
constructed from steel sheet, expanded mesh and steel tubing. 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 and hospitality
market consisting of commercial and institutional users.
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, 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 and 2000 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. 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.
25
Purchase of Wabash. In March 2000, we acquired all of the stock of Wabash Valley
Manufacturing, a manufacturer of site amenities furniture sold into the
institutional and corporate markets. The purchase price of approximately $35.5
million was paid in cash and financed with $7.1 million of equity investment
from the sellers and Trivest Furniture, borrowings of $20.0 million under the
acquisition loan and $8.4 million under the revolving credit facility. The
acquisition resulted in goodwill of $22.5 million and was accounted for under
the purchase method of accounting. The operating results of Wabash have been
included in our historical consolidated operating results only since the date of
the acquisition.
Purchase of Stuart Clark.On June 16, 2000 the Company purchased certain assets
of Stuart Clark, Inc. and its affiliates. Stuart Clark is a manufacturer of mid
price point upholstered furniture for the hospitality industry. The purchase
price of approximately $3.1 million was paid in cash and financed with $0.3
million of equity investment from the sellers and borrowings of $2.8 million
under the Company's revolving credit facility. The assets and operations of
Stuart Clark were merged into our existing seating facility in Liberty, North
Carolina. The acquisition resulted in goodwill of approximately $2.8 million and
was accounted for under the purchase method of accounting. The operating results
of Stuart Clark have been included in the consolidated operating results since
the date of acquisition.
Purchase of Charter Furniture. On August 11, 2000 the Company purchased all of
the stock of Charter Furniture. Charter provides high quality upholstered
furniture for rooms, suites and common areas of premier hospitality companies.
The purchase price of approximately $18.5 million was paid in cash and financed
with $3.3 million of equity investment from the sellers and Trivest Furniture
and $15.2 million under the revolving credit facility. The acquisition resulted
in goodwill of $18.7 million and was accounted for under the purchase method of
accounting. The operating results of Charter have been included in the
consolidated operating results since the date of acquisition.
26
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, 2000, 1999 and 1998 for
each of the Company's product lines (in thousands, except for percentages): This
table combines the predecessor company period ended August 26, 1999 with the
successor company period ended December 31, 1999 for purposes of the discussion
of year-end December 31, 1999 results:
2000 1999 1998
-------------------------------------------------------------------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
------------------------------------------------------------------------------
Casual furniture
$108,050 $49,949 46.2% $74,586 $36,526 49.0% $59,733 $28,227 47.3%
Contract and hospitality
69,458 26,027 37.5% 72,346 25,704 35.5% 69,938 23,439 33.5%
RTA
11,455 2,046 17.9% 15,207 3,525 23.2% 11,689 2,462 21.1%
- -------- ------ ------- ------ ------- ------
$188,963 $78,022 41.3% $162,139 $65,755 40.6% $141,360 $54,128 38.3%
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales. This table
combines the predecessor company period ended August 26, 1999 with the successor
company period ended December 31, 1999 for purposes of the discussion of
year-end December 31, 1999 results:
For the Years Ended December 31,
2000 1999 1998
Gross profit 41.3% 40.6% 38.3%
Selling,general 15.9% 15.8% 16.4%
and admin expenses
Amortization 3.7% 2.0% 0.8%
Operating income 21.7% 22.8% 21.1%
Interest expense 14.3% 5.5% 0.4%
Provision for
income taxes 3.8% 7.3% 7.7%
Income from
continuing operations 3.6% 10.2% 13.0%
Gain from sale
of discontinued
operations,net of tax -- 0.5% 1.4%
Net income 3.6% 10.7% 14.4%
27
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Sales. WinsLoew's consolidated net sales for 2000 increased $26.8 million or
16.5% to $189.0 million, compared to $162.1 million in 1999. Casual product line
sales increased by 5.3% from 1999 net of the effect of the Wabash acquisition
and adjusted for the effect of the Pompeii acquisition. When including the
acquisitions of Pompeii and Wabash, casual sales increased 44.9% over 1999.
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 and
hospitality product line experienced a sales decrease, net of the acquisitions
of Stuart Clark and Charter, of 16.6% resulting from softness in the lodging
market. Specifically, sales to contract and hospitality customers, were down
approximately $7 million from 1999.When including the acquisitions of Stuart
Clark and Charter, contract and hospitality sales decreased 4.0% from 1999. The
RTA product line experienced a sales decrease of 24.7% due to inventory
reduction and credit tightening/catalog reductions at major customers.
Gross Profit. Consolidated gross profit increased $12.3 million in 2000 to $78.0
million compared to $65.8 million in 1999. The casual product line experienced
lower gross margins in 2000, resulting from the inclusion of Pompeii for all of
2000 as well as the Wabash acquisition in 2000. The seating product line
experienced improved gross margins as a result of favorable product mix and
improved operating efficiencies. Finally, the RTA product line experienced
decreased gross profits in 2000 due to lower overhead absorption driven by lower
volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million in 2000, compared to 1999, due to
acquisitions. When removing the impact of acquisitions, S, G & A expenses
decreased by $2.7 million from 1999 as a result of commission expense and other
variable costs related to the decreased sales volume in 2000, as well as
targeted reductions in administrative overhead.
Amortization. Amortization expense increased $3.6 million in 2000, compared to
1999, due to a full year of amortization of goodwill in 2000 related to the
Pompeii acquisition and the going-private transaction, both of which occurred in
1999. In addition, incremental amortization of intangibles was recorded in 2000
as a result of the Wabash, Stuart Clark and Charter acquisitions. Amortization
related to goodwill recorded as a result of the going-private transaction
totaled $1.6 million for the period from August 27, 1999 to December 31, 1999,
compared to $4.7 million in 2000.
Operating Income. As a result of the above, we recorded operating income of
$41.0 million (21.7% of net sales) in 2000, compared to operating income of
$36.8 million (22.7% of net sales) in 1999.
Interest Expense. Our interest expense increased $18.2 million in 2000, compared
to 1999. The primary reason for the increase is the impact of debt service
related to the going-private transaction, for all of 2000. ( see Note 1 to the
Notes to Consolidated Financial Statements ). In addition, the Company has
increased its debt by $40.2 million from December 31, 1999 primarily as a result
acquisitions and capital expenditures.
Provision for Income Taxes. The effective tax rate from continuing operations of
51.5% in 2000 is greater than the federal statutory rate due to the effect of
state income taxes and non-deductible goodwill amortization. Our 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. The increase in the effective tax rate over 1999 is due
to the non-deductible goodwill related to the going-private transaction.
28
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 and
hospitality 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 and hospitality
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 1 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.
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.
29
The following table presents the Company's unaudited quarterly data for 2000 and
1999. 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 )
2000 Quarters First Second Third Fourth
--------- ------ ---------- -------
Net sales $39,353 $57,425 $46,950 $45,235
Gross profit 15,802 24,444 18,290 19,486
Operating income 7,411 14,054 8,563 10,974
Interest expense 6,537 6,844 6,517 7,216
Net income $ 390 $3,215 $ 914 $2,218
======== ======== ======== ========
( 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,
net of taxes -- -- -- 755
Net income $4,184 $7,350 $2,827 $2,905
======== ======== ======== ========
30
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, 2000,
the Company had $33.8 million of working capital, $14.3 million of unused and
available funds under its revolving credit facility and no available funds under
the acquisition loan facility.
Cash Flows from Operating Activities. During 2000, net cash provided by
operations decreased to $14.1 million, compared to $20.8 million in 1999. The
decrease was primarily due to a full year of service on the debt related to the
going-private transaction. This increase was partially offset by the receipt of
federal tax refund in 2000 which was also related to the going-private
transaction.
Cash Flows from Investing Activities. During 2000 we spent $6.0 million on
capital expenditures and $57.2 million on acquisitions (see Note 4 to the
Audited Consolidated Financial Statements). This is compared to 1999, which
included $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. Net cash used in
investing activities was $63.1 million and $290.7 million for the twelve months
ended December 31, 2000 and December 31, 1999 respectively.
Cash Flows From Financing Activities. Net cash provided by financing activities
during 2000 was $48.9 million compared to $270.1 million provided by financing
activities in 1999. In 2000, cash was primarily provided by proceeds from
borrowings under our revolving credit facility and to a lesser extent, our
acquisition line of credit. In addition, proceeds were provided by the issuance
of the company's common stock pursuant to acquisitions. During 2000 we used cash
generated by operations to repurchase $1.3 million of our common stock. 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)
We financed the merger in 1999, 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. During 2000, principal payments totaling $3.7 million were made against
the term loans leaving an outstanding balance on these loans of $91.3 million as
of December 31, 2000. Our senior credit also includes, a $40.0 million revolving
credit facility, of which $25.3 million was borrowed at closing, and a $20.0
million acquisition loan facility, all of which was borrowed at closing. See "
Senior Credit Facility." As of December 31, 2000, we had undrawn availability
based on a borrowing base formula under the revolving credit facility of
approximately $14.3 million. As of December 31, 2000 there was no undrawn
availabilty under the $20.0 million acquisition loan facility.
We have significant amounts of debt requiring interest and principal repayments.
The notes require semi-annual interest payments, which commenced 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, 2000, $25.3 million was outstanding under the revolving
credit facility and $20.0 million was outstanding under the acquisition loan
facility.
31
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 2001 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
2001. 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 2000 by entering into
foreign currency forward contracts with a value of approximately $3.2 million.
At December 31, 2000, we had outstanding foreign currency contracts extending
through December 31,2001 with an approximate value of $2.8 million. 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.
32
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 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, during 2000.
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.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..................................... Page
Report of Ernst & Young LLP, Independent Auditors .............................. 35
Consolidated Balance Sheets as of
December 31, 2000 and 1999 ................................................... 36
Consolidated Statements of Income:
Year ended December 31, 2000
Period from August 27, 1999 to December 31, 1999 (Successor Company) Period from
January 1, 1999 to August 26, 1999 (Predecessor Company) Year ended December 31,
1998 (Predecessor Company) ..................................................... 38
Consolidated Statements of Stockholders' Equity
Year ended December 31, 2000
Period from August 27, 1999 to December 31, 1999 (Successor Company) Period from
January 1, 1999 to August 26, 1999 (Predecessor Company) Year ended December 31,
1998 (Predecessor Company) ..................................................... 39
Consolidated Statements of Cash Flows
Year ended December 31, 2000
Period from August 27, 1999 to December 31, 1999 (Successor Company) Period from
January 1, 1999 to August 26, 1999 (Predecessor Company) Year ended December 31,
1998 (Predecessor Company) ..................................................... 41
Notes to Consolidated Financial Statements ..................................... 44
34
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 ("Successor Company") as of December
31, 2000 and 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for the year ended December 31, 2000 and for
the period from August 27, 1999 to December 31, 1999 ("Successor period"). We
have also audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of WinsLoew Furniture, Inc. and Subsidiaries
("Predecessor Company") for the period from January 1, 1999 to August 26, 1999,
and for the year ended December 31, 1998 ("Predecessor periods"). 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the Successor
and Predecessor periods, 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 19, 2001
35
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
--------------------------
2000 1999
---------- ----------
Assets
Cash and cash equivalents $ 602 $ 710
Cash in escrow -- 1,000
Accounts receivable, less allowances
for doubtful accounts of $3,101
and $2,098 at December 31, 2000
and 1999, respectively 36,992 25,706
Inventories 20,198 14,545
Refundable income taxes -- 6,908
Prepaid expenses and other
current assets 5,742 4,846
-------- --------
Total current assets 63,534 53,715
Property, plant and equipment, net 27,827 16,462
Goodwill, net 269,258 231,377
Other assets, net 7,004 6,508
-------- --------
Total assets $367,622 $308,062
======== ========
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 4,025 $ 3,700
Accounts payable 5,739 4,265
Accrued interest 6,765 5,560
Other accrued liabilities 13,221 13,469
-------- --------
Total current liabilities 29,750 26,994
Long-term debt, net of current portion 238,147 198,258
Deferred income taxes 1,849 1,099
-------- --------
Total liabilities 269,746 226,351
-------- --------
Commitments and contingencies (note 9)
36
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
--------------------------
2000 1999
Stockholders' equity:
Common stock- par value $.01 per
share, 1,000,000 shares authorized at December 31, 2000 and December 31,
1999 with 850,350 and 780,000 shares issued and outstanding at December 31,
2000 and 1999,
respectively 9 8
Additional paid-in capital 88,819 79,392
Retained earnings 9,048 2,311
-------- --------
Total stockholders' equity 97,876 81,711
-------- --------
Total liabilities and
stockholders' equity $367,622 $308,062
-------- --------
-------- --------
See accompanying notes.
37
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Successor Successor Predecessor Company
Company Company
Period from Period from
August 27, January 1,
Year Ended 1999 to 1999 to Year Ended
December 31, December 31, August 26, December 31,
2000 1999 1999 1998
Net sales ............ $188,963 $ 56,505 $105,634 $141,360
Cost of sales ........ 110,941 33,076 63,308 87,232
-------- -------- -------- --------
Gross profit ......... 78,022 23,429 42,326 54,128
Selling, general
and administrative
expenses ............. 30,063 8,440 17,234 23,124
Amortization ......... 6,957 2,449 872 1,122
-------- -------- -------- --------
Operating income ..... 41,002 12,540 24,220 29,882
-------- -------- -------- --------
Interest expense ..... 27,114 8,804 106 635
-------- -------- -------- --------
Income from continuing
operations before
income taxes ......... 13,888 3,736 24,112 9,247
Provision for
income taxes ......... 7,151 2,180 9,159 10,947
-------- -------- -------- --------
Income from
continuing
operations ........... 6,737 1,556 14,95 18,300
Gain on sale
of discontinued
operations,
net of taxes ........ -- 755 -- 2,031
-------- -------- -------- --------
Net income ........... $ 6,737 $ 2,311 $ 14,955 $ 20,331
======== ======== ======== ========
See accompanying notes
38
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Additional
------------------ Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
Predecessor Company:
Balance at January 1,
1998 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
Tax benefit related to
exercise of stock option .. -- -- 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
---------- ---------- ---------- ---------- ----------
Balance, August 26, 1999 ... 7,181,908 72 23,553 61,311 84,936
Successor Company:
Going private transaction .. (7,181,908) (72) (23,553) (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
---------- ---------- ---------- ---------- ----------
39
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, 1999 780,000 8 79,392 2,311 81,711
Exercise of stock options -- -- -- -- --
Repurchase and
cancellation
of stock (13,225) -- (1,322) -- (1,322)
Proceeds of stock issued 48,171 -- 6,150 -- 6,150
Stock issued in
consideration for
business combinations 35,404 1 4,599 -- 4,600
Net income -- -- -- 6,737 6,737
--------- ------ ---------- -------- -------
Balance,
December 31, 2000 850,350 $9 $88,819 $9,048 $97,876
========== ====== ========== ======== =======
40
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Successor Predecessor Company
Company Company
Period from Period from
August 27, January 1,
Year Ended 1999 to 1999 to Year Ended
December 31, December 31, August 26, December 31,
2000 1999 1999 1998
--------------------------------------------------------
Cash flows from operating activities:
Net income ................................. $ 6,737 $ 2,311 $ 14,955 $ 20,331
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization .............. 10,561 2,961 1,884 2,618
Provision for losses on
accounts receivable ........................ 672 150 242 1,331
Provision for excess and
obsolete inventory ......................... (49) (129) 594 702
Going Private
Transaction expenses ..................... (120) 201 -- --
Loss on sale of assets ..................... 107 -- -- --
Change in net assets held for sale ......... -- -- -- 6,743
Changes in operating assets and liabilities,
net of effects from acquisitions and
dispositions:
Accounts receivable ........................ (4,904) (6,825) 4,788 (2,210)
Inventories ................................ 132 866 25 (1,866)
Prepaid expenses and other
current assets ........................... 488 (147) 208 2,779
Refundable income taxes .................... 6,908 -- (6,908) --
Other assets ............................... (33) -- -- 843
Accounts payable ........................... (1,101) (1,738) 1,022 792
Accrued interest ........................... 1,205 5,560 (24) --
Other accrued liabilities .................. (7,237) (6,088) 6,105 (357)
Deferred income taxes ...................... 750 682 110 (566)
Net cash provided by ----- ------ ----- -----
(used in) operating activities ............. 14,116 (2,196) 23,001 31,140
Cash flows from investing activities:
Capital expenditures,
net of disposals ......................... (5,966) (2,996) (269) (942)
Proceeds from disposition of
business held in escrow .................. -- -- -- (1,000)
Going private transaction .................. -- (276,142) -- --
Investment in subsidiaries ................. (52,631) (18,207) (9,323)
Cash received on sale of assets ............ 110 -- -- --
Net cash (used in) ------- -------- ------- -------
investing activities ..................... (58,487) (279,138) (18,476) (11,265)
41
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Successor Predecessor Company
Company Company
Period from Period from
August 27, January 1,
Year Ended 1999 to 1999 to Year Ended
December 31, December 31, August 26, December 31,
2000 1999 1999 1998
-------------------------------------------------
Cash flows from financing activities:
Net borrowings (payments)
under revolving credit
agreements ........................ (7,011) 5,726 (1,431) (10,837)
Borrowings for
Acquisitions ...................... 46,531 -- -- --
Payments on long-term debt .......... (3,700) -- -- (4,139)
Proceeds from issuance of
common stock, net ................. 50 -- -- 925
Proceeds from issuance of
common stock for
acquisitions ...................... 6,150 -- -- --
Proceeds from exercise of
stock options ..................... -- -- 6,941 --
Repurchase and cancellation
of stock ......................... (1,323) -- (3,186) (6,056)
Proceeds from issuance of
long-term debt .................... 3,900 196,216 -- --
Proceeds from issuance of
common stock warrants and
common stock, net ................. -- 79,400 -- --
Deferred financing costs ............ (284) (5,919) (703) --
Net cash provided by -------- ------- -------- -------
(used in) financing
activities .......................... 44,263 275,423 1,621 (20,107)
-------- --------- -------- --------
Net increase (decrease) in
cash and cash equivalents ......... (108) (5,911) 6,146 (232)
Cash and cash equivalents
at beginning of year
or period ......................... 710 6,621 475 707
Cash and cash equivalents at end -------- -------- ------- --------
of year or period ................. $ 602 $ 710 $ 6,621 $ 475
======== ======== ======== ========
Supplemental disclosures:
Interest paid ....................... $ 24,436 $ 3,344 $ 130 695
Income taxes paid ................... $ 5,503 $ 3,628 $ 7,732 $ 9,579
42
Investing activities included the acquisitions of: Wabash Valley Manufacturing,
Stuart Clark and Charter Furniture in 2000 and Pompeii in July 1999. Assets
acquired, liabilities assumed and consideration paid was as follows:
2000 1999
Fair value of assets acquired $67,272 $20,082
Cash acquired (1,507) --
Liabilities assumed (8,534) (1,875)
Less Value of Stock Consideration (4,600) --
-------- --------
Cash paid for acquisitions, net of
cash acquired $52,631 $18,207
======== ========
Supplemental schedule of non cash
transactions-stock issued in
acquisitions $ 4,600 --
------- --------
$57,231 $18,207
======== ========
See accompanying notes.
43
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. GOING PRIVATE TRANSACTION
From December 19, 1994 through August 26, 1999, WinsLoew Furniture, Inc's
(WinsLoew) 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 were 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. Accordingly, the financial statements for the
period subsequent to August 26, 1999,are presented on the Company's new basis of
accounting, while the results of operations for periods ended August 26, 1999,
reflect the historical results of the predecessor company.
Had the going private transaction occurred on January 1, 1998, the unaudited pro
forma net sales, operating income and net income for the years ended December
31, 1999 and 1998 would have been $162,139,000 and $33,457,000, $13,963,000 and
$141,360,000, and $13,963,000 and $15,377,000, respectively. These results,
which are based on various assumptions, are not necessarily indicative of what
would have occurred had the acquisition been consummated on January 1, 1998.
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, 2000 was $185,334,985.
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 period from January 1, 1999 to August
26, 1999 (see Note 4).
44
The following sets forth the sources and uses of the funds for the transaction
(dollars in thousands).
Uses of Funds
Cost of stock and stock options .................................. $268,256
Expense of transaction ........................................... 14,350
--------
Total ............................................................ $282,606
========
Sources of Funds
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
========
2. 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 and hospitality 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. Our site amenity products are constructed of expanded mesh and sheet
steel and marketed through representatives and catalog distribution. WinsLoew's
contract and hospitality seating products are distributed to a customer base,
which includes architectural design firms, restaurant and hospitality 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.
45
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.
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. The amount of consolidated unamortized goodwill at December 31, 2000
was $269.3 million.
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. The amount
of consolidated deferred loan acquisition costs at December 31, 2000 was $5.6
million.
ADVERTISING EXPENSE
The Company expenses advertising as incurred. Advertising expense for the years
ended December 31, 2000, 1999 and 1998 was approximately $4,174,000, $2,204,000
and $2,309,000 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. Additionally, the Company has reviewed the Securities and Exchange
Commission's Staff Accounting Bulletin 101 and believes its revenue recognition
policies are in compliance.
46
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 1999 and 1998 financial statements have been reclassified
to conform with the 2000 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 sometimes enters 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, 2000 the Company had $2.8 million in forward contracts
outstanding, through December 2001. At December 31, 1999 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 $0,
($33,000), $0, and ($12,000) for the years ended December 31, 2000 and for the
period from August 27, 1999 to December 31, 1999, the period from January 1,
1999 to August 26, 1999 and the year ended December 31, 1998, 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 January 1, 2001. The Company does not anticipate that the
adoption of SFAS 133 will have a significant impact on it consolidated operating
results or financial position.
47
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 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,
Southern Wood, 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.
Net sales of discontinued operations were $4,432,000 in 1998 and none
thereafter.
There were no net assets or liabilities related to discontinued operations at
December 31, 2000 or December 31, 1999. The operating results of the
subsequently retained Southern Wood operation for 1998, in which the operation
was reported as a discontinued operation is summarized as follows (dollars in
thousands):
For the Year Ended
December 31,
1998
Net Sales $11,689
Income before taxes 1,004
Net income 611
48
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:
Successor
Company Predecessor Company
----------- -------------------
Period from Period from
August 27, January 1,
1999 to 1999 to Year ended
December 31, August 26, December 31,
1999 1999 1998
---------- --------- ----------
Gain on liquidation
of Futon operations $ 524 $ $2,425
Reversal of reserves
related to Southern
Wood -- -- 1,857
Gain (loss) on sale of
remaining RTA operations 678 (1,093)
------- ---------- ----------
Total $1,202 $ $3,189
======== ========== ==========
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 and the gain recognized in 1999.
As a result of the Board's decision to retain Southern Wood, the consolidated
financial statements for all periods presented herein reflect the results of
operations of Southern Wood as a continuing operation.
4. ACQUISITIONS AND DISPOSITION
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 was 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
and 2000, the seller received payments totaling $1,000,000 based upon the
earnings performance for the years ended June 30, 1999 and 2000. Tropic Craft is
engaged in the design and manufacture of contract casual furniture. The
acquisition resulted in goodwill of $8.3 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.
49
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.
In March of 2000, the Company acquired all of the stock of Wabash Valley
Manufacturing, a manufacturer site amenity furniture sold into the institutional
and corporate markets. The purchase price of approximately $35.5 million was
paid in cash and financed with $7.1 million of equity investment from the
sellers and Trivest Furniture, borrowings of $20.0 million under the acquisition
loan and $8.4 million under the revolving credit facility. The acquisition
resulted in goodwill of $22.5 million and was accounted for under the purchase
method of accounting.
On June 16, 2000 the Company purchased certain assets of Stuart Clark, Inc. and
its affiliates. Stuart Clark is a manufacturer of mid price point upholstered
furniture for the hospitality industry. The purchase price of approximately $3.1
million was paid in cash and financed with $0.3 million of equity investment
from the sellers and borrowings of $2.8 million under the Company's revolving
credit facility. The assets and operations of Stuart Clark were merged into our
existing seating facility in Liberty, North Carolina. The acquisition resulted
in goodwill of approximately $2.8 million and was accounted for under the
purchase method of accounting.
On August 11, 2000 the Company purchased all of the stock of Charter Furniture.
Charter provides high quality upholstered furniture for rooms, suites and common
areas of premier hospitality companies. The purchase price of approximately
$18.5 million was paid in cash and financed with $3.3 million of equity
investment from the sellers and Trivest Furniture and $15.2 million under the
revolving credit facility. The acquisition resulted in goodwill of $18.7 million
and was accounted for under the purchase method of accounting.
The operating results of Wabash, Stuart Clark and Charter have been included in
the consolidated operating results since the dates of acquisition
The following unaudited pro forma information has been prepared assuming that
the acquisitions of Pompeii, Wabash, Stuart Clark and Charter as well as the
merger with Trivest Furniture (see Note 1) occurred on January 1, 1999.
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 acquisitions 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,
2000 1999
Net sales $208,067 $217,958
Income from continuing
operations $ 6,816 $ 5,590
Net income $ 6,816 $ 6,345
50
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 1).
Long-term debt consisted of the following at December 31, 2000
and 1999
(In thousands) ......... 2000 1999
--------- ---------
Acquisition line ....... $ 20,000 $ --
Revolving line of credit 25,262 5,742
Term Loan .............. 91,300 95,000
Subordinated notes ..... 101,710 101,216
IDB Bonds .............. 3,900 --
--------- ---------
242,172 201,958
Less current portion ... (4,025) (3,700)
--------- ---------
$ 238,147 $ 198,258
========= =========
At December 31, 2000 and 1999, 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, 2000, the carrying value of the working capital line
of credit, $25.3 million, approximated its fair value. The term loans consist of
three loans, with principal balances and applicable interest rates at December
31, 2000, as follow:
Term Loan A Term Loan B Term Loan C
---------------------------------------------
Principal Balance $22 million $61.8 million $7.5 million
LIBOR rate 9.375% 10.125% 10.125%
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/LIBOR 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 loans B and C, in each
case depending on WinsLoew's consolidated leverage ratio. The margins for
Eurodollar/LIBOR 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 loans B and C, in each case depending on WinsLoew's consolidated
leverage ratio. As of December 31, 2000, the loans are priced at the LIBOR rate
plus a margin of 2.5% for the working capital line of credit, term loan A and
acquisition line of credit and a margin of 3.25 % for the term loans B and C.
51
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 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,
2000, 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.
52
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 estimated 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, 2000, the Company was in
compliance with such covenants.
Maturities of long-term debt for the five years succeeding December 31, 2000 are
$4.0 million in 2001, $7.0 million in 2002, $7.0 million in 2003, $8.0 million
in 2004 and $33.6 million in 2005 and $182.6 million thereafter.
INDUSTRIAL DEVELOPMENT BOARD BONDS
In connection with the Company's plant expansion at it's Haleyville facility the
Company entered into a lease agreement with the Industrial Development Board
("IDB") Of The City of Haleyville, Alabama. The plant expansion was funded with
proceeds from the issuance of IDB bonds in the amount of $3,900,000.
The Company has agreed to make payments on the debt service and to pay the
purchase price of the Bonds pursuant to Mandatory Tender and Optional Tender
provisions in the Indenture. The Company has also entered into a Bond Guarantee
Agreement dated May 1,2000 in favor of the Trustee, whereby the Company
guarantees payment when due of debt service on the Bonds and the purchase price
of Bonds tendered for purchase under the Indenture. As additional security, an
irrevocable Letter of Credit has been issued in favor of the Trustee.
53
The Bonds may bear interest at either a variable rate or fixed rate, and if at a
fixed rate, for varying periods of time as specified in the Indenture. The
variable rate shall be a fluctuating rate per annum determined by the
Remarketing Agent on a weekly basis. The Company may pursuant to the provisions
of the Indenture, elect that the Bonds pay interest at a fixed rate. The
Remarketing Agent will also determine the interest rate for such a fixed period.
When establishing either the variable or fixed rate of interest, the Remarketing
Agent determines, the lowest interest rate would, in the opinion of the
Remarketing Agent, result in the market value of the Bonds being 100% of the
principal amount on the date of such determination, taking into account relevant
market conditions and credit rating factors as they exist on such date. As of
December 31, 2000 the Bonds bore interest at a variable rate of 5.04%.
The Bonds are subject to mandatory redemption, by lot, by the Issuer at a
redemption price equal to the principal amount to be redeemed plus accrued
interest to the redemption date, without premium or penalty, on the first day in
May in the years and in the amounts as follows:
Principal
Date Amount
2001 $325,000
2002 325,000
2003 325,000
2004 325,000
2005 325,000
2006-2012 325,000 per year
The Bonds also carry an Optional Redemption feature that may be exercised at the
direction of the Company, with certain conditions. If redemption occurs during
any variable rate period, this feature provides for redemption of authorized
multiples, at a price equal to 100% of the principal amount plus accrued
interest to the date of redemption. In the case when redemption may occur during
a fixed rate period the Indenture provides for redemption of authorized
multiples, at a price equal to 100%-102% of the principal amount plus accrued
interest. The redemption price during a fixed rate period, is based upon the
length of time the Bonds have been at a fixed rate, with no optional redemption
allowed when the Bonds have been at a fixed rate period for four years or less.
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 $3.2 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. There were 850,350
and 780,000 shares issued and outstanding at December 31, 2000 and December 31,
1999, respectively.
54
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended
December 31, 1999 to 1, 1999 December 31,
2000 December to August 1998
31, 1999 26, 1999
(in thousands)
----------------------------------------------
Provision for taxes
related to continuing
operations $ 7,151 $2,180 $9,159 $10,947
Provison (benefit)
for taxes related to
loss on sale of
discontinued operations -- 447 -- 1,158
-------------------------------------------------
Total provision
for taxes $ 7,151 $2,627 $9,159 $12,105
=================================================
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended
December 31, 1999 to 1, 1999 December 31,
2000 December to August 1998
31, 1999 26, 1999
(In thousands)
Federal:
Current $5,941 $2,131 $8,565 $10,128
Deferred 546 33 15 856
State:
Current 608 258 484 989
Deferred 56 205 95 132
---------------------------------------------------------
$7,151 $2,627 $9,159 $12,105
=========================================================
55
At December 31, 2000 and 1999, deferred tax assets and liabilities consisted of
the following:
(In thousands) 2000 1999
-----------------------
Deferred tax assets:
Capitalized inventory costs $ 404 $ $162
Reserves and accruals 2,723 2,876
State net operating loss
carryforwards 9 9
-----------------------
Deferred tax assets 3,136 3,047
-----------------------
Deferred tax liabilities:
Intangible asset basis
difference (1,139) (430)
Excess of tax over
book depreciation (710) (660)
Prepaid Expenses (150) (91)
Other (116) (243)
-----------------------
Deferred tax liabilities (2,115) (1,424)
------------------------
Deferred income taxes, net $ 1,021 $1,623
=========================
Included in:
Other current
assets/liabilities $ 2,870 $2,722
Deferred income taxes (1,849) (1,099)
------------------------
$ 1,021 $1,623
=========================
The following table summarizes the differences between the federal income tax
rate and the Company's effective income tax rate for financial statement
purposes:
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended
December 31, 1999 to 1, 1999 December 31,
2000 December to August 1998
31, 1999 26, 1999
-------------------------------------------
Federal income tax rate 35.0% 35.0% 35.0% 35.0%
State income taxes 2.2% 6.1% 1.6% 3.4%
Goodwill Amortization 17.5% 14.5% 0.3% 2.1%
Other (3.2%) (2.4%) 1.1% (3.4%)
------------------------------------------
Effective tax rate 51.5% 53.2% 38.0% 37.1%
==========================================
56
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, the Investment Services Agreement was
amended to adjust the annual base compensation from $500,000 to $350,000. As a
result of acquisitions during 2000, the annual base compensation was increased
to $450,000. For the year ended December 31, 2000 and for the period from August
27, 1999 to December 31, 1999, the period from January 1,1999 to August 26, 1999
and the year ended December 31, 1998, the amount expensed was $393,000, $80,000,
$378,000, and $641,000, respectively. Under the agreement, during 2000, the
Company also paid Trivest $631,000 in connection with the Wabash acquisition and
$478,000 in connection with the Charter acquisition. Payments in 1999 included
$375,000 in connection with the Pompeii acquisition (see Note 4) and $3,000,000
in connection with the going private transaction (see Note 1). In addition,
Trivest made additional equity investments of approximately $6.1 million, during
2000 in support of acquisitions.
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 $1,161,000 $336,000, $673,000, and $830,000, for the year ended
December 31, 2000, the period from August 27, 1999 to December 31, 1999, the
period from January 1, 1999 to August 26, 1999 and the year ended December 31,
1998, respectively. Operating lease agreements in effect at December 31, 2000
have the following remaining minimum payment obligations (in thousands):
2001 $1,556
2002 1,207
2003 801
2004 793
2005 799
2006-2009 3,117
-------
8,273
=======
57
EMPLOYEE BENEFIT PLANS
The Company has four 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, $202,000, and $161,000 in 2000, 1999 and 1998 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 has 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.
Predecessor Company
For the Year Ended
December 31,
(In thousands) 1998
------------------
Pro forma net income $20,035
==================
58
Information with respect to the Predecessor Company's stock options for periods
prior to August 27, 1999 is as follows:
1999 1998
-------------------
Options outstanding
at January 1 742,900 784,850
Granted 22,500 40,000
Exercised (765,400) (63,900)
Canceled -- (18,050)
---------------------
Options outstanding
at December 31 -- 742,900
=====================
Exercise prices
per share $5.88-$23.44 $5.88-$23.44
Options exercisable
at December 31 -- 422,060
=======================
Options available
for grant at
December 31 -- 573,375
=======================
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, 2000.
LITIGATION AND LIABILITY CLAIMS
The Company is, from time to time, involved in routine litigation including
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.
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.
59
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 was set for April 11, 2000. The court subsequently
denied the Company's motion to dismiss and a status conference was scheduled for
November 28, 2000.
On January 11,2001 the Honorable Thomas Woodall entered an order giving
preliminary approval to a proposed settlement of this action. The proposed
settlement provides for no additional benefit to be bestowed upon the class and
possible payment by the Company of attorney fees in an amount not to exceed
$575,000.00. A final hearing to approve the settlement is scheduled for April
24, 2001.
10. OPERATING SEGMENTS
The Company has three segments organized and managed based on the products sold.
These reportable segments are described in Note 2.
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.
60
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended December 31, 1999
to 1, 1999 December 31, 2000 December to August 1998
31, 1999 26, 1999
(In thousands) ----------------------------------------------
REVENUES:
Casual Products $108,050 $23,143 $ 51,443 $59,733
Contract and hospitality
products 69,458 28,256 44,090 69,938
Ready to assemble
products 11,455 5,106 10,101 11,689
----------------------------------------------
Total revenues $188,963 $56,505 $105,634 $141,360
==============================================
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended
December 31, 1999 to 1, 1999 December 31,
2000 December to August 1998
31, 1999 26, 1999
(In thousands)
----------------------------------------------------
SEGMENT GROSS PROFIT
Casual products $49,949 $11,553 $24,973 $28,227
Contract and hospitality
products 26,027 10,800 14,904 23,439
Ready to assemble
products 2,046 1,076 2,449 2,462
--------------------------------------------
Total segment
gross profit $78,022 $23,429 $42,326 $54,128
61
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended
December 31, 1999 to 1, 1999 December 31,
2000 December to August 1998
31, 1999 26, 1999
(In thousands)
---------------------------------------------------
DEPRECIATION AND
AMORTIZATION:
Casual products $ 3,316 $ 866 $1,207 $1,550
Contract and hospitality
products 606 124 250 425
Ready to assemble
products 323 107 205 309
--------------------------------------------------
Total 4,245 1,097 1,662 2,284
Reconciling items:
Corporate 6,316 1,864 222 334
-------------------------------------------------
Total depreciation
and amortization $10,561 $2,961 $1,884 $2,618
================================================
Successor Predecessor
Company Company
Period Period
from from
Year Ended August 27, January Year Ended
December 31, 1999 to 1, 1999 December 31,
2000 December to August 1998
31, 1999 26, 1999
(In thousands)
---------------------------------------------------
EXPENDITURES FOR
(DISPOSAL OF) LONG
LIVED ASSETS, NET:
Casual products $5,268 $1,654 $ 180 $ (24)
Contract and hospitality
products 527 133 13 129
Ready to assemble
products 140 1 54 103
------------------------------------------------
Total 5,935 1,788 247 208
Reconciling items:
Corporate 31 1,208 22 734
-----------------------------------------------
Total expenditures for
long lived assets, net $5,966 $2,996 $ 269 $ 942
===============================================
62
Successor
Company
December 31, December
2000 31, 1999
------------------------
SEGMENT ASSETS:
Casual products $115,753 $71,079
Contract and hospitality
products 52,873 24,156
Ready to assemble products 6,374 7,379
-----------------------
Total 175,000 102,614
Reconciling items:
Corporate 192,622 205,448
Assets held for sale -- --
----------------------
Total consolidated assets $367,622 $308,062
======================
The Company did not have any individual customers that accounted for 10% or more
of consolidated revenues in 2000. The Company had one contract and hospitality
customer that accounted for 15% and 17% of consolidated revenues in the years
ended December 31,1999, and 1998 respectively.
63
11.SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items specified below:
December 31,
2000 1999
--------------------
(In thousands)
Inventories:
Raw materials $13,398 $11,502
Work in process 3,262 1,751
Finished goods 3,538 1,292
---------------------
$20,198 $14,545
=====================
Property,plant,and
equipment:
Land $3,870 $2,628
Buildings and
improvements 17,488 8,590
Manufacturing equipment 6,094 3,660
Office equipment 1,085 611
Construction in progress 558 240
Vehicles/airplane 1,365 1,243
------------------------
30,460 16,972
Accumulated depreciation (2,633) (510)
------------------------
$27,827 $16,462
========================
December 31,
2000 1999
--------------------
(In thousands)
Other accrued liabilities:
Compensation, commissions
and employee benefits 3,296 $2,900
Customer deposits 1,714 1,505
Income taxes 1,062 1,339
Warranty 2,251 2,640
Other 4,898 5,085
-----------------------
13,221 $13,469
========================
64
Depreciation expense for continuing operations was $2,178,000, $1,103,000,
$421,000 and $1,496,000, for the year ended December 31, 2000, 1999 Predecessor
period from January 1 to August 26, 1999, Successor period from August 27 to
December 31, 1999 and for the year ended December 31, 1998.
Accumulated amortization at December 31, 2000 and 1999 related to goodwill was
$15,513,000 and $8,704,000 respectively. Accumulated amortization at December
31, 2000 and 1999 related to other intangible assets was $1,703,000 and
$486,000, respectively.
12.SUBSEQUENT EVENTS
On March 9, 2001, the Company purchased all of the stock of The Woodsmiths
Company, Inc. Woodsmiths, which is located in Pompano Beach Florida, is a
manufacturer of quality custom table tops for the hospitality industry. The
purchase price of approximately $2.8 million was paid with an initial
distribution of approximately $0.3 million with the balance due, including
accrued interest, on July 31, 2001. It is anticipated that operations will
continue at the current Woodsmiths facility, including the existing management
team.
65
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.
66
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 62 Chairman of the Board and Director
Bobby Tesney 56 President,Chief Executive Officer and Director
Darryl Rosser 49 Executive Vice President-Contract and Hospitality
Jerry Camp 35 Executive Vice President-Casual Furniture
Vincent A. Tortorici, Jr 47 Assistant Secretary, Vice President,Chief
Financial Officer
Rick J. Stephens 46 Vice President-Operations
Rebecca Patterson 45 Chief Information Officer
Terry Charcandy 37 Vice President-Human Resources
William F.Kaczynski, Jr 41 Vice President and Director
David Soloman 38 Director
Robert G. Calton 39 Director
Walter J. Olson, III 59 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 Messrs. Solomon,
Charcandy, Calton, Olson and Ms. Patterson 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.
67
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 and Hospitality since
December 1999, served as Vice president -Contract and Hospitality 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.
68
Mr. Rosser, is President of the Contract and Hospitality Division of the
Company. Prior to joining the Company, Mr. Rosser was President and Chief
Operating Officer of Falcon Products, Inc. from 1995 to December, 2000, and
an executive vice president of Falcon Products, Inc. since January 1998. Mr.
Rosser started his career with Texas Instruments in project engineering,
working with Texas Instruments in various management roles from 1973 to 1984,
at which time he joined The Wurlitzer Company as Vice President of Operations
from 1984 till 1988.
Mr. Charcandy, the Company's Vice President of Human Resources since April 2000,
served as Human Resource Manager from January 1999 to March 2000. Prior to
joining the company Mr. Charcandy worked for Kiewit Construction Co. in the
capacity of Director of Human Resources & Purchasing for 7 years. Mr. Charcandy
started his career with Ryan & Robinson Coal Company in the purchasing & human
resource area and served as Business Manager from 1987 to 1992.
Ms. Patterson, WinsLoew's Chief Information Officer joined the company in
February 1997. Prior to joining the company Ms. Patterson served as the
Technology Director of ABCO Furniture, Inc from 1993 to 1997. For the eight
previous years, Ms. Patterson served as Systems Analysts for one year and then
Vice President of Computer Consultants, Inc., an Information Technology
Consulting firm serving a diverse client base.
69
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, 2000 and to former executive officers whose total 2000
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 ....... 2000 $300,000 $300,000 $109,367 --
President and Chief 1999 275,000 275,000 97,259 --
Executive Officer .. 1998 250,150 250,150 88,471 --
Vincent A. Tortorici 2000 175,000 113,750 21,053 --
Vice President and . 1999 162,000 105,300 14,056 --
Chief Financial .... 1998 148,050 96,233 12,845 --
Officer
Rick J. Stephens ... 2000 134,000 67,000 12,396 --
Vice President- .... 1999 123,552 61,776 11,338 --
Operations ......... 1998 123,552 61,776 9,121 --
Jerry C. Camp ...... 2000 180,000 90,000 36,197 --
Executive Vice ..... 1999 138,750 45,938 23,925 --
President-Casual ... 1998 94,096 28,800 7,820 --
Stewart Long ....... 2000 159,269 46,846 -- --
President ..... 1999 121,530 41,293 12,097 --
Loewenstein .. 1998 112,692 49,875 -- --
Darryl Rosser (2) 2000 -- -- -- --
President-Contract 1999 -- -- -- --
And Hospitality 1998 -- -- -- --
Rebecca Patterson .. 2000 124,231 12,423 -- --
Chief Information .. 1999 113,077 11,339 -- --
Officer .. 1998 89,519 500 -- --
(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.
70
(2) Joined the Company on March 1, 2001
Option Grants
No stock options were granted to any Named Executive Officers in 2000. 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, 2000.
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
participant's 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.
With the acquisition of Wabash in March 2000, an additional 401(k) plan is in
effect. Employees of Wabash are eligible to participate in the Plan after
completing one year of service and must be at least 21 years of age. Eligible
employees may make salary reduction contributions to the Plan on a pretax basis.
Employees may contribute from their normal salary and their monthly profit
sharing distributions. The Company will match 100% of the employee's
contribution up to a maximum of 25% of the employee's monthly profit sharing
distribution. An employee's vested benefits are payable upon his retirement,
death, disability, attainment of age 59 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 three years of service. There is no graduating vesting
schedule. Nonvested amounts are forfeited.
71
As a result of the Charter acquisition in August 2000, an additional 401-k plan
is in effect. Employees of Charter Furniture are eligible to participate in the
Plan if they are age 21 and over after one year of employment. Eligible
employees may make salary reduction contributions to the Plan on a pretax basis.
The company matches .25 on every dollar contributed up to 6% of earnings.
Eligibility of match is 20% for every year of service. 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
five 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 per year of service.
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 $10,000, payable
in quarterly installments of $2,500 and a $750 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 2000 base salary of $300,000, and Mr. Tortorici a
2000 base salary of $175,000. The employment agreements provide for us to pay
Mr. Tesney a 2001 base salary of $350,000 and Mr. Tortorici a 2001 base salary
of $200,000, 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.
72
We have 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.
We have also entered into a five-year employment agreement with Mr. Rosser
effective as of March 1, 2001. The employment agreement provides for us to pay
Mr. Rosser a 2001 base salary of $200,000, and a 2002 base salary $225,000
subject to subsequent annual cost of living adjustments. The employment
agreement also provides for annual incentive compensation payments of up to 75%
of the executive's then base salary, based on the operating earnings, adjusted
to exclude the effect of goodwill amortization, of our contract and hospitality
division. Mr. Rosser 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. Rosser's employment agreement also provides that the executive will receive
three 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.
73
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."
74
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
As of March 1, 2001 we have outstanding 850,350 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)(5) 766,497 85.3%
Phillip T. George, M.D. (4)(6) 345,965 38.5
Trivest II, Inc.(7) 400,327 44.6
Trivest Equitites, Inc (8) 336,170 37.4
Bobby Tesney 11,626 1.3
Vincent A. Tortorici,Jr 7,046 0.8
Rick J. Stephens 7,000 0.8
Jerry C. Camp 2,000 0.2
Stewart H. Long 261 0.03
All directors and executive officers
as a group (6 persons)(9) 794,337 86.1%
- ----------
(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) The beneficial owner's address is c/o Brava LLC, 2601 South Bayshore
Drive, Suite 7250, Miami, Florida 33133.
(5) Includes 30,000 shares held of record directly, 400,327 shares held of
record by Trivest Furniture Partners, Ltd. and 336,170 shares held of
record by Trivest Fund II Group, Ltd. See notes (6) and (7) below.
(6) Includes 9,795 shares held of record directly and 336,170 shares held of
record by Trivest Fund II Group, Ltd. See notes (7) and (8) below.
75
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS (Continued)
(7) Includes 400,327 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.
(8) Includes 336,170 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.
(9) Includes 400,327 shares held of record by Trivest Furniture
Partners, Ltd. and 336,170 shares held of record by Trivest
Fund II Group, Ltd. See notes (7) and (8).
76
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. In addition, fees of
approximately $1.1 million relating to acquisitions were paid in 2000.
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.
77
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.
FINANCIAL ADVISORY FEE PAID TO TRIVEST
We paid a financial advisory fee to Trivest of $3.0 million when we completed
the merger in 1999. 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. In addition a fee of approximately $0.4
million was paid to Trivest in 1999 in association with the Pompeii acquisition.
In 2000 the Company paid Trivest approximately $1.1 million related to services
in support of acquisitions.
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.
78
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.
79
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 and Qualifying Accounts 87
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
80
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)
81
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(4)
10.31 Stock Purchase Agreement by and among WinsLoew Furniture, Inc.
and Doug Curtis, et al., the Stockholders of Wabash Valley
Manufacturing, Inc. and Wabash Manufacturing, Inc. dated as of
March 31, 2000(2.1) (3)
10.32 Employment Agreement dated March 31, 2000 between Jerry Shilling
and Wabash Valley Manufacturing, Inc.(2.2)(3)
10.33 Employment Agreement dated March 31, 2000 between Michael Shilling and
Wabash Valley Manufacturing, Inc.(2.3)(3)
10.34 Subscription and Shareholder Agreement dated March 31, 2000 between
Michael Shilling and WinsLoew Furniture, Inc.(2.4)(3)
10.35 Subscription and Shareholder Agreement dated March 31, 2000 between
Jerry Schilliing and Winsloew Furniture,Inc.(2.5) (3)
10.36 Asset Purchase Agreement dated June 16, 2000 between Loewenstein,
Inc. and Stuart-Clark Inc., Stuart Clark Office Furniture
Division, Inc and Stuart-Clark Manufacturing, Inc.(2)
10.37 Subscription and Shareholder Agreement dated June 16, 2000 between
Donald N. Clark and WinsLoew Furniture, Inc.(2)
10.38 Stock Purchase Agreement dated August 11, 2000 by and among WinsLoew
Furniture, Inc. and the Stockholders of Charter Furniture,
Corporation(2)
10.39 Subscription and Shareholder Agreement dated August 11, 2000 between
Albert Bertram and Winsloew Furniture, Inc.(2)
10.40 Subscription and Shareholder Agreement dated August 11, 2000 between
James S. Pepping and Winsloew Furniture, Inc.(2)
82
10.41 Amendment No. 1 to 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(2)
10.42 Amendment No. 2 to 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(2)
10.43 Amendment No. 3 to 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(2)
10.44 Lease Agreement dated May 1, 2000 by and between The Industrial.
Development Board Of The City Of Haleyville, Alabama and
Winston Properties, Inc.(2)
10.45 Trust Indenture dated May 1, 2000 between The Industrial
Development Board Of The City Of Haleyville, Alabama and
First Commercial Bank ( As Trustee).(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
(3)Incorporated by reference to the exhibits, shown in
parentheses and filed with the Registrant's 8- K Filed April 11,
2000 (No. 033-85476)
(4)Incorporated by reference to the exhibits, shown in
parentheses and filed with the Registrant's 10- K Filed March 29,
2000 (No. 033-85476)
(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.
83
(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.
84
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 23, 2001 By: /s/Bobby Tesney
------------------
Bobby Tesney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,this report
has been signed below by the following persons on behalf of the registrant 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
/s/Robert G. Calton_ Director
- -------------------
Robert G. Calton
/s/Walter J. Olson, III Director
- -----------------------
Walter J. Olson III
85
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
WINSLOEW FURNITURE, INC.
December 31, 2000
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------ -------- --------- --------- --------- ---------
Balance at Charged Charged Balance
Beginning to Costs to Other at End
Description Of Period and Expense Accounts Deductions of Period
- ---------------------- ----------- -------- -------- -----------
Predecessor Company:
Year ended December
31, 1998 allowance
for doubtful
accounts $788,000 $1,331,000 -- ($425,000)(1) $1,694,000
Period from January 1, 1999 to
August 26, 1999 Allowance
for doubtful
accounts $1,694,000 $241,508 $286,000(3) ($65,377)(1) $2,156,131
Successor Company:
Period from August 27, 1999
to December 31, 1999 Allowance
for doubtful
accounts $2,156,131 150,492 0 (208,623) 2,098,000
Year ended December
31, 2000 allowance
for doubtful
accounts $2,098,000 $672,046 $250,000(3) $81,025(1) $3,101,071
Predecessor Company:
Year ended December 31, 1998 allowance
for excess and
obsolete
inventory $374,000 $702,000 -- ($581,000)(2) $495,000
Period ended January 1 , 1999
to August 26, 1999 Allowance
for excess and
obsolete
inventory $495,000 $593,632 $ -- ($88,947)(2) $999,685
86
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
WINSLOEW FURNITURE, INC.
December 31, 2000
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------ -------- --------- --------- --------- ---------
Balance at Charged Charged Balance
Beginning to Costs to Other at End
Description Of Period and Expense Accounts Deductions of Period
- ---------------------- ----------- -------- -------- -----------
Period ended August 27, 1999
to December 31, 1999 Allowance
for excess and
obsolete
inventory $999,685 $(128,632) $516,000 ($188,053) $1,199,000
Year ended December 31, 2000 allowance
for excess and
obsolete
inventory $1,199,000 $(48,738) $300,000(3) ($366,491)(2) $1,083,771
(1) Uncollectible accounts receivable written-off (2) Excess and obsolete
inventory written-off (3) Amounts established as a result of acquisitions
87