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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year
ended December 31,2001
[] 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 January 21, 2002 was 1,000.
INDEX TO ITEMS
Page
PART I
ITEM 1. Business 3
ITEM 2. Properties 18
ITEM 3. Legal Proceedings 20
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 20
ITEM 6. Selected Financial Data 21
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 36
ITEM 8. Financial Statements and Supplementary Data 37
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 72
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 73
ITEM 11. Executive Compensation 78
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 85
ITEM 13. Certain Relationships and Related Transactions 86
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 90
Signatures 96
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 2 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, Pompeii, Brown Jordan, Vineyard and Shae Designs brand names through
approximately 67 independent sales representatives and to over 800 active
customers, which are primarily specialty patio furniture stores located
throughout the United States. In addition, we market our casual products to the
mass merchandise market under the Casual Living, Better Homes and Gardens and
Samsonite brand names.
We also market a broad line of casual furniture products in the contract markets
under the Texacraft, Tropic Craft, Pompeii and Brown Jordan 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 the 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 Liberty, 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.
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; Brown Jordan, a manufacturer
whose products serve the premium to unlimited market categories in both retail
and contract markets and Casual Living Worldwide who markets to national
retailers and specialty patio stores under a variety of brand names in the
moderate to lower price points; 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 during 2000, both
of which manufacture upholstered furniture for the hospitality industry. In
addition, the Company purchased The Woodsmiths Company in March 2001. Woodsmiths
is a manufacturer of custom tabletops for the contract and hospitality markets.
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.
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.
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
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.
Recent Developments
On March 9, 2001 the Company purchased all of the outstanding stock of The
Woodsmiths Company. Woodsmiths, a manufacturer of custom tabletops for the
contract and hospitality industry, is located in Pompano Beach, Florida. The
purchase price of approximately $2.8 million was paid in cash of approximately
$2.5 million and $0.3 million in equity investment.
In addition, the stock purchase agreement provides for an additional contingent
deferred payment of up to $1,000,000 based upon Woodsmiths' earnings before
interest, taxes, depreciation, amortization and management fees. The maximum
contingent payment amount of $1,000,000 was recorded at the time of purchase as
an addition to goodwill and an accrued liability of the Company. The amount of
any such contingent payment will be made directly to the former sole shareholder
and serves as a financial incentive.
The acquisition resulted in goodwill of approximately $3.4 million and was
accounted for under the purchase method of accounting. The operating results of
Woodsmiths have been included in the consolidated operating results beginning on
the date of acquisition.
On May 8, 2001 WinsLoew Furniture, Inc. and its parent WLFI Holdings, Inc.
acquired all of the outstanding stock of Brown Jordan International, Inc. (BJI)
at a purchase price of $78.6 million. The Stock Purchase Agreement by and among
WLFI Holdings, Inc., the Company, BJI and the Stockholders of BJI also called
for the repayment of outstanding BJI indebtedness at closing, which approximated
$44.6 million. The amount of consideration paid by the Company for the BJI stock
was determined through an arm's length negotiation between representatives of
the Company and BJI.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired on a
preliminary basis using the fair value of the assets acquired. This preliminary
basis is subject to review and subject to change. Pursuant to the purchase
method of accounting, the excess of the purchase price over the $44.6 million
fair value of net assets after payment of BJI indebtedness at closing, has been
recorded as goodwill in the amount of $78.6 million. The operating results of
BJI have been included in the consolidated operating results since the date of
acquisition.
In order to complete the acquisition, the merger described in Note 1 to the
Consolidated Financial Statements included under item 8 was consummated
simultaneously.
WLFI Holdings, Inc. raised $50.9 million of equity and issued $22 million of
subordinated notes to the sellers for BJI stock. Holdings contributed the cash
of $50.9 million to the Company as additional equity. The stock of BJI, obtained
in the exchange of subordinated notes, was also contributed to the Company. The
balance of the proceeds was provided through a refinancing of the Company's
existing Senior Credit Facility. The new Senior Credit Facility consists of a
$165 million Term Loan and a $60 million revolving credit facility.
In January of 2002, Bruce Albertson was named the Company's President and Chief
Executive Officer replacing Bobby Tesney. Mr. Albertson joined GE Appliances in
1976 as a sales counselor, advancing over the course of the next 25 years to
become, in succession, General Manager of Brand Management & Distribution
Strategy, President of GE Appliances in Hong Kong, and Vice President for Global
Marketing and Product Management in Louisville. Most recently, Mr. Albertson was
the President and CEO of Iomega Corporation, based in Utah.
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 the credit approval of a customer's order.
Since we introduced this program in 1988, we have never had to pay freight
charges. Our ability to deliver "in time, on time" is also important to our
contract market customers, who must receive our casual furniture or seating
products on a timely basis to meet their own construction or operating
deadlines. We believe that our "Quick Ship" program and our ability to deliver
our products "in time, on time" are unique in the furniture manufacturing
industry and distinguish us from our competitors.
Continual Focus on Customer Service. We are dedicated to providing the highest
level of customer service through our focus on complete customer satisfaction.
We provide a variety of services, which are geared towards assisting our
customers to improve the profitability of their business while strengthening
their loyalty to our products. For example, in our casual furniture segment, we
provide retailers with improved terms and extended payment plans for products
ordered prior to the main selling season that ensures them product availability
and slightly lower costs. We also respond to customers' urgent orders with our
"red flag" service that gives such products priority in our plants throughout
the manufacturing process.
Moreover, in the event a customer requests a replacement part that does not need
to be manufactured; we guarantee delivery within 24 hours of our receipt of the
order. This level of customer service is equally important to our seating
customers. Since our seating customers require unique product features, we work
closely with them to provide customized seating products that meet their
particular needs. We offer these customized products quickly and cost
effectively through our flexible manufacturing processes and trained sales staff
knowledgeable in the design, manufacture, variety and decor applications of our
products. We also have a customer service department at each manufacturing plant
to respond directly to customer inquiries.
Efficient Operations and Variable Cost Structure. We continually review our
operations to identify ways to streamline our manufacturing process and reduce
our costs in order to further increase efficiencies and profitability. Over the
past few years, we have:
. improved our manufacturing capabilities through the use of
technologically advanced systems,
. optimized our use of vertical integration and outsourcing, as
appropriate,
. exited lower margin or non-core businesses, and
. extensively reconfigured manufacturing processes within our
principal manufacturing facilities.
We operate our business with a highly variable cost structure so we can react
quickly to significant changes in market conditions. Our manufacturing and other
operations can be rapidly adjusted, as appropriate, to reduce labor, raw
materials, general administrative and other costs. These variable costs
represent the majority of our total operating expenses. Historically, our
variable cost structure, combined with our flexible manufacturing capabilities,
has allowed us to maintain our profit margins during periods of market weakness.
Experienced Management Team with Significant Ownership. Our experienced and
dedicated management team has been instrumental in our success and represents
one of our key competitive advantages. Bruce Albertson, our new President and
CEO, brings extensive marketing and management expertise to our organization.
Bobby Tesney, our Vice-Chairman, has over 20 years of industry related
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 11 years.
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. In
2001 we again complimented our contract and hospitality segment with the
acquisition of The Woodsmiths Company- a manufacturer of custom tabletops.
Finally, our most recent acquisitions of Brown Jordan, a manufacturer whose
products serve the premium to unlimited market categories in both retail and
contract markets and Casual Living Worldwide who markets to national retailers
and specialty patio stores under a variety of brand names in the moderate to
lower price points have rounded out our product offering in the both retail and
contract segments of the casual business.
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, 2001, our
casual, seating and ready-to-assemble furniture products accounted for 72.3%,
24.5% and 3.2%, 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, Specialty patio stores,
and including chairs, chaise full-line furniture
Brown lounges, tables, umbrellas retailers and department
Jordan and related accessories, stores in the residential
constructed of extruded market.
and tubular aluminum.
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
wrought iron, 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, showrooms and residential
umbrellas and related designers in the residential
accessories, constructed of market; and architectural
extruded and tubular design firms, commercial
aluminum. design firms and specifiers
and purchasing agents in the
contract market.
Wabash Site amenity products Educational facilities,
including:tables,chairs, municipality and recreation
benches, swings and related centers,hotels, motels and other
accessories constructed of motels and other institutional
sheet steel or expanded and corporate users.
steel mesh that is coated
with heat fused plastisol.
Loewenstein Contemporary to traditional Lodging and restaurant chains,
products, such as wood seating architectural design
upholstered chairs, firms, metal and sports
loveseats. facilities, schools, sofas and
healthcare facilitites, office
furniture dealers, retail store
planners and other commercial
and institutional users in the
contract and hospitality market.
Charter, Custom and semi-custom Hotel and other hospitality
Lodging By upholstered furnishings markets.
Liberty, such as,sofas, benches,
Stuart Clark chaises, chairs, lounge
chairs and ottomans.
Southern Ready to assemble furniture Mass Merchandisers and
Wood products, such as book catalog wholesalers.
Products shelves, 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.
Shae Designs, Extruded and cast aluminum, Speciality patio furnishings
Samsonite wrought iron, steel, all- stores and department stores
and weather wicker and wood
The Vineyard Collection casual furnishings
Casual Living, Casual outdoor furniture, Mass merchants and home
And Samsonite including, chairs, chaise centers
lounges, tables, umbrellas
and related accessories
constructed of extruded
and tubular aluminum.
Woodsmiths Custom table tops, bases Restaurants, hotels, country
and conference room clubs, health care facilites,
furnishings universities and government
agencies.
We market our casual furniture products, consisting principally of medium to
upper-end casual indoor and outdoor furniture, under the Winston, Texacraft,
Tropic Craft, Pompeii, Brown Jordan, Vineyard and Shae Designs brand names. In
addition we target the value priced market under the Casual Living and Samsonite
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 for our medium to upper-end segment and $150
to $800 for the promotionally priced market. 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.
Our seating products are marketed under the Loewenstein, Lodging By Liberty,
Stuart Clark, Charter and Woodsmiths brand names and include over 600 distinct
models, ranging from contemporary to traditional styles, of wood, metal and
upholstered chairs, reception area love seats, sofas, ottomans, chaises, stools
and tables. 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 ten manufacturing facilities located throughout the
United States and one facility in Mexico. 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.
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.
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
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.
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 65% 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.
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 contract and
hospitality products through approximately 80 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.
BACKLOG
As of December 31, 2001, our backlog of orders was approximately $96.1 million,
compared to $23.4 million at December 31, 2000. Our backlog is defined as
committed purchase orders with future ship dates. The increase over 2000 results
largely from the additional backlog associated with the Brown Jordan
International acquisition. 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.
Sales of imported, foreign-produced furniture has increased in recent years.
During 2001 we moved to address this share of the market through acquisitions.
The company now has a manufacturing facility in Mexcio and 20% ownership in a
furniture manufacturer located in China. This move has opened up new casual
furniture markets that were previously not targeted by the Company.
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,
Wabash Valley trademarks with the United States Patent and Trademark Office, in
addition to numerous trademarks under Brown Jordan Company and BJIP, Inc. 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, 2001, we had approximately 1,814 full-time employees, of whom
168 were employed in management, 273 in sales, general, and administrative
positions, and 1,373 in manufacturing, shipping, and warehouse positions.
The Company has two manufacturing locations whose employees are subject to
collective bargaining agreements. Approximately 130 of our hourly employees in
Haleyville, Alabama, are represented by the Retail, Wholesale, and Department
Store Union. The labor agreement between WinsLoew and such union, which expires
in July 2006, provides that there shall be no strikes, slowdowns or lockouts.
In addition, approximately 120 of our hourly employees in El Monte, California
are represented by the Paper, Allied-Industrial, Chemical and Energy Workers
International Union. The labor agreement between WinsLoew and the union expires
in September 2006. The contract provides that there shall be no strikes,
slowdowns or lockouts.
Management considers its employee relations to be good.
ENVIRONMENTAL MATTERS
We believe that we comply in all material respects with all applicable federal,
state and local provisions relating to the protection of the environment. The
principal environmental regulations that apply to us govern air emissions, water
quality and the storage and disposition of solvents. In particular, we are
subject to environmental laws and regulations regarding air emissions from paint
and finishing operations and wood dust levels in our manufacturing operations.
As is typical of the furniture manufacturing industry, our finishing operations
use products that may be deemed hazardous and that pose an inherent risk of
environmental contamination. Compliance with environmental protection laws and
regulations has not had a material adverse impact on our financial condition or
results of operations in the past and we do not expect compliance to have a
material adverse impact in the future.
ITEM 2. PROPERTIES
Properties
The following table provides information with respect to each of our properties:
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Location Primary Use Approx. Sq. Ft. Leased/Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Birmingham, AL Corporate Headquarters 9,800 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture manuf./offices 155,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture and manufacturing 218,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture warehouse 20,000 Owned
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- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture warehouse 30,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Medley, FL Casual furniture manufacturing and offices 133,000 Leased(1)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Medley, FL Casual furniture manufacturing and offices 40,000 Leased(1)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Casual furniture merchandise showroom 12,000 Leased(2)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
High Point, NC Casual furniture showroom 3,300 Leased(3)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
High Point, NC Casual furniture showroom 6,000 Leased(4)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Houston, TX Casual furniture manuf/sales office 89,500 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Ocala, FL Casual furniture sales office 49,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Pompano Beach, FL Seating manufacturing/offices 100,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Pompano Beach, FL Seating manufacturing and offices 45,000 Leased(5)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Liberty, NC Seating warehouse 25,000 Leased(6)
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- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Liberty, NC Seating manufacturing and offices 126,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Seating merchandise mart showroom 5,500 Leased(7)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Sparta, TN Ready-to-assemble manuf/offices 94,300 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Sparta, TN Ready-to-assemble manuf/offices 63,300 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Silver Lake, IN Amenities product manuf/offices 240,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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El Monte, CA Seating manufacturing/offices 55,000 Leased(8)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
El Monte, CA Seating manufacturing 19,450 Leased(9)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Washington, DC Casual furniture showroom 3,500 Leased(10)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Casual furniture showroom 7,049 Leased(11)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Dallas TX Casual furniture showroom 4,916 Leased(12)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
San Francisco, CA Casual furniture showroom 3,889 Leased(13)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Los Angeles, CA Casual furniture showroom 5,467 Leased(14)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
High Point, NC Casual furniture showroom 4,761 Leased(15)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Miami, FL Casual furniture showroom 5,178 Leased(16)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
New York, NY Casual furniture showroom 6,316 Leased(17)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Laguna, CA Casual furniture showroom 3,888 Leased(18)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
El Monte, CA Casual furniture manuf/offices 29,232 Leased(19)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Long Beach, CA Advertising and furniture design center and showroom 2,182 Leased(20)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Juarez, MX Casual furniture manuf/offices 259,800 Leased(21)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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El Monte, CA Seating manufacturing/offices 211,140 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Newport, AK Warehouse 119,324 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Bentonville, AK Sales office 4,200 Leased(22)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Casual furniture showroom 9,485 Leased(23)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Oxnard, CA Casual furniture manuf/offices 200,000 Leased(24)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Ripon, WI Sales office 750 Leased(25)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Rancho Murieta, CA Retail link office 200 Leased (26)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Pompano Beach, FL Warehouse 10,000 Leased (27)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
(1) Lease expires March, 2012.
(2) Lease expires August, 2002
(3) Lease expires December, 2002.
(4) Lease expires March, 2002.
(5) Lease expires June, 2002.
(6) Lease expires December, 2002.
(7) Lease expires March, 2009.
(8) Lease expires March, 2002.
(9) Lease expires March, 2003.
(10) Lease expires February, 2007.
(11) Lease expires December, 2004.
(12) Lease expires December, 2006.
(13) Lease expires December, 2006.
(14) Lease expires April, 2007.
(15) Lease expires October, 2005.
(16) Lease expires December, 2003.
(17) Lease expires September, 2011.
(18) Lease expires October, 2004.
(19) Lease expires September, 2002.
(20 Lease expires January, 2004.
(21) Lease expires October, 2002.
(22) Lease expires June, 2004.
(23) Lease expires August, 2007.
(24) Lease expires December, 2007.
(25) Lease expires March, 2006.
(26) Lease expires June, 2002.
(27) Lease expires February, 2003.
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.
As reported in Part I item III of the Company's Annual Report on form 10-K for
the fiscal years ended December 31, 1999 and 2000, and incorporated herein by
reference, the Company and former members of its 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.
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. A final hearing was held on April 24, 2001. At the hearing the
settlement was approved and the case was dismissed with prejudice. WinsLoew has
fulfilled its portion of the liability under the terms of the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
Consolidated Financial Statements of WinsLoew. The following data reflects
Southern Wood as a continuing operation (see Note 4 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,
(In thousands) 2001 2000 1999 1998 1997
Net sales 286,154 188,963 162,139 141,360 122,145
Cost of sales 199,568 110,941 96,384 87,232 79,431
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
Gross profit 86,586 78,022 65,755 54,128 42,714
Selling, general
administrative expense 44,124 30,063 25,674 23,124 21,427
Amortization expense 9,078 6,957 3,321 1,122 992
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
Operating income 33,384 41,002 36,760 29,882 20,295
Interest expense 31,758 27,114 8,910 635 2,296
Net income before income
taxes, discontinued
operations
and extraordinary item 1,626 13,888 27,850 29,247 17,999
Provision for income taxes 4,040 7,151 11,339 10,947 6,838
------------------ --------------------------------- --------------- -----------------
------------------ --------------------------------- --------------- -----------------
Net (loss) income before discontinued
operations and extraordinary item (2,414) 6,737 16,511 18,300 11,161
Loss from discontinued operations,
net of tax - - - - (718)
Gain(loss) on sale of discontinued
operations, net of taxes - - 755 2,031 (8,200)
Net (loss)income before
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
extraordinary item (2,414) 6,737 17,266 20,331 2,243
Extraordinary item, net of tax (1,550) - - - -
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
Net(loss)income (3,964) 6,737 17,266 20,331 2,961
================== ================ =============== =============== =================
================== ================ =============== =============== =================
Other Financial Data 2001 2000 1999 1998 1997
Depreciation and amortization $17,609 $10,561 $4,845 $2,618 $2,643
Capital expenditures $5,165 $6,021 $3,265 $942 $425
Ratio of earnings to fixed charges 1.1x 1.5x 3.9x 47.1x 8.8x
(In thousands)
Working capital $62,622 $33,784 $26,721 $25,924 $29,937
Total assets $528,018 $367,622 $308,062 $84,553 $80,414
Long-term debt (less current portion) $287,878 $238,147 $198,258 $1,400 $15,908
Total debt $295,078 $242,172 $201,958 $1,447 $16,423
Stockholder's equity $168,365 $97,876 $81,711 $66,226 $51,026
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.
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 periods 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, other than goodwill amortization and interest expense, 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.
Prior to the acquisition of BJI, the Company completed a restructuring
transaction involving two new legal entities, the final result of which, was the
formation of a new holding company called WLFI Holdings, Inc.("Holdings").
Holdings, a Florida corporation, became the Company's parent company.
In order to accomplish this restructuring transaction, Holdings was initially
formed as the Company's wholly-owned subsidiary. In addition to Holdings, the
Company formed another company called WLFI Merger, Inc., a Florida corporation,
as a wholly-owned subsidiary of Holdings. Then, immediately prior to the
consummation of the Brown Jordan acquisition, we merged with WLFI Merger, Inc.
and we were the surviving corporation of the merger.
As a result of this transaction, we became the wholly-owned subsidiary of the
new holding company, Holdings, and the Company's shares of common stock which
were outstanding immediately prior to the merger were converted into shares of
common stock of the new holding company. In addition, each warrant or option to
purchase shares of the Company's common stock was converted into a warrant or
option to purchase common stock of the holding company. Finally, by operation of
the merger the separate corporate existence of WLFI Merger ended.
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.
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.
Purchase of The Woodsmiths Company. On March 9, 2001 the Company purchased all
of the outstanding stock of The Woodsmiths Company. Woodsmiths, a manufacturer
of custom tabletops for the contract and hospitality industry, is located in
Pompano Beach, Florida. The purchase price of approximately $2.8 million was
paid in cash of approximately $0.3 million and a $2.5 note payable to the sole
shareholder of Woodsmiths. The acquisition resulted in goodwill of approximately
$3.4 million and was accounted for under the purchase method of accounting. The
operating results of Woodsmiths have been included in the consolidated operating
results beginning on the date of acquisition.
Purchase of Brown Jordan International, Inc. On May 8, 2001 WinsLoew Furniture,
Inc. and its parent WLFI Holdings, Inc. acquired all of the outstanding stock of
Brown Jordan International, Inc. (BJI) at a purchase price of $78.6 million. The
Stock Purchase Agreement by and among WLFI Holdings, Inc., the Company, BJI and
the Stockholders of BJI also called for the repayment of outstanding BJI
indebtedness at closing, which approximated $44.6 million. The amount of
consideration paid by the Company for the BJI stock was determined through an
arm's length negotiation between representatives of the Company and BJI.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired on a
preliminary basis using the fair value of the assets acquired. This preliminary
basis is subject to review and subject to change. Pursuant to the purchase
method of accounting, the excess of the purchase price over the $44.6 million
fair value of net assets after payment of BJI indebtedness at closing, has been
recorded as goodwill in the amount of $78.6 million. The operating results of
BJI have been included in the consolidated operating results since the date of
acquisition.
WLFI Holdings, Inc. raised $50.9 million of equity and issued $22 million of
subordinated notes to the sellers for BJI stock. Holdings contributed the cash
of $50.9 million to the Company as additional equity. The stock of BJI, obtained
in the exchange of subordinated notes, was also contributed to the Company. The
balance of the proceeds was provided through a refinancing of the Company's
existing Senior Credit Facility. The new Senior Credit Facility consists of a
$165 million Term Loan and a $60 million revolving credit facility.
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, 2001, 2000 and 1999 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.
2001 2000 1999
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Casual
$206,980 $63,691 30.8% $108,050 $49,949 46.2% $74,586 $36,526 49.0%
Contract
and
Hospitality
$70,159 $21,623 30.9% $69,458 $26,027 37.5% $72,346 $25,704 35.5%
Ready to
Assemble
$9,015 $1,272 14.1% $11,455 $2,046 17.9% $15,207 $3,525 23.2%
- -------------------------------------------- ----------------------------------------- -----------------------------------------
$286,154 $86,586 30.3% $188,963 $78,022 41.3% $162,139 $65,755 40.6%
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,
- ----------------------------------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Gross profit 30.30% 41.30% 40.60%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Selling, general and admin expenses 15.40% 15.90% 15.80%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Amortization 3.20% 3.70% 2.00%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Operating Income 11.70% 21.70% 22.80%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Interest expense 11.10% 14.30% 5.50%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Provision for income taxes 1.40% 3.80% 7.30%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Income from continuing operations 0.80% 3.60% 10.20%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Gain from sale of discontinued operations,
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
net of tax 0.00% 0.00% 0.50%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Extraordinary item, net of tax 0.50% 0.00% 0.00%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Net (Loss)income (1.40%) 3.60% 10.70%
- ----------------------------------------------------------------------------------------------------
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000
For purposes of this discussion, "pro forma" refers to the estimated
consolidated results had the acquisitions of Wabash, Stuart Clark, Charter
Furniture, Woodsmiths and Brown Jordan International occurred on January 1,
2000.
Net Sales. WinsLoew's actual consolidated net sales increased $97.2 million in
2001, or 51.4% to $286.2 million compared to $189.0 million in 2000. WinsLoew's
consolidated net sales for 2001 on a pro forma basis decreased $35.6 million or
9.1% to $356.9 million, compared to pro forma net sales of $392.5 million in
2000. Casual pro forma sales decreased by 5.8% from 2000 resulting from poor
spring weather in the northeast as well as softness in the residential market
resulting from a sluggish economy. The contract and hospitality product line
experienced a pro forma sales decrease of 18.4% resulting from a slowdown in new
construction and refurbishing projects in the lodging market caused by economic
recession. In addition, the contract and hospitality market was impacted
particularly hard by the events of September 11, 2001. The RTA product line
experienced a sales decrease of 21.3% due to lost floor space with a major mass
merchandiser and credit tightening/catalog reductions at other major customers.
Gross Profit. Actual gross profit increased $8.6 million in 2001 or 11.0% to
$86.6 million compared to $78.0 million in 2000. Consolidated pro forma gross
profit decreased $22.8 million in 2001 or 18.5% to $100.4 million in 2001
compared to $123.2 million in 2000. The casual product line experienced lower
pro forma gross margins in 2001, resulting from a combination of low-margin
volume sales and the addition of Casual Living Worldwide, as part of the BJI
acquisition in 2001. Casual Living targets the lower margin, mass merchandise
market. The contract and hospitality product line pro forma gross margin
decreased as a result of lower volumes and the inclusion of Charter for all of
2001. Finally, the RTA product line experienced decreased gross margin in 2001
due to lower volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses on an actual basis increased $14.0 million or 46.8% from
$30.1 million in 2000 to $44.1 million in 2001 primarily resulting from
acquisitions. On a pro forma basis, selling, general and administrative
expenses, decreased $3.4 million in 2001, to $52.3 million compared to $55.7
million in 2000, due to planned cost reduction measures, efficiencies achieved
through acquisitions and lower expenses related to volume.
Amortization. Amortization expense increased $2.1 million or 30.5% from $7.0
million in 2000 to $9.1 million in 2001. The increase is related to a full year
of goodwill amortization from acquisitions in 2000 as well as additional
goodwill amortization related to acquisitions in 2001. On a pro forma basis,
amortization expense increased $0.1 million in 2001, compared to 2000.
Operating Income. As a result of the above, actual operating income decreased
18.6% from $41.0 million in 2000 (21.7% of net sales) to $33.4 million (11.7% of
net sales) in 2001. Operating income on a pro forma basis decreased $19.4
million to $38.2 million (10.7% of net sales) in 2001, compared to pro forma
operating income of $57.6 million (14.7% of net sales) in 2000.
Interest Expense. Actual interest expense increased $4.7 million in 2001 to
$31.8 million from $27.1 million in 2000 as a result of additional debt service
associated with acquisitions. Further, the Company has increased its debt by
$53.0 million from December 31, 2000 primarily as a result of acquisitions. Pro
forma interest expense decreased $5.0 million in 2001 compared to 2000. The
primary reason for the decrease is the impact of lower interest rates in 2001
compared to 2000.
Provision for Income Taxes. The effective tax rate in 2001 and 2000 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 in
2001 compared to 2000 is primarily due to the non-deductible goodwill related to
the BJI acquisition.
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Sales. WinsLoew's consolidated net sales for 2000 increased $26.9 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 $12.2 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. 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.
SEASONALITY AND QUARTERLY INFORMATION
Sales of retail 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. Mass merchandise casual products are typically higher in the
fourth and first quarters as mass merchants warehouse product in preparation for
the spring season. 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.
The following table presents the Company's unaudited quarterly data for 2001 and
2000. 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)
2001 Quarters First Second Third Fourth
----------------------------------------------------------
Net Sales $39,718 $79,253 $57,115 $110,068
Gross Profit 15,001 28,048 17,558 25,979
Operating Income 5,982 13,511 2,750 11,141
Interest Expense 7,267 11,277 7,073 6,141
(Loss)Income From Continuing
Operations (1,285) 2,234 (4,323) 5,000
Extraordinary Item, Net of Taxes - - - 1,550
Net (Loss)Income (574) (296) (3,838) 744
(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
Income from Continuing Operations 390 3,215 914 2,218
Net Income 390 3,215 914 2,218
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, 2001,
the Company had $62.6 million of working capital and $26.9 million of unused and
available funds under its revolving credit facility.
Cash Flows from Operating Activities. During 2001, net cash provided by
operations increased to $17.3 million, compared to $14.1 million in 2000. The
primary reason for the increase is due to the Company's use of trade payables
credit which was somewhat offset by slower receivables collections, particularly
in the last quarter of 2001.
Cash Flows from Investing Activities. During 2001 we spent $5.2 million on
capital expenditures and $73.7 million on acquisitions. This is compared to
2000, which included $6.0 million on capital expenditures and $52.6 million on
acquisitions. Net cash used in investing activities was $78.9 million and $58.5
million for the twelve months ended December 31, 2001 and December 31, 2000
respectively.
Cash Flows from Financing Activities. Net cash provided by financing activities
during 2001 was $66.1 million compared to net cash provided in financing
activities of $44.3 million in 2000. Financing activities during 2001 focused on
the Company's acquisition of Brown Jordan International and simultaneous
restructuring of the Company's Senior Credit Facility. Specifically, proceeds
for the BJI acquisition and Senior Credit Facility payoff were $201.8 million
under the Company's new Senior Credit facility and $50.9 million of equity
investment. Of these amounts, $147.3 million was used to payoff the existing
Senior Credit Facility and $105.4 million was used for the acquisition of BJI,
including payoff of funded indebtedness. This is compared to 2000 when 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.
Our senior credit facility consists of a $165.0 million term loan. During 2001,
principal payments totaling $3.8 million were made against the term loan leaving
an outstanding balance on the loan of $161.3 million as of December 31, 2001.
Our senior credit also includes, a $60.0 million revolving credit facility, of
which $28.0 million was borrowed and $5.1 million was allocated to existing
letters of credit outstanding at December 31, 2001. As of December 31, 2001, we
had undrawn availability based on a borrowing base formula under the revolving
credit facility of approximately $26.9 million.
The senior credit facility also requires the Company to enter into an interest
rate swap agreement to fix the interest rate on at least $80 million principal
amount of variable rate debt. (see Note 7 to the Audited Consolidated Financial
Statements).
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 new senior credit
facility require quarterly interest payments, which commenced in June 2001.
In addition, the Company would fund any interest payments of Holdings, the
parent. These interest payments are the result of debt assumed in the
acquisition of BJI. Currently the debt service on these notes is satisfied
through the issuance of additional notes by Holdings. Should cash interest
payments be made, the Company would fund such payments through its existing
working capital or revolving line of credit. (see Note 6 to the Audited
Consolidated Financial Statements).
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.
Operating cash flows are closely correlated to demand for the Company's
products. A decrease in demand for the Company's products would impact the
availability of these internally generated funds. Further, the Company's
revolving line of credit is contingent upon the Company maintaining particular
debt covenants. Failure to comply with these covenants would impact the
availability of funds on the revolving credit line.
Our anticipated capital needs through 2002 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 $5.0 million in
2002. 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.
The following tables set forth the Company's contractual obligations and
commitments.
- -----------------------------------------------------------------------------------------------------------------------
(In Thousands) Payments Due By Period
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Contractual 1 year 2-3 4-5 After 5
Obligations Total or less years years years
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Long-Term Debt 266,250 6,875 21,250 133,125 105,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
IDB Debt
2,275 325 650 650 650
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Capital Leases
29 11 13 5 -
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Operating Leases
27,528 4,959 8,215 6,727 7,627
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Unconditional Purchase
Obligations
1,000 1,000 - - -
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Total Contractual
Cash Obligations 297,082 13,170 30,128 140,507 113,277
- -----------------------------------------------------------------------------------------------------------------------
(In Thousands) Commitment Expiration Per Period
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total
Contractual Amounts 1 year 2-3 4-5 After 5
Obligations Committed or less years years years
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Standby Letters of
Credit
5,053 5,053 - - -
- -------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
As a result of the BJI acquisition the Company acquired approximately 20%
ownership of Lexman Holdings, Limited, ("Lexman"). Lexman is the sole equity
holder of Leisure Garden, a furniture manufacturer in the People's Republic of
China. The Company's long-term supply agreement with Lexman providing for the
Company to purchase a minimum of $10,000,000 of furniture per year expired in
2001. In calendar 2001 the Company purchased approximately $66,000,000 from
Leisure Garden.
Prices are negotiated on an item or furniture group basis. Although the prices
are agreed upon through a rigorous negotiating process, the Company does not
believe the negotiations are at "arms length". Further, the Company believes it
purchases furniture from Leisure Garden at prices that are lower than those that
would be negotiated with an unrelated third party.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
WinsLoew purchases some raw materials from several Italian suppliers. In
addition, the Company funds some expenses for its Juarez, Mexico manufacturing
facility. These transactions expose the Company to the effects of fluctuations
in the value of the U.S. dollar versus the Italian Lira and Mexican Peso. If the
U.S. dollar declines in value versus these foreign currencies, the Company will
pay more in U.S. dollars for these transactions. To reduce its exposure to loss
from such potential foreign exchange fluctuations, the Company will occasionally
enter into foreign exchange forward contracts. These contracts allow the Company
to buy Italian Lira and Mexican Peso at a predetermined exchange rate and
thereby transfer the risk of subsequent exchange rate fluctuations to a third
party. Consequently, the Company elected to hedge a portion of its exposure to
purchases made in 2001 by entering into foreign currency forward contracts for
the Italian Lira, with a value of $2.8 million, of which none were outstanding
and unsettled at December 31, 2001. Further, the Company entered into Mexican
Peso forward contracts during 2001. Currently the Company has forward contracts
on the Mexican Peso extending through March 2002, with $1.0 million outstanding
and unsettled at December 31, 2001. The Company did not incur significant gains
or losses during 2001 as a result of these foreign currency transactions. The
Company's hedging activities relate solely to its component purchases in Italy
and operations funding in Mexico. The Company does not speculate in foreign
currency.
Inflation has not had a significant impact on us in the past three years, and
management does not expect inflation to have a significant impact in the
foreseeable future.
SIGNIFICANT ACCOUNTING POLICIES
General
WinsLoew's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to customer programs and incentives, product
returns, bad debts, inventories, intangible assets, income taxes, warranty
obligations, pensions and contingencies and litigation. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
Warranties
The Company provides for the estimated cost of product warranties at the time
revenue is recognized. While the Company engages in product quality programs and
processes, including actively monitoring and evaluating the quality of its
component suppliers, the Company's warranty obligation is affected by product
failure rates, material usage and service delivery costs incurred in correcting
a product failure. Should actual product failure rates, material usage or
service delivery costs differ from the Company's estimates, revisions to the
estimated warranty liability would be required.
Inventory
The company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Goodwill and other identifiable intangible assets
Goodwill associated with the excess purchase price over the fair value of assets
acquired and other identifiable intangible assets, such as trademarks and trade
names, favorable leases, and covenants not to compete, are currently amortized
on the straight-line method over their estimated useful lives.
These assets are currently reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
As discussed herein, the FASB issued SFAS 141 and SFAS 142 in June 2001. SFAS
141 requires business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting and broadens the criteria for
recording intangible assets separate from goodwill. SFAS 142 requires the use of
a non-amortization approach to account for purchased goodwill and certain
intangibles. We plan to adopt these pronouncements effective January 1, 2002. At
such time we anticipate that amortization associated with purchased goodwill
will cease.
We have significant intangible assets related to goodwill and other acquired
intangibles. The determination of related estimated useful lives and whether or
not these assets are impaired involves significant judgments. Changes in
strategy and/or market conditions could significantly impact these judgments and
require adjustments to recorded asset balances.
Derivatives
Financial instruments, including derivatives, used in the Company's hedging
activities are recorded at fair value, and the amount of ineffectiveness
recorded in earnings. Fair values for certain derivative contracts are derived
from pricing models that consider time value and yield curve or volatility
factors underlying the positions.
Pricing models and their underlying assumptions impact the amount and timing of
unrealized gains and losses recognized, and the use of different pricing models
or assumptions could produce different financial results. Changes in the fixed
income and foreign exchange markets will impact the Company's estimates of fair
value in the future, potentially affecting revenues. To the extent financial
contracts have extended maturity dates, the Company's estimates of fair value
may involve greater subjectivity due to the lack of transparent market data
available upon which to base modeling assumptions. The illiquid nature of
certain securities or debt instruments (such as certain high-yield debt
securities, and certain senior secured loans) also requires a high degree of
judgment in determining fair value.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and in Note 1 of
the Company's Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Ernst & Young LLP, Independent Auditors 38
Consolidated Balance Sheets as of
December 31, 2001 and 2000 39
Consolidated Statements of Operations:
Year ended December 31, 2001
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) 41
Consolidated Statements of Stockholder's Equity
Year ended December 31, 2001
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) 42
Consolidated Statements of Cash Flows
Year ended December 31, 2001
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) 43
Notes to Consolidated Financial Statements 47
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders of WinsLoew Furniture, Inc.
We have audited the accompanying consolidated balance sheets of WinsLoew
Furniture, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2001 and 2000. We have also audited the
accompanying consolidated statements of operations, stockholders' equity and
cash flows of WinsLoew Furniture, Inc. and Subsidiaries for the period from
August 27, 1999 to December 31, 1999 ("Successor period") and for the period
from January 1, 1999 to August 26, 1999 ("Predecessor period"). Our audits also
included the financial statement schedule of WinLoew Furniture, Inc. and
Subsidiaries in Item 14(a)(2). These financial statements and this schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and this schedule 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, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2001 and 2000 and for the periods ended December 31, 1999 and
August 26, 1999, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 8, 2002
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
2001 2000
Assets
Cash and cash equivalents $5,107 $602
Accounts receivable, less allowance
for doubtful accounts of $3,339 and
$3,101 at December 31, 2001 and
2000, respectively 86,534 36,992
Inventories 28,111 20,198
Prepaid expenses and other current assets 12,463 5,742
-------------------------------
-------------------------------
Total current assets 132,215 63,534
Property, plant and equipment, net 37,258 27,827
Goodwill, net 343,027 269,258
Other assets, net 15,518 7,004
-------------------------------
-------------------------------
Total assets $528,018 $367,622
===============================
===============================
Liabilities and Stockholders' Equity
Current portion of long-term debt $7,200 $4,025
Accounts payable 35,300 5,739
Accrued interest 5,214 6,765
Other accrued liabilities 21,879 13,221
-------------------------------
-------------------------------
Total current liabilities 69,593 29,750
Long-term debt, net of current portion 287,878 238,147
Deferred income taxes 2,182 1,849
-------------------------------
-------------------------------
Total liabilities 359,653 269,746
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
------------------------------
2001 2000
------------------------------
Stockholder's Equity:
Common stock -- par value $.01 per share,
1,000 and 1,000,000 shares authorized
at December 31, 2001 and 2000, Respectively;
1,000 and 850,350 shares issued and outstanding
at December 31, 2001 and 2000, respectively $ -- $ 9
Additional paid-in capital 164,735 88,819
Retained earnings 5,084 9,048
Accumulated other comprehensive loss (1,454) --
------------------------------
Total stockholders' equity 168,365 97,876
------------------------------
Total liabilities and stockholder's equity $528,018 $367,622
==============================
See accompanying notes
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year ended Year ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
(In thousands) 2001 2000 1999 1999
Net Sales $286,154 $188,963 $56,505 $105,634
Cost of Sales $199,568 $110,941 $33,076 $63,308
----------------- ----------------- ---------------- -----------------
Gross Profit $86,586 $78,022 $23,429 $42,326
Selling, general and
administrative expense $44,124 $30,063 $8,440 $17,234
Amortization $9,078 $6,957 $2,449 $872
----------------- ----------------- ---------------- -----------------
Operating Income $33,384 $41,002 $12,540 $24,220
----------------- ----------------- ---------------- -----------------
Interest expense $31,758 $27,114 $8,804 $106
----------------- ----------------- ---------------- -----------------
Income from continuing
operations before
income taxes and
extraordinary items $1,626 $13,888 $3,736 $24,114
Provision for income
taxes $4,040 $7,151 $2,180 $9,159
----------------- ----------------- ---------------- -----------------
(Loss)income from
continuing operations (2,414) $6,737 $1,556 $14,955
Gain on sale of
discontinued operations,
net of tax - - $755 -
----------------- ----------------- ---------------- -----------------
(Loss)income before
extraordinary item $(2,414) $6,737 $2,311 $14,955
Extraordinary item,
net of tax $(1,550) - - -
----------------- ----------------- ---------------- -----------------
Net Income $(3,964) $6,737 $2,311 $14,955
================= ================= ================ =================
See accompanying notes
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Accumulated
Common Shares Additional Other
Paid in Comprehensive Retained
Shares Amount Capital Loss Earnings Total
--------------------------------------------------------------------------------------
Predecessor Company:
Beginning balance
January 1, 1999 7,294,408 $ 73 $ 19,797 $ - 46,356 66,226
Tax benefit related to
exercise of stock options - - 6,941 - - 6,941
Repurchase and cancellation
of stock (112,500) (1) (3,185) - - (3,186)
Net income through
merger date - - - - 14,955 14,955
--------------------------------------------------------------------------------------
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) - (61,311) (84,936)
-
Proceeds of stock issued 780,000 8 77,992 - - 78,000
Valuation of warrants
issued in connection
with senior
subordinated notes - - 1,400 - - 1,400
Net income from merger -
date through year end - - - - 2,311 2,311
--------------------------------------------------------------------------------------
Balance December 31, 1999 780,000 8 79,392 - 2,311 81,711
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
Proceeds of stock issued 147 - 20 - - 20
BJI acquisition and merger -
into WLFI Holdings (849,497) (9) 75,896 - - 75,887
Net income - - - - (3,964) (3,964)
Other comprehensive loss - - - (1,454) - (1,454)
--------------------------------------------------------------------------------------
Comprehensive net loss - - - (1,454) (3,964) (5,418)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Balance December 31, 2001 1,000 $- $164,735 $(1,454) $ 5,084 168,365
======================================================================================
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year Ended Year Ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
---------------------------------------------------------
Cash flows from operating activities:
Net income $(3,964) $6,737 $2,311 14,955
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 17,609 10,561 2,961 1,884
Provision for losses on
accounts receivable 403 672 150 242
Provision for excess and
obsolete inventory 2,175 (49) (129) 594
Going private
transaction expenses -- (120) 201 --
Loss on sale of assets -- 107 -- --
Deferred income taxes 1,121 750 682 110
Changes in operating assets and
liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable (16,851) (4,904) (6,825) 4,788
Inventories 2,668 132 866 25
Prepaid expenses and other
current assets (1,018) 488 (147) 208
Refundable income taxes -- 6,908 -- (6,908)
Other assets (261) (33) -- --
Accounts payable 20,311 (1,101) (1738) 1,022
Accrued interest (1,551) 1,205 5,560 (24)
Other accrued liabilities (3,317) (7,237) (6,088) 6,105
--------- ------ ------- ------
Net cash provided by
(used in) operating activities 17,325 14,116 (2,196) 23,001
Cash flows from investing activities:
Capital expenditures,
net of disposals (5,165) (5,966) (2,996) (269)
Going private transaction -- -- (276,142) --
Investment in subsidiaries (73,725) (52,631) -- (18,207)
Cash received on sale of assets -- 110 -- --
--------- --------- -------- --------
Net cash used in
investing activities (78,890) (58,487) (279,138) (18,476)
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year ended Year ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
Cash flows from financing activities:
Net borrowings (payments)
under revolving credit
agreements $(176,199) $(7,011) $5,726 $(1,431)
Borrowings for
Acquisitions 204,326 46,531 - -
Payments on long-term debt (5,000) (3,700) - -
Proceeds from issuance of
common stock, net 20 - - -
Proceeds from issuance of
common stock for
acquisitions - 6,150 - -
Contributed capital-
BJI acquisition 50,928 - - -
Proceeds from exercise of
stock options - - - 6,941
Repurchase and cancellation
of stock - (1,323) - (3,186)
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 (8,005) (284) (5,919) (703)
Net cash provided by
(used in) financing
----------------------------------------------------------------------
activities 66,070 44,263 275,423 1,621
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year ended Year ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
Net increase (decrease) in
cash and cash equivalents $4,505 $(108) $(5,911) $6,146
Cash and cash equivalents
at beginning of year
or period 602 710 6,621 475
--------------------------------------------------------------------
Cash and cash equivalents at
end of year or period $ 5,107 $ 602 $ 710 $ 6,621
====================================================================
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year Ended Year Ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
Supplemental disclosures:
Interest paid $31,083 $24,436 $3,344 $130
Income taxes paid $2,225 $5,503 $3,628 $7,732
Investing activities included the acquisitions of The Woodsmiths Company and
Brown Jordan International in 2001 and Wabash Valley Manufacturing, Stuart Clark
and Charter Furniture in 2000. Assets acquired, liabilities assumed and
consideration paid was as follows:
January 1, 1999
2001 2000 To August 26, 1999
Fair value of assets
acquired $147,718 $ 67,272 $ 20,082
Cash on-hand (960) (1,507) -
Liabilities assumed (48,074) (8,534) (1,875)
Less Value of stock
consideration issued to
shareholders of acquired companies (24,959) (4,600) -
---------------------------------------------
Cash paid for acquisitions, net
of cash acquired $ 73,725 $ 52,631 $ 18,207
=============================================
See accompanying notes
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. WLFI HOLDINGS
Prior to the acquisition of Brown Jordan International ("BJI"), WinsLoew
Furniture, Inc. ("WinsLoew" or the "Company") completed a recapitalization
transaction wherein, the Company became a wholly owned subsidiary of a new
holding company called WLFI Holdings, Inc. (Holdings), a Florida corporation.
In order to accomplish the recapitalization, Holdings was initially formed as
the Company's wholly-owned subsidiary. In addition to Holdings, the Company
formed another company called WLFI Merger, Inc., a Florida corporation, as a
wholly-owned subsidiary of Holdings. Then, immediately prior to the consummation
of the Brown Jordan acquisition, the Company merged with WLFI Merger, Inc. and
was the surviving corporation of the merger.
As a result of these transactions, the Company became a wholly owned subsidiary
of the new holding company, Holdings. All shares of common stock that were
outstanding immediately prior to the merger (850,497 shares) were converted into
shares of common stock of Holdings. In addition, each warrant or option to
purchase shares of the Company's common stock was converted into a warrant or
option to purchase an equivalent number of shares of common stock of Holdings.
1,000 shares of the Company's common stock was then issued to WLFI Holdings,
Inc. Finally, by operation of the merger the separate corporate existence of
WLFI Merger ended.
Because there was no change in the stock ownership of the Company as a result of
the recapitalization, there was no change in the basis of the Company's assets
or liabilities.
2. GOING PRIVATE TRANSACTION
From December 19, 1994 through August 26, 1999, WinsLoew's common stock was
traded on the NASDAQ National Market under the symbol "WLFI". On August 27,
1999, WinsLoew and Trivest Furniture Corporation (Trivest Furniture), a newly
formed Florida corporation 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; and (3)
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 on or before
August 26, 1999, reflect the historical results of the predecessor company.
Had the going private transaction occurred on January 1, 1999, the unaudited pro
forma net sales, operating income and net income for the years ended December
31, 1999 would have been $162,139,000, $13,963,000, and $13,963,000
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, 1999.
The total amount of goodwill recorded as a result of the transaction was
$191,817,000. The amount of unamortized goodwill resulting from the transaction
at December 31, 2001 was $180,627,000.
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
========
3. 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.
In conjunction with the Brown Jordan International acquisition, the Registrant
is now a wholly owned subsidiary of WLFI, Holdings, Inc. (See note 1)
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 primarily
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, mass merchandisers
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.
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 11
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 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 goodwill will not
be recoverable, the Company's carrying value is reduced. The amount of
consolidated unamortized goodwill at December 31, 2001 was $343 million.
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, 2001 was $10.4
million.
ADVERTISING EXPENSE
The Company expenses advertising as incurred. Advertising expense for the years
ended December 31, 2001, 2000 and 1999 was $6,582,000, $4,174,000 and $2,204,000
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.
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.
STOCK OPTIONS
As permitted by Statement of Financial Accounting Standards No.123 (SFAS 123),
the Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued to Employees" and its interpretations in accounting
for its stock options and other stock-based employee compensation awards. Under
provisions of APB No.25, no compensation expense has been recognized for stock
option grants. Pro forma information regarding net income as calculated under
the fair value provisions of SFAS 123 is disclosed in Note 7 to the financial
statements.
DERIVATIVES
The Company utilizes mark-to-market treatment for its financial instruments
classified as derivatives. Such instruments include foreign currency forward
contracts and an interest rate swap. The effectiveness of the interest rate swap
hedge relationship is assessed by utilizing the "variable cash flows method".
The fair value of the hedge is recorded on the balance sheet with any
ineffectiveness recorded against earnings.
The effectiveness of foreign currency hedges is assessed by comparing the
changes in the present value of the forward rate of the currencies arising from
the hedged forecasted transactions with the changes in the fair value of the
forward contract. The actual forward contract will be recorded at fair value on
the balance sheet, with the effective portion of the derivative's gain or loss
recorded in other comprehensive income and subsequently recognized in earnings
in the same period or periods the hedged transactions affect earnings.
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 raw material purchases
affect earnings. 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, 2001 the Company had $1.0 million in Mexican pesos forward
contracts outstanding, through March 2002. There were no significant deferred
gains or losses and actual gains (losses) included in cost of sales were $0, $0,
($33,000) and $0 for the years ended December 31, 2001, 2000, for the period
from August 27, 1999 to December 31, 1999 and the period from January 1, 1999 to
August 26, 1999, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. Statement No. 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of the statement. The Company is required to
adopt the provisions of Statement 141 immediately and Statement 142 effective
January 1, 2002. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible assets is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of the statement. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period. The Company has not
determined the impact that adoption of Statement 142 will have on its
consolidated financial statements.
4. DISCONTINUED OPERATIONS
During 1997 the Company adopted a plan to dispose of its RTA operations. 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.
The Company recorded pre-tax income from the disposition of discontinued
operations totaling $1.2 million ($0.76 million net of taxes) for 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.
5. ACQUISITIONS AND DISPOSITION
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.
On March 9, 2001 the Company purchased all of the assets of The Woodsmiths
Company. Woodsmiths, a manufacturer of custom tabletops for the contract and
hospitality industry, is located in Pompano Beach, Florida. The purchase price
of approximately $2.8 million was paid in cash of approximately $0.3 million and
a $2.5 note payable to the sole shareholder of Woodsmiths.
In addition, the stock purchase agreement provides for an additional contingent
deferred payment of up to $1,000,000 based upon Woodsmiths' earnings before
interest, taxes, depreciation, amortization and management fees. The maximum
contingent payment amount of $1,000,000 was recorded at the time of purchase as
an addition to goodwill and an accrued liability of the Company. The amount of
any such contingent payment will be made directly to the former sole shareholder
and serves as a financial incentive.
The acquisition resulted in goodwill of approximately $3.4 million and was
accounted for under the purchase method of accounting. The operating results of
Woodsmiths have been included in the consolidated operating results beginning
with the month of March.
On May 8, 2001 WinsLoew Furniture, Inc. and its parent WLFI Holdings, Inc.
acquired all of the outstanding stock of Brown Jordan International, Inc. (BJI)
at a purchase price of $78.6 million. The Stock Purchase Agreement by and among
WLFI Holdings, Inc., the Company, BJI and the Stockholders of BJI also called
for the repayment of outstanding BJI indebtedness at closing, which approximated
$44.6 million. The amount of consideration paid by the Company for the BJI stock
was determined through an arm's length negotiation between representatives of
the Company and BJI.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired on a
preliminary basis using the fair value of the assets acquired. This preliminary
basis is subject to review and subject to change. Pursuant to the purchase
method of accounting, the excess of the purchase price over the $44.6 million
fair value of net assets after payment of BJI indebtedness at closing, has been
recorded as goodwill in the amount of $78.6 million. The operating results of
BJI have been included in the consolidated operating results since the date of
acquisition.
In order to complete the acquisition, the merger described in Note 1
was consummated simultaneously.
WLFI Holdings, Inc. raised $50.9 million of equity and issued $22 million of
subordinated notes to the sellers for BJI stock. Holdings contributed the cash
of $50.9 million to the Company as additional equity. The stock of BJI, obtained
in the exchange of subordinated notes, was also contributed to the Company. The
balance of the proceeds was provided through a refinancing of the Company's
existing Senior Credit Facility. The new Senior Credit Facility consists of a
$165 million Term Loan and a $60 million revolving credit facility.
The operating results of the above acquisitions 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 Wabash, Stuart Clark, Charter, Woodsmiths and Brown Jordan
International occurred on January 1, 2000. 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,
2001 2000
Net sales $356,887 $392,525
Income (loss)from
continuing operations (1,782) 8,680
Extraordinary item,
net of tax (1,550) -
Net income (loss) (3,332) 8,680
6. LONG-TERM DEBT
During 2001, the Company restructured its senior credit facility. Certain
proceeds from this restructuring were used to finance a portion of the
consideration for the Brown Jordan International acquisition. (see Note 4)
Long-term debt consisted of the following at December 31, 2001 and 2000
(In thousands) 2001 2000
----- ----
Acquisition line -- $ 20,000
Revolving line of credit 28,050 25,262
Term Loan 161,250 91,300
Senior Subordinated Notes 102,203 101,710
IDB Bonds 3,575 3,900
------- -------
295,078 242,172
Less current portion (7,200) (4,025)
------- --------
$287,878 $238,147
======== ========
At December 31, 2001 and 2000, the carrying amounts of long-term debt
approximated their fair values.
Maturities of long-term debt for the five years succeeding December 31, 2001 are
$7.2 million in 2002, $9.7 million in 2003, $12.2 million in 2004, $101.0
million in 2005, $32.8 million in 2006 and $107.0 million thereafter.
WLFI HOLDINGS, INC. NOTES
As mentioned in Note 5 regarding the acquisition of BJI, Holdings, WinsLoew's
parent, issued $22.0 million in notes to the sellers. Holdings does not generate
cash internally and is therefore dependent upon the Company's cash flows to
service its debt. It is Holdings' intention to continue to issue additional
notes to the note holders in lieu of quarterly cash payments for interest earned
on the notes. In 2001, all interest payments by Holdings were paid in kind
("pik") through the issuance of additional notes equal in value to the interest
payable. The total additional notes issued during 2001 as pik was $2,285,000.
The following table sets forth the timing of cash flows for Holdings' scheduled
interest payments, assuming quarterly cash payments:
(In Thousands)
- --------------------------------------------------------------------------
Year 2002 2003 2004 2005 2006
- --------------------------------------------------------------------------
Payment $ 3,607 $ 3,995 $ 4,070 $ 4,070 $ 4,070
- --------------------------------------------------------------------------
Cash interest payments by Holdings would funded be from the Company's existing
working capital or revolving credit line. The Company currently does not pay
dividends to its shareholders; therefore, there is no impact on the Company's
ability to pay dividends to shareholders, as a result of any such interest
payment funding on behalf of Holdings. The notes and additional pik notes mature
on August 16, 2007.
SENIOR CREDIT FACILITY
In connection with the Brown Jordan International acquisition, WinsLoew entered
into a new senior credit facility provided by a syndicate of financial
institutions. The facility, which matures in March 2006, provides for borrowings
of up to $225 million, is collateralized by substantially all of the assets of
the Company and is secured by a pledge of the capital stock of all the Company's
domestic subsidiaries. The facility consists of a revolving line of credit
(maximum of $60 million) and a term loan (aggregate of $165 million). The
revolving line of credit allows the Company to borrow funds up to a certain
percentage of eligible inventories and accounts receivable. The Term Loan has an
applicable interest rate at December 31, 2001 of 7.0% and a maturity date of
March 31, 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
LIBOR rate plus a margin. An amendment to the credit agreement dated December
2001 places a floor of 2.5% on the LIBOR rate. The margins of different loans
under the facility vary according to a pricing grid. The margins for term loans
that are LIBOR based range from 4.5% to 4.0% while margins for revolving loans
that are LIBOR based range from 4.0% to 7.5%. Both LIBOR based term and
revolving rates are based upon the Company's consolidated total leverage ratio.
Margins on base rate loans are the applicable LIBOR margin for such type loans
less 1%. As of December 31, 2001, the Term Loan is priced at a rate of 7.0%,
while the revolving line of credit is priced at 7.25%.
The outstanding principal balance of the Term Loan is due 2.2% in 2001, 4.1% in
2002, 5.6% in 2003, 7.1% in 2004, 61.0% in 2005 and 20.0% in 2006.
The Company must pay commitment fees at a rate per annum equal to 0.5% on the
average daily excess of revolving loan commitments over the sum of the aggregate
principal amount of outstanding revolving loans (but not any outstanding swing
line loans) plus letter of credit usage.
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.
As of September 28, 2001 the Company was not in compliance with the Maximum
Consolidated Total Leverage Ratio as defined in the Senior Credit Facility. The
lender's agent and the requisite lenders waived this covenant until November 30,
2001 pursuant to the terms contained in The Limited Waiver to WinsLoew
Furniture's Inc. Credit Agreement dated May 8, 2001 ("Limited Waiver"). This
Limited Waiver included certain conditions on additional leverage that were more
restrictive than those contained in The Senior Credit Facility. The Limited
Waiver was extended until December 15 when an amendment to The Senior Credit
Facility became effective.
The First Amendment to the Senior Credit Facility dated December 15, 2001
changed certain covenant requirements, established a floor of 2.5% on LIBOR
based debt, restricted the amount of cash and cash equivalents the Company may
own as investments and established a new pricing grid based upon the Company's
consolidated total leverage ratio. At December 31, 2001 the Company was in
compliance with all such covenants.
SENIOR SUBORDINATED NOTES AND WARRANTS
In connection with the merger described in note 2, 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 Warrants. The total amount of
discount recorded on the notes was $3,948,350 and is being amortized on a
straight line basis to interest expense over the life of the Notes. The Notes
are general unsecured obligations of the Company and are junior in the right of
payment to the Company's debt that does not expressly provide that it ranks
equally with or junior to the Notes, including the Company's obligations under
its senior credit facility. The Notes are unconditionally guaranteed by the
direct and indirect domestic subsidiaries of WinsLoew and bear interest at 12 3
/ 4%, which is payable semi-annually on February 15 and August 15 beginning on
February 15, 2000. The Notes will mature on August 15, 2007.
On or after August 15, 2003, the Company may redeem the Notes, in whole or in
part, at any time at the following redemption prices:
YEAR PERCENTAGE
2003 106.375%
2004 104.250%
2005 102.125%
2006 and thereafter 100.000%
The Company may, at its option, at any time prior to August 15, 2002, redeem up
to 25% of the Notes using the net proceeds of an underwritten public offering of
capital stock.
In conjunction with the Brown Jordan International acquisition each outstanding
warrant of the Company issued pursuant to the Warrant Agreement dated as of
August 24, 1999 between the Company and American Stock Transfer & Trust
Registrant, as Trustee, was assumed by WLFI Holdings in accordance with the
Warrant Agreement so that each warrant became exercisable for that number of
shares of Holdings common stock equal to the number of shares of Registrant
common stock issuable upon the exercise of the warrant immediately prior to the
merger, at the same exercise price as was in effect immediately prior to the
merger.
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 WLFI Holdings. 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, 2001, the Company was in
compliance with such covenants.
INDUSTRIAL DEVELOPMENT BOARD BONDS
In connection with the Company's plant expansion at its 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.
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, 2001 the Bonds bore interest at a variable rate of 2.04%.
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 (in thousands):
2001 $325
2002 325
2003 325
2004 325
2005 325
Thereafter 2,275
-----
3,900
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.
7. DERIVATIVES
On January 1, 2001 the Company adopted SFAS No. 133, "Accounting For Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and No. 138.
The Company enters into short term currency forward contracts to hedge currency
exposures associated with the purchase of certain raw materials and the funding
of foreign operations. At December 31, 2001 the change in fair value of these
hedges was not material.
On August 6, 2001 the Company entered into an interest rate swap agreement to
fix the interest rate on $100 million principal amount of variable rate debt
outstanding under the Senior Credit Facility. The interest rate swap is designed
to fix the adjusted LIBOR interest rate on $100 million at 5.09% through March
31, 2004 and on $80 million from March 31, 2004 to March 31, 2005.
As of December 31, 2001, the fair value of the swap was recorded as a liability
of $2,423,000 with an offsetting entry to other comprehensive loss, net of taxes
of $969,000. The portion of ineffectiveness of the hedge, as determined by the
change in variable cash flows of the interest rate swap to the Senior Credit
Facility, is not material.
From the period of August 6, 2001 through December 31, 2001 the 3-month LIBOR
interest rate declined approximately 177 basis points. While the Company's
interest on LIBOR-based borrowing declined during this period, the fair value of
the interest rate swap declined also. Future movements in interest rates,
particularly the 3-month LIBOR rate, will correspondingly impact the Company's
cash interest expense and the fair value of the swap.
8. STOCK PLANS
In 2001, the Company's parent, Holdings, established a Stock Option Plan (the
"Plan") as a means to retain and motivate key employees and directors. 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 Holdings' common
stock on the date of grant. Holdings has reserved 30,000 shares of common stock,
(representing approximately 2.4% of Holdings' outstanding common stock on a
diluted basis) for issuance upon exercise of stock options. As of December 31,
2001 Holdings had issued 23,593 options to employees of the Company. All options
which have been granted have a term of ten years and vest ratably over five
years. The reserved shares under the plan do not include the 16,000 roll over
options related to the BJI acquisition.
Pursuant to the terms of the BJI acquisition, certain employees of BJI were
allowed to rollover existing options of BJI common stock into options of WLFI
Holdings Inc. common stock. All such options were 100% vested at the rollover
date. There were no exercises of stock options during 2001.
As permitted by SFAS 123, the Company and its parent have elected to continue
following the guidance of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" for measurement and recognition of
stock-based transactions with employees. Accordingly, no compensation expense
has been recorded for options granted under the stock option plan because the
exercise price equals or exceeds the market price of the underlying stock on the
date of grant. Had compensation expense for the stock option plan been
determined based on the fair value at the date of grant, consistent with the
provisions of SFAS 123, the Company's net loss would not have been materially
different.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2001
------------
Expected dividend yield zero
Expected stock price volatility 25%
Risk-free interest rate 4.68%
Expected life of options in years 10
The weighted average fair value for options granted during 2001 was $94.25 per
share. Stock option activity for the year ended December 31, 2001 is summarized
as follows:
Weighted
Average
Options Exercise
Outstanding Price
- -----------------------------------------------------------------------
December 31, 2000 Balance - -
Granted 39,593 $ 102.52
Exercised - $ -
Canceled - $ -
- -----------------------------------------------------------------------
December 31, 2001 Balance 39,593 $ 102.52
=======================================================================
Information with regard to options outstanding and exercise price at December 31
is as follows:
Weighted Options Exercisable
Average At December 31, 2001
Remaining --------------------------
Weighted Life
Average Options At Weighted
Exercise Exercise Outstanding 12/31/01 Shares Average
Price Price 2001 Exercise Price
- -------------------------------------------------------------------------------
$ 30.30 $ 30.30 16,000 9.42 16,000 $ 30.30
$ 151.50 $ 151.50 23,593 9.75 4,719 $ 151.50
----------------------------------------------------------------------------
Total 102.52 39,593 9.62 20,719 $ 57.90
9. Extraordinary Item
In connection with the debt restructuring in 2001, the Company wrote off
approximately $2.6 million in unamortized loan costs. This write-off has been
classified as an Extraordinary Item and presented net of taxes of $1.0 million.
10. CAPITAL STOCK
In 1999, prior to going-private, the Company purchased 112,500 shares of its own
common stock 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 included the exercise of stock options. Also, in
connection with the going-private transaction WinsLoew authorized 1,000,000
shares of $0.01 par value common stock. Pursuant to the BJI acquisition each
outstanding share of common stock of the Company was converted into one share of
common stock of WLFI Holdings, Inc. In addition 1,000 shares of the Company's
common stock was issued to WLFI Holdings, Inc. Consequently, there were 1,000
and 850,350 shares issued and outstanding at December 31, 2001 and December 31,
2000, respectively.
11. INCOME TAXES
The provision for income taxes consisted of the following:
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year ended Year ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
(in thousands)
Provision for taxes
related to continuing
operations $ 4,040 $ 7,151 $ 2,180 $ 9,159
Provision
for taxes related to
loss on sale of
discontinued operations - - 447 -
Benefit for taxes related to (1,050) - - -
extraordinary item
Total provision
------------- ------------- ------------- -------------
for taxes $ 2,990 $ 7,151 $ 2,627 $ 9,159
============= ============= ============= =============
The significant components of the provision for income taxes from continuing
operations consisted of the following:
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year ended Year ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
(in thousands)
Federal:
Current $ 2,427 $ 5,941 $ 1,732 $ 8,565
Deferred 536 546 33 15
State:
Current 1,022 608 210 484
Deferred 55 56 205 95
--------- -------- ----------- ----------
$ 4,040 $ 7,151 $ 2,180 $ 9,159
========= ======== =========== ==========
At December 31, 2001 and 2000, deferred tax assets and liabilities consisted of
the following:
2001 2000
-------------------- --------------------
(in thousands)
Deferred tax assets:
Capitalized inventory costs $ 365 $ 404
Reserves and accruals 6,278 2,723
Change in fair value of 969 -
Interest rate swap
-------------------- --------------------
Deferred tax assets $ 7,612 $ 3,127
-------------------- --------------------
Deferred tax liabilities:
Intangible asset basis
difference $ (2,036) $ (1,139)
Excess of tax over
book depreciation (974) (710)
Prepaid expenses (198) (150)
Other (132) (107)
-------------------- --------------------
Deferred tax liabilities $ (3,340) $ (2,106)
-------------------- --------------------
-------------------- --------------------
Deferred income taxes, net $ 4,272 $ 1,021
==================== ====================
Included in:
Other current
assets/liabilities $ 6,454 $ 2,870
Deferred income taxes (2,182) (1,849)
-------------------- --------------------
$ 4,272 $ 1,021
==================== ====================
The following table reconciles the differences attributable to continuing
operations computed at the U.S. Federal income tax rate of 35% to income tax
expense for financial statement purposes:
Successor Predecessor
Company Company
Successor Successor Period from Period from
Company Company August 27, January 1,
Year ended Year ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
Tax at federal statutory rate 569 4,861 1,308 8,440
State income taxes, net of 349 414 228 386
federal tax benefit
Goodwill amortization 2,326 1,878 542 72
Separate company state
losses not benefited 685 - - -
Other 111 (2) 102 261
------------ ------------- ---------- ----------
Income tax expense 4,040 7,151 2,180 9,159
============ ============= ========== ==========
12. 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 $400,000. In 2001, as a result of acquisitions, the annual base compensation
was increased to $750,000. For the year ended December 31, 2001, 2000 and for
the period from August 27, 1999 to December 31, 1999, the period from January
1,1999 to August 26, 1999, the amount expensed was $651,000 $393,000, $80,000
and 378,000, respectively. Under the agreement, during 2001, the Company also
paid Trivest $1,300,000 in connection with the BJI acquisition. During 2000, the
Company 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 5) and $3,000,000
in connection with the going private transaction (see Note 2). Trivest and its
affiliates made additional equity investments into WLFI Holdings, Inc., the
parent of the Registrant, of approximately $48.0 million in 2001, in support of
the BJI acquisition. In addition, Trivest and its affiliates contributed
approximately $6.1 million in support of acquisitions in 2000.
As a result of the BJI acquisition the Company acquired approximately 20%
ownership of Lexman Holdings, Limited, ("Lexman"). Lexman is the sole equity
holder of Leisure Garden, a furniture manufacturer in the People's Republic of
China. The Company has a long-term supply agreement with Lexman providing for
the Company to purchase a minimum of $10,000,000 of furniture per year. In
calendar 2001 the Company purchased approximately $60,000,000 from Leisure
Garden. The agreement with Leisure Garden expired in 2001 and is currently being
renegotiated. In addition, the Company reported dividend income from Leisure
Garden, in 2001, of $700,000.
13. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space, manufacturing facilities and equipment
under operating leases. Some leases for office and manufacturing space contain
renewal options and provisions for increases in minimum payments based on
inflation. Rental expense amounted to $3,064,000, $1,161,000 $336,000 and
$673,000, for the year ended December 31, 2001, December 31, 2000, the period
from August 27, 1999 to December 31, 1999 and the period from January 1, 1999 to
August 26, 1999, respectively. Operating lease agreements at December 31, 2001
have the following remaining minimum payment obligations (in thousands):
2002 $4,970
2003 4,321
2004 3,907
2005 3,401
2006 3,330
thereafter 7,627
-------
$27,556
=======
In addition, at December 31, 2001 the Company had approximately $5.1 million in
outstanding stand-by letters of credit.
LITIGATION AND LIABILITY CLAIMS
From time to time, the Company is 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.
The Company and former members of its 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.
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. A final hearing was held on April 24, 2001. At the hearing the
settlement was approved and the case was dismissed with prejudice. WinsLoew has
fulfilled its portion of the liability under the terms of the settlement.
14.EMPLOYEE BENEFIT PLANS
The Company has six 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 in each year of 2001, 2000 and 1999.
As a result of the Brown Jordan International acquisition, the Company assumed
The Pension Plan for Hourly Employees of Brown Jordan ("the Plan"), which is a
defined benefit pension plan covering hourly employees of Brown Jordan Company's
domestic employees. Benefits are based on age and years of service. The
Company's funding policy is to contribute annually to the Plan the amount
necessary to meet the minimum funding standards established by the Employee
Retirement Income Security Act.
The following tables set forth information related to the Plan at
and December 31, 2001:
(In Thousands) Fiscal
Period
05/09/2001-
Change In Benefit Obligation 12/31/2001
----------------
Benefit obligation at beginning of period $ 1,053
Service cost 61
Interest cost 57
Benefits paid other than Settlements (9)
----------------
Benefit obligation at end of period $ 1,162
Change In Plan Assets
Fair value of assets at beginning of period $ 725
Actual return on plan assets 8
Employer contributions 149
Benefits paid including Settlements (9)
-----------------
Fair value of assets at end of period $ 873
Funded Status At End Of Period
Projected Benefit Obligation (1,162)
Plan Assets at Fair Value 873
Unrecognized Prior Service Cost 232
Unrecognized Net Actuarial (Gain)/Loss (13)
Additional Liability (219)
------------------
(Pension Liability) or Prepaid Pension Cost $ (289)
Intangible Asset $ 219
Unfunded Accrued Pension Cost at end of period $ (71)
Components Of Net Periodic Cost
Service cost $ 61
Interest cost 57
Expected return on plan assets (48)
Net Amortization and deferral
Prior service cost 14
------------------
Net periodic pension cost $ 85
Actuarial Assumptions At End Of Period
Discount Rate 7.25%
Increases in Compensation N/A
Long-term rate of return 8.00%
15. OPERATING SEGMENTS
The Company has three segments organized and managed based on the products sold.
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.
Successor Predecessor
Company Company
Period Period
from from
Year Year August 27, January 1,
Ended Ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
---------------------------------------------------------
( In thousands)
Revenues:
Casual $206,980 $108,050 $23,143 $51,443
Contract and 70,159 69,458 28,256 44,090
hospitality
Ready to assemble 9,015 11,455 5,106 10,101
---------------------------------------------------------
Total Revenues $286,154 $188,963 $56,505 $105,634
=========================================================
Successor Predecessor
Company Company
Period Period
from from
Year Year August 27, January 1,
Ended Ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
--------------------------------------------------------
( In thousands)
Gross Profit:
Casual $63,691 $49,949 $11,553 $24,973
Contract and 21,623 26,027 10,800 14,904
hospitality
Ready to assemble 1,272 2,046 1,076 2,449
--------------------------------------------------------
Total Gross Profit $86,586 $78,022 $23,429 $42,326
========================================================
Successor Predecessor
Company Company
Period Period
from from
Year Year August 27, January 1,
Ended Ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
--------------------------------------------------------
( In thousands)
Depreciation and
Amortization:
Casual $ 6,288 $3,316 $ 866 $ 1,207
Contract and 1,213 606 124 250
hospitality
Ready to assemble 337 323 107 205
--------------------------------------------------------
Total 7,838 4,245 1,097 1,662
Reconciling items:
Corporate 9,771 6,316 1,864 222
--------------------------------------------------------
--------------------------------------------------------
Total depreciation
and amortization $ 17,609 $ 10,561 $ 2,961 $ 1,884
========================================================
Successor Predecessor
Company Company
Period Period
from from
Year Year August 27, January 1,
Ended Ended 1999 to 1999 to
December 31, December 31, December 31, August 26,
2001 2000 1999 1999
----------------------------------------------------
( In thousands)
Expenditures For
(Disposal Of) Long
Lived Assets:
Casual $ 2,136 $ 5,268 $ 1,654 $ 180
Contract and 408 527 133 13
hospitality
Ready to assemble 123 140 1 54
----------------------------------------------------
Total $ 2,667 $ 5,935 $ 1,788 $ 247
----------------------------------------------------
Reconciling items:
Corporate 2,498 31 1,208 22
----------------------------------------------------
----------------------------------------------------
Total expenditures for
long lived assets, net $ 5,165 $ 5,966 $ 2,996 $ 269
====================================================
Year Year
Ended Ended
December 31, December 31,
2001 2000
---------------------------------------
( In thousands)
Segment Assets:
Casual $267,913 $115,753
Contract and 49,715 52,873
Hospitality
Ready to assemble 6,416 6,374
---------------------------------------
Total $324,044 $175,000
Reconciling items:
Corporate 203,974 192,622
---------------------------------------
---------------------------------------
Total consolidated
assets $528,018 $367,622
=======================================
The Company had one casual customer that accounted for 20.6% of consolidated
revenues in 2001. The Company did not have any customers that accounted for 10%
or more of consolidated revenues in 2000 and there was one contract and
hospitality customer that accounted for 15% of consolidated revenues in the year
ended December 31, 1999.
16.SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items specified below:
Year Year
Ended Ended
December 31, December 31,
2001 2000
---------------------------------------
( In thousands)
Inventories:
Raw materials $ 22,335 $ 13,398
Work in process 2,824 3,262
Finished goods 2,952 3,538
---------------------------------------
Total Inventories $ 28,111 $ 20,198
=======================================
Year Year
Ended Ended
December 31, December 31,
2001 2000
-----------------------------------------
( In thousands)
Property, plant
and equipment:
Land $ 5,076 $ 3,870
Buildings and improvements 20,405 17,488
Manufacturing equipment 7,910 6,094
Office equipment 5,054 1,085
Construction in progress 1,817 558
Vehicles/airplane 3,177 1,365
----------------------------------------
Total Gross Assets $ 43,439 $ 30,460
Accumulated Depreciation (6,181) (2,633)
---------------------------------------------
Total Net Assets $ 37,258 $ 27,827
=============================================
Year Year
Ended Ended
December 31, December 31,
2001 2000
( In thousands)
Other Accrued Liabilities:
Compensation, commissions
and employee benefits $6,940 $3,296
Customer deposits 1,183 1,714
Income taxes 862 1,062
Warranty 3,117 2,251
Fair Value of Derivatives 2,423 -
Other 7,354 4,898
----------------------------------------
$21,879 $13,221
========================================
Depreciation expense for continuing operations was $3,707,000, $2,178,000,
$1,103,000 and $421,000 for the years ended December 31, 2001 and December 31,
2000 and for 1999 Predecessor period from January 1 to August 26, 1999, and the
Successor period from August 27 to December 31, 1999, respectively.
Accumulated amortization at December 31, 2001 and 2000 related to Goodwill was
$24,004,000 and $15,513,000 respectively. Accumulated amortization at December
31, 2001 and 2000 related to other intangible assets was $5,272,000 and
$1,703,000 respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No events or occurrences required to be disclosed in this Item 9 have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
Name Age Position
- -------------------------------------------------------------------------------
Earl W. Powell 63 Chairman of the Board and Director
Bruce Albertson 56 President,Chief Executive Officer and Director
Bobby Tesney 57 Vice Chairman and Director
Darryl Rosser 50 President-Contract Market Division
Dale Boles 54 President-Mass Market Division
Jerry Camp 36 President-Retail Market Division
Vincent A. Tortorici, Jr 48 Assistant Secretary, Vice President
and Chief Financial Officer
William Echols 53 Vice President of Marketing
Rick J. Stephens 47 Executive Vice President
and Chief Operations Officer
Richard Frinier 55 Executive Vice President
and Chief Creative Officer
Rebecca Patterson 46 Vice President and Chief Information Officer
Terry Charcandy 38 Vice President of Human Resources
William F.Kaczynski, Jr 42 Vice President and Director
David Soloman 39 Director
Graeme Mills 41 Director
Walter J. Olson, III 60 Director
James Carreker 54 Director
Michael Fourticq, Sr. 58 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, Mills, Olson, Carreker, Echols, Rosser 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 Mr. Powell and Dr.
Phillip T. George in 1981. Trivest is an affiliate of the Trivest Partnerships
and Trivest Manager. Mr. Powell has also served as Chairman of the Board of
Atlantis Plastics, Inc., an American Stock Exchange company whose subsidiaries
are engaged in the plastics industry ("Atlantis"), since founding that company
in February 1984, as Chief Executive of Atlantis from its organization until
February 1995 and as President of Atlantis from November 1993 to February 1995.
Mr. Powell has served as Chairman of the Board of Biscayne Apparel, Inc., a
company whose principal subsidiaries are engaged in the apparel industry
("Biscayne"), since October 1985 and presently serves as Chief Executive Officer
of Biscayne. The common stock of Biscayne is quoted on the NASD OTC Bulletin
Board. Biscayne filed a voluntary Chapter 11 bankruptcy petition in February
1999. Mr. Powell also served as Chairman of the Board of Winston from December
1988 to December 1994, Chairman of the Board of Loewenstein from February 1985
to December 1994 and as Loewenstein's President and Chief Executive Officer from
May 1994 to December 1994. From 1971 until 1985, Mr. Powell was a partner with
KPMG Peat Marwick, Certified Public Accountants ("Peat Marwick"), where his
positions included serving as managing partner of Peat Marwick's Miami office.
Mr. Albertson, the Company's President and Chief Executive Officer since January
2002, joined GE Appliances in 1976 as a sales counselor, advancing over the
course of the next 25 years to become, in succession, General Manager of Brand
Management & Distribution Strategy, President of GE Appliances in Hong Kong, and
Vice President for Global Marketing and Product Management in Louisville. Most
recently, Mr. Albertson was the President and CEO of Iomega Corporation, based
in Utah.
Mr. Tesney, Vice Chairman, served as President, Chief Executive Officer and a
director of the Company from October 1994 to January 2002, 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. Boles brings 32 years of senior management experience within the casual
furniture industry to WinsLoew Furniture, Inc. Prior to the acquisition of Brown
Jordan International by WinsLoew Furniture, Inc., Mr. Boles served as cofounder,
President and Chief Executive Officer of Casual Living Worldwide, which he
developed to be one of the most successful, multimillion dollar companies in the
casual furniture industry. Brands under which he has produced products included
Samsonite, Shae Designs, Vineyard, and Casual Living. His companies also serve
as the leading private-label supplier to mass merchants including Wal-Mart,
Lowe's, CostCo, and Home Depot. Mr. Boles is committed to excellence within the
industry and has worked domestically and internationally to bring value-priced
yet stylish products to the mass and specialty channels of distribution for
decades. He has served on previous boards directed Casual Living Worldwide and
Brown Jordan. Mr. Boles is the president elect of the Summer Casual Furniture
Manufacturer's Association, a division of the American Furniture Manufacturers
Association.
Mr. Frinier is an accomplished and award-winning designer within the casual
furniture industry. He has been designing for the Brown Jordan furniture company
for more than twenty years and began designing for Casual Living Worldwide in
1996. Over the years, he has helped to shape and manage the brand identity and
build brand equity for the following popular brands: Brown Jordan, Brown Jordan
Contract, Poolside, Shae Designs, Vineyard, Samsonite Elite, Better Homes &
Gardens, Casual Living and Samsonite. Mr. Frinier's work has been recognized for
its design excellence by professional trade organizations, museums, and trade,
contract and consumer publications, highlighted by the Industrial Designer's
Society of America, Interior Designers Society of America, the American Society
of Furniture Designers, the Summer Casual Furniture Manufacturers Association,
and numerous publications. Mr. Frinier holds a Master of Fine Arts Degree from
California State University at Long Beach and possesses more than 25 years
experience as an industry professional and design educator.
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 and Chief Operating Officer since May
of 1999. Previously Mr. Stephens served as Winston's Corporate Vice President of
Operations from January 1995 to May 1999, served as Vice President and General
Manager at Winston from December 1993 to January 1995 and served as Vice
President of Finance and Administration at Winston from November 1986 to
December 1993. Previously, Mr. Stephens was an employee of Homelite, a Division
of Textron, from 1979 until 1986 where he served as Manager of Financial
Planning and most recently as Director of Auditing.
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. Echols serves as the Company's Vice President-Sales and Marketing. Mr.
Echols joined the Company in November 2000. Prior to joining WinsLoew, Mr.
Echols was a consultant to the plastics industry. Mr. Echols has been involved
in the furniture industry for approximately 25 years with companies such as,
Samsonite Furniture, Lineal Group and Mahasco serving in various leadership
capacities including CEO, President and Sales Manager.
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.
Mr. Olson, Vice President and Chief Investment Officer for Southern Farm Bureau
Life Insurance Company, has over 30 years of experience in the field of
investments. Joining the company in 1981, he is directly responsible for
managing the company's investment portfolio and is also a member of the
Investment Committee. Mr. Olson graduated from Mississippi State University with
a degree in business. While working at Merrill Lynch as a stockbroker, he
received his MBA from Mississippi College
Mr. Carreker, was appointed a Director in 2001. He established JDC Holdings (a
private equity investment facility) in October 2000. He has served as Chairman
and Chief Executive Officer of Wyndham from January 1996 to October 2000. Prior
to that time he served as President and Chief Executive Officer of Wyndham
Hotels and Resorts from 1988 to 1996, he was also the President and Chief
Executive Officer of the Trammell Crow Company from 1994 - 1995. He served as
President of Burdines, the Florida division of Federated Department Stores from
1984 - 1988. He is a Director of Pier 1 Imports, Crow Holdings, Outrigger Hotels
& Resorts and Carreker Corporation
Mr. Fourticq founded Hancock Park Associates ("HPA")in 1986 after an extensive
career in principal investment and operating management. Beginning in 1969, he
spent four years with Security Pacific National Bank's venture investing
subsidiary, which was one of the earliest participants in leveraged acquisition
investing. Following Security Pacific, Mr. Fourticq spent eight years in various
management positions including the Chairman and Chief Executive Officer of Stem
Industries, a textile and floor covering manufacturer. Mr. Fourticq then served
as President and Chief Operating Officer of United Castle Coal, a fully
integrated underground coal mining and processing company. From 1981 through
1985, Mr. Fourticq was a General Partner of Los Angeles based Brentwood
Associates. Upon leaving Brentwood, he formed HPA to pursue the acquisition of
small operating companies. Mr. Fourticq has assumed various Chief Executive
roles and responsibilities of the portfolio companies since the formation of
HPA.
Mr. Mills is a Director of BancBoston Capital, the private equity unit of Fleet
Boston Financial. Prior to joining BBC in 1997 Mr. Mills was a Director in
BankBoston's Emerging Markets Investment Banking Group where for 5 years he was
responsible for governmental and multilateral financing for clients in Latin
America. He has been with Fleet Boston Financial/BankBoston for 16 years and has
extensive corporate finance experience including mergers and acquisitions, debt
restructurings, leveraged acquisitions, project financings and cross border fund
raising in the US and international markets. Graeme is a CPA and a Senior
Associate of the Australian Society of Accountants and a member of the
Securities Institute of Australia. He holds B.Com. (1980) and M.Com. (1982)
degrees from the University of New South Wales in Australia.
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, 2001 and to former executive officers whose total 2001
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
Annual Compensation Term
Awards
Number
Other Of
Fiscal Annual Annual Options
Name and Principal Position Year Salary Bonus Compensation Granted
Bobby Tesney 2001 383,000 383,000 135,573 1,500
Vice Chairman 2000 300,000 300,000 109,367 -
1999 275,000 275,000 97,259 -
Vincent A. Tortorici 2001 216,000 140,834 25,287 1,286
Assistant Secretary, Vice 2000 175,000 113,750 21,053 -
President and Chief 1999 162,000 105,300 14,056 -
Financial Officer
Rick J. Stephens 2001 176,000 96,737 20,380 750
Executive Vice President 2000 134,000 67,000 12,396 -
and Chief Operations Officer 1999 123,552 61,776 11,338 -
Jerry C. Camp 2001 203,000 109,620 41,098 1,286
President-Retail Market 2000 180,000 90,000 36,197 -
Division 1999 138,750 45,938 23,925 -
Darryl Rosser 2001 166,480 105,000 - 1,286
President-Contract Market 2000 - - - -
Division 1999 - - - -
Rebecca Patterson 2001 157,548 43,326 - 750
Vice President and 2000 124,231 12,423 - -
Chief Information Officer 1999 113,077 11,339 - -
Terry Charcandy 2001 107,861 14,850 - 750
Vice President 2000 87,640 - - -
Human Resources 1999 42,393 - - -
William Echols 2001 179,615 98,716 - 1,286
Vice President of Marketing 2000 12,500 5,000 - -
1999 - - - -
Dale Boles (2) 2001 212,500 207,188 - 1,286
President-Mass Market Division 2000 - -
1999 - -
Richard Frinier(2) 2001 251,553 260,400 - -
Executive Vice President and 2000 - -
Chief Creative Officer 1999 - -
(1)
"Other Annual Compensation" represents amount paid by the Company on behalf of
the Named Executive Officer under the Company's Non-Qualified Supplemental
Executive Retirement Plan established in October 1996. Under the terms of this
Plan, selected employees make after-tax contributions of their salary to one or
more investment alternatives available under such Plan. The Company then matches
the employee contribution (up to 10% of compensation on an after-tax basis)
depending on the employee's length of service (up to 50% for 15 years of
continuous service). The employee is vested at all times in the deferred
compensation and is vested immediately in the matching contribution.
(2)
Joined the Company in May 2001 as a result of the BJI acquisition.
Option Grants-
In 2001, the Company established a Stock Option Plan (the "Plan") as a means to
retain and motivate key employees and directors. (See note 8 of Notes to
Consolidated Financial Statements)
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.
Wabash 401-k Plan:
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.
Charter 401-k Plan:
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.
Non-vested amounts are forfeited.
Woodsmiths 401-k Plan:
Employees are eligible to participate in the 401(k) after completing one year of
service and attaining at least 18 years of age. A minimum of 1000 hours of
service must have been completed to constitute a year of eligibility. Qualified
employees are able to enter into the plan the first of the month after meeting
the eligibility requirements. The plan is set up so that the Company can make
profit sharing contribution. The plan is not established for the Company to make
matching contributions. Participants are able to make elective deferments from
1% to 15% of their salary, not to include any type of bonus. An employee is
always fully vested in his contributions, but only fully vested in employer
contributions after five years of vested service - a gain of 20% vested after
each year. Any years of employment prior to the age of 18 will not be counted as
vested service. A participating employee may stop making contributions and then
return to the plan. The normal retirement Age under this plan is age 65 and an
early retirement age is not applicable under our plan.
Brown Jordan Company Union Employees 401-k Plan:
Employees are eligible to participate once they have attained 18 years of age
and completed one year(s) of service. One year of service is a 12 month period
and a minimum of 1,000 hours worked during such period. Participation starts on
January 1 or July 1 following the date employee meets the eligibility
requirements. The Plan excludes non-union employees.
The company will match 50% of employee's 401(k) contributions, up to a maximum
matching contribution of $400. The former contribution will change on January 1,
2002 to 50% of employee's 401(k) contributions, up to a maximum matching
contribution of $500 and on January 1, 2004 to 50% of employee's 401(k)
contributions, up to a maximum matching contribution of $600. To receive the
matching contribution, the employee must be employed on December 31. Eligibility
for contribution; Employee must be employed on the last day of the plan year and
have 1,000 hours of service. Participants who die, become totally disabled, or
retire on or after age 59 1/2 are also eligible for an employer contribution in
that year. Employees are always 100% vested in their accounts in the plan.
Normal retirement age is 59 1/2
Brown Jordan Company Non-Union Employees Plan:
Employees are eligible to participate once they have attained 18 years of age
and completed three months service. Participation starts on the date the
employees meet the eligibility requirements. The Plan excludes union employees
and seasonal employees. The company will match 25% of the first 10% of pay the
employee's contributions, up to a maximum matching contribution of 2.5% of pay.
To receive the matching contribution, the employee must be employed on December
31. Participants who terminate on account of death, become totally disabled, or
retire are also eligible for an employer contribution in that year. During
top-heavy years, participants who are employed on the last day of the plan year
but do not have 1,000 hours may be eligible for a 3% minimum top-heavy
contribution for that year. Employees are always 100% vested in their accounts
in the plan. Normal retirement age is 59 1/2
Director Compensation
We pay each non-Trivest/employee director a $3,000 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 2001 base salary of $400,000, and Mr. Tortorici a
2001 base salary of $225,000. The employment agreements provide for us to pay
Mr. Tesney a 2002 base salary of $264,000 and Mr. Tortorici a 2002 base salary
of $225,000, in each case subject to subsequent annual cost of living
adjustments. The employment agreements also provide for annual incentive
compensation payments of up to a specified portion of the executive's then base
salary, 100% in the case of Mr. Tesney and 65% in the case of Mr. Tortorici,
based on the operating earnings, adjusted to exclude the effect of goodwill
amortization, of WinsLoew. None of these officers will receive any incentive
compensation payment under his employment agreement for any particular year
unless the relevant operating earnings for such year are at least 75% of the
target earnings for such year. Each employment agreement also provides that the
executive will receive six months base salary if his employment is terminated
without cause as defined in the employment agreements, and prohibits the
executive from directly or indirectly competing with us for one year after
termination of his employment, or, if he is terminated by us without cause, six
months after termination.
We have 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
We have entered into a five-year employment agreement with Mr. Echols effective
as of February 12, 2001. The employment agreement was based upon the position of
Vice-President Sales and Marketing. Subsequently, Mr. Echols has been promoted
to President-Brown Jordan Company. The employment agreement provides for us to
pay Mr. Echols' a 2001 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 75% of the executive's then base
salary, based on the operating earnings, adjusted to exclude the effect of
goodwill amortization, of the Company. Mr. Echols 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. Echols' employment agreement also 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 entered into a four-year employment agreement with Mr. Boles effective
as of May 8, 2001. The employment agreement provides for us to pay Mr. Boles a
2001 base salary of $325,000, subject to subsequent annual cost of living
adjustments. The employment agreement also provides for annual incentive
compensation payments of up to 85% of the executive's then base salary, based on
the operating earnings, adjusted to exclude the effect of goodwill amortization.
Mr. Boles 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. Boles' 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 agreement.
Severance Agreements
On August 27, 1999 we entered into severance agreements with each of Messrs.
Tesney and Tortorici, under which we have agreed to provide them with severance
pay and benefits if their employment is terminated by us following a change in
control as defined in the agreement. Under each agreement, if we terminate
employment either for cause as defined in the agreement, because of the
employee's death, or if the employee terminates his employment other than for
good reason as defined in the agreement, following a change in control, we must
pay the employee his full base salary through the date of termination plus all
other benefits he may be entitled to under any retirement plan we may then have.
If, on the other hand, at any time during the 180 day period following a change
in control we terminate the employee's employment other than for cause or due to
their disability, as these terms are defined in the agreement, or if the
employee terminates his employment during this period for good reason as defined
in the agreement, we must pay the employee his full base salary through the date
of termination, any accrued bonus and a lump sum severance payment equal to his
annual salary. Additionally, we must provide life, disability, accident and
group health insurance benefits substantially similar to those provided to the
employee prior to termination of employment for a period of one year after
termination, at a cost to the employee no greater than the cost prior to
termination. The employee's rights under any retirement plan we may then have
will be governed by the terms of the plan. We must also pay the employee's legal
fees and expenses incurred by him as a result of termination of his employment.
We must make these severance payments not later than the fifth day following
termination.
The agreements remain in effect through December 31, 2000 and are automatically
extended for additional one-year periods unless we provide notice by October 1
of the preceding year that we do not wish to extend the agreements, and provided
that if a change in control occurs during the original or extended term of the
agreements, the agreements will continue in effect for not less than 180 days
after the last day of the month in which the change in control occurred.
Compensation Committee Interlocks and Insider Participation
Mr. Powell, the Company's Chairman, also serves on the Board of Directors of CHC
International, Inc., a hotel and casino development and management company. See
"Directors and Executive Officers of WinsLoew."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2001 the Company has outstanding 1,000 shares of common
stock. 100% of this stock is issued to WLFI Holdings, Inc. (see note 1 of Notes
to Consolidated Financial Statements).
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 and $1.3 million were paid in 2000 and 2001
respectively, in connection with acquisitions in both years.
MERGER WITH TRIVEST FURNITURE CORPORATION
In August 1999, Trivest Furniture Corporation merged with and into us. We are
the surviving corporation of the merger. Trivest Furniture Corporation was a
newly formed corporation organized by an investor group led by Trivest. The
members of our senior management have retained the positions they held prior to
the merger. See "Management." Pursuant to the merger agreement, each holder of
previously outstanding shares of WinsLoew common stock, other than Trivest
Furniture Corporation, received $34.75 per share in cash, without interest, and
the holder of each outstanding option received a cash payment equal to the
difference between $34.75 and the exercise price of the option. The cash merger
consideration, option cancellation payments and related fees and expenses, which
totaled approximately $282.6 million, were provided by (1) an aggregate of $78.0
million in cash and rollover equity contributions valued at $34.75 per share, to
Trivest Furniture Corporation from two private investment partnerships
affiliated with Trivest, individuals affiliated with Trivest, members of our
senior management team, other employees and additional investors, (2) aggregate
borrowings of approximately $95.0 million under our senior credit facility, (3)
the proceeds from the sale of the units consisting of original notes and
warrants of approximately$102.5 million and (4) cash on hand of approximately
$7.1 million. The members of our board of directors and senior management team
received cash payments in respect of common stock and options they held prior to
the merger and contributed cash and shares of our common stock to Trivest
Furniture Corporation.
EMPLOYMENT AGREEMENTS AND SEVERANCE AGREEMENTS WITH MEMBERS OF
MANAGEMENT
Effective with the merger, our prior employment agreements with each of Messrs.
Tesney and Tortorici terminated. We have entered into a new employment agreement
with each of Messrs. Tesney, Tortorici and Rosser. 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."
LEISURE GARDEN
As a result of the BJI acquisition the Company acquired approximately 20%
ownership of Lexman Holdings, Limited, ("Lexman"). Lexman is the sole equity
holder of Leisure Garden, a furniture manufacturer in the People's Republic of
China. The Company has a long-term supply agreement with Lexman providing for
the Company to purchase a minimum of $10,000,000 of furniture per year. In
calendar 2001 the Company purchased approximately $60,000,000 from Leisure
Garden. The agreement with Leisure Garden expired in 2001 and is currently being
renegotiated. In addition, the Company reported dividend income from Leisure
Garden, in 2001, of $700,000.
Prices are negotiated on an item or furniture group basis. Although the prices
are agreed upon through a rigorous negotiating process, the Company does not
believe the negotiations are at "arms length". Further, the Company believes it
purchases furniture from Leisure Garden at prices that are lower than those that
would be negotiated with an unrelated third party. As a result, the Company
could be adversely impacted by its inability to purchase from Leisure Garden if
comparable alternative sources were not available.
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 and an additional $1.3 million in 2001, also 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.
SHAREHOLDERS AGREEMENTS WITH EACH OF OUR SHAREHOLDERS
In addition, each of our other shareholders, which are comprised of employees
and independent sales representatives, entered into a separate shareholders'
agreement with us in connection with the merger and his or her acquisition of
common stock. Under the shareholders' agreements, we have the right to
repurchase all common stock owned by the shareholder upon the termination of his
or her employment, which right may be exercised by Trivest Fund II Group, Ltd.
if we do not do so. The shareholders' agreements include certain "right of first
offer," "right of first refusal" and other restrictions on the ability of the
shareholders to transfer common stock, all of which restrictions will terminate
upon (1) a sale of all or substantially all of our assets, (2) the sale of our
common stock in a transaction or series of transactions resulting in any person
or group of affiliated persons other than the current shareholders owning more
than 50% of our common stock outstanding, (3) the registered public sale of
common stock the net proceeds of which are at least $15.0 million, or (4) our
merger or consolidation with or into another corporation if, after giving effect
to the merger or consolidation, holders of our voting securities immediately
prior thereto own voting securities of the surviving corporation representing
less than a majority of ordinary voting power to elect directors. The
shareholders' agreements also provide that the shareholders will participate in
sales of our common stock to an independent third party approved by holders of a
majority of our outstanding common stock, as well as other significant corporate
transactions, and agree to consent to and raise no objections against the sale,
as long as all shareholders receive the same consideration for their common
stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
Reference is made to the index set forth on
page 37 of this Annual Report on Form 10-K
(2) Financial Statement Schedule:
The following consolidated financial statement schedule is filed herewith:
Sequential
Page Number
Schedule II - Valuation and Qualifying Accounts 97
Any required information not included in the above-described schedule is
included in the consolidated financial statements and notes thereto contained
herein. All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions are otherwise not applicable and
therefore have been omitted.
(3) Exhibits: (An asterisk to the left of an exhibit number denotes a
management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Annual Report on Form 10-K)
EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER
Exhibit Description
3.1.1 Registrant's Restated Articles of Incorporation(1)
3.2 Registrant's Bylaws(1)
4.1 Indenture dated as of August 24, 1999 between WinsLoew
Escrow Corp.
(whose obligations have been assumed by the Registrant) and American
Stock Transfer & Trust Company, including form of 12 _% Senior
Subordinated
Note Due 2007(1)
4.2 Supplemental Indenture dated as of August 27,1999
among Trivest
Furniture Corporation, the Registrant, the
Registrant's domestic subsidiaries and American Stock
Transfer & Trust Company(1)
4.3 Registration Rights Agreement dated as of August 24,
1999 among WinsLoew Escrow Corp. (whose obligations have been
assumed by the Registrant) and Bear, Stearns & Co.,
Inc. BancBoston Robertson Stephens Inc. and First
Union Capital Markets Corp.(1)
4.4 Form of Registered Note (included in Exhibit 4.1)(1)
10.1 Form of Indemnification Agreement entered into between
the Registrant and each of the registrant's executive officers and
directors(1)
10.2 Business Lease dated November 18, 1993 between
Loewenstein, Inc. and Emanuel Vanzo(1)
10.3 Lease Agreement commencing December 15, 1995 between
Teachers
Insurance and Annuity Association and Winston
Furniture Company of Alabama, Inc.(1)
10.4 Lease dated April, 1996 between La Salle National
Trust, N.A. and
Winston Furniture Company of Alabama, Inc.(1)
10.5 Lease dated May 24, 1996 between La Salle National
Trust, N.A. and
Winston Furniture Company of Alabama, Inc.(1)
10.6 Agreement dated August 1, 1996 between Winston
Furniture Company of Alabama, Inc. and the Retail,
Wholesale and Department Store Union, AFL-CIO(1)
10.7 Contract for Sale and Purchase dated June 29, 1998
between Villella, Inc. and Thomas L. Villella, as
Trustee of the Thomas L. Villella Family Trust(1)
10.8 Stock Purchase Agreement dated June 30, 1998 between
Thomas Villella and Winston Furniture Company of
Alabama, Inc.(1)
10.9 Employment Agreement dated June 30, 1999 between Peter
Villella and Tropic Craft, Inc.(1)
10.10 Stock Purchase Agreement dated as of June 30, 1998
between the Registrant and Vertiflex Company(1)
10.11 Pricing Agreement dated December 1, 1998 between
Loewenstein, Inc. Gregson Furniture Industries and
Marriott International, Inc.(1)
10.12 Lease dated August 1, 1998 between Nitram Partners,
Ltd. and Miami Metal Products, Inc. as amended.(1)
10.13 Stock Purchase Agreement, dated as of November 23,
1998 among Winston Furniture Company of Alabama, Inc.
and Miami Metal Products, Inc. Industrial Mueblera
Pompeii de Mexico, S.A. de C.V. and certain named
sellers, as amended(1)
10.14 Lease Agreement dated March 1, 1999 between E.V.
Ferrell, Jr., Sarah T. Ferrell and Pompeii Furniture
Industries
10.15 Employment Agreement dated July 30, 1999 between
Winston Furniture Company of Alabama, Inc. and Perry
B. Martin(1)
10.16 Consulting Agreement dated July 30,1999 between
Winston Furniture Company of Alabama, Inc. and Leo
Martin(1)
10.17 Purchase Agreement dated August 19, 1999 among
WinsLoew Escrow Corp., Trivest Furniture Corporation
(each of whose obligations have been assumed by the
Registrant) and Bear, Stearns & Co. Inc., BancBoston
Robertson Stephens Inc. and First Union Capital
Markets Corp.(1)
10.18 Warrant Agreement dated as of August 24, 1999 between
WinsLoew Escrow Corp. (whose obligations have been
assumed by the Registrant) and American Stock Transfer
& Trust Company(1)
10.19 Loan and Security Agreement dated as of August 27,
1999 among the Registrant, its domestic subsidiaries,
the lenders named therein, BancBoston, N.A. as
administrative agent, Heller Financial, Inc. and CIBC,
Inc. as co-agents for the lenders(1)
10.20 Investors Agreement dated August 27, 1999 among
Trivest Furniture Corportion, Trivest Furniture
Partners, Ltd., Trivest Fund II Group, Ltd., and
various investors identified therein(1)
10.21 Exchange and Subscription Agreement dated August 27,
1999 among Trivest Furniture Corporation and various
investors identified therein(1)
10.22 WinsLoew 1999 Key Employee Equity Plan(1)
10.23 Form of Subscription Agreement (included in Exhibit
10.22)(1)
10.24 Form of Shareholders' Agreement (included in Exhibit
10.22)(1)
10.25 Management Agreement dated August 27, 1999 between the
Registrant and Trivest II, Inc.(1)
10.26 Employment Agreement dated August 27, 1999 between the
Registrant and Bobby Tesney(1)
10.27 Employment Agreement dated August 27, 1999 between the
Registrant and Vincent A. Tortorici, Jr.(10.28)(1)
10.28 Severance Agreement dated August 27, 1999 between the
Registrant and Bobby Tesney(10.29)(1)
10.29 Severance Agreement dated August 27, 1999 between the
Registrant and Vincent A. Tortorici, Jr.(10.30)(1)
10.31 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.(4)
10.37 Subscription and Shareholder Agreement dated June 16, 2000 between
Donald N. Clark and WinsLoew Furniture, Inc.(4)
10.38 Stock Purchase Agreement dated August 11, 2000 by and among WinsLoew
Furniture, Inc. and the Stockholders of Charter Furniture,
Corporation(4)
10.39 Subscription and Shareholder Agreement dated August 11, 2000 between
Albert Bertram and Winsloew Furniture, Inc.(4)
10.40 Lease Agreement dated May 1, 2000 by and between The Industrial.
Development Board Of The City Of Haleyville, Alabama and
Winston Properties, Inc.(4)
10.41 Trust Indenture dated May 1, 2000 between The Industrial
Development Board Of The City Of Haleyville, Alabama and
First Commercial Bank ( As Trustee).(4)
10.42 Stock Purchase Agreement by and among Loewenstein, Inc., The
Woodsmiths Company, Inc. and Raynor E. Baldwin dated as of
March 9, 2001 (2)
10.43 Stock Purchase Agreement by and among WLFI Holdings, Inc., WinsLoew
Furniture, Inc., Brown Jordan International, Inc. and
The Stockholders Brown Jordan International, Inc. dated as
of May 8, 2001.(5)
10.44 Credit Agreement By and Among WinsLoew Furniture, Inc. and Canadian and
Imperial Bank Of Commerce and other lenders and CIBC World
Markets Corp dated as of May 8, 2001.(2)
10.45 Articles of Merger By and Among WinsLoew Furniture, Inc., WFLI
Holdings,Inc. and WLFI Merger Inc. dated as of April 27, 2001.(5)
10.46 Limited Waiver Regarding Financial Covenants among WinsLoew Furniture,
Inc., certain financial institutions known as Lenders, Canadian
Imperial Bank of Commerce, as administrative agent for Lenders,
CIBC, INC., as Swing Line Lender, Antares Capital Corporation and
Heller Financial, Inc., as Co-Syndication Agents and General
Electric Capital Corporation, as Documentation Agent for Lenders.
dated as of October 12, 2001.(2)
10.51 Interest Rate Swap Agreement among WinsLoew Furniture, Inc.
and Canadian Imperial Bank of Commerce, dated as of August 6,
2001.(2)
10.52 First Amendment To Credit Agreement entered into by and
among WinsLoew Furniture, Inc., and the Lenders and Canadian and
Imperial Bank of Commerce, as Administrative agent for the
Lenders, dated as of December 14, 2001. (6)
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)
(5)Incorporated by reference to the exhibits, shown in
parentheses and filed with the Registrant's 8- K Filed May 22,
2001
(6)Incorporated by reference to the exhibits, shown in
parentheses and filed with the Registrant's 8- K Filed December
20, 2001
(b) Reports on Form 8-K
Registrant's 8-K Filed December 20, 2001 for First Amendment To Credit
Agreement
(c) Exhibits required by Item 601 of Regulation S-K The index to
exhibits that are listed in Item 14(a)(3) of this report and not
incorporated by reference follows the "Signatures" section hereof
and is incorporated herein by reference.
(d) Financial Statements Schedules required by Regulation S-X The
financial statement schedules required by Regulation S-X are
included herein. See Item 14(a)2 for index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINSLOEW FURNITURE, INC.
Date: March 22, 2002 By: /s/Bruce Albertson
------------------
Bruce Albertson
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/Bruce Albertson President,Chief
Bruce Albertson Executive Officer
and Director
(Principal Executive
Officer)
/s/Vincent A. Tortorici, Jr.
- ----------------------------
Vincent A. Tortorici, Jr. Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/Earl W. Powell Chairman of the Board
- -----------------
Earl W. Powell
/s/Bobby Tesney Vice-Chairman and Director
- -----------------
Bobby Tesney
/s/William F. Kaczynski, Jr. Director
- ----------------------------
William F. Kaczynski, Jr.
/s/David M. Solomon Director
- -------------------
David M. Solomon
/s/Graeme Mills Director
- ----------------
Graeme Mills
/s/Walter J. Olson, III Director
- -----------------------
Walter J. Olson III
/s/James D. Carreker Director
- -----------------------
James D. Carreker
/s/Michael J. Fourticq, Sr. Director
- ---------------------------
Michael J. Fourticq, Sr.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
WINSLOEW FURNITURE, INC.
December 31, 2001
- ----------------------------------------------------------------------------------------------------------
Balance at Charged To Charged To Balance at
Beginning Costs and Other End
Description Of Period Expense Accounts Deductions Of Period
- ----------------------------------------------------------------------------------------------------------
Predecessor Company:
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
for doubtful
doubtful accounts $ 2,156,131 $150,492 $ - $(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
Year ended December
31, 2001 Allowance
for doubtful
accounts $ 3,101,071 $(402,847) $530,972 (3) $109,621 (1) $3,338,817
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
WINSLOEW FURNITURE, INC.
December 31, 2001
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Charged To Charged To Balance at
Beginning Costs and Other End
Description Of Period Expense Accounts Deductions Of Period
- -------------------------------------------------------------------------------------------------------------------------------
Predecessor Company:
Period ended January 1 , 1999
to August 26, 1999 Allowance
for excess and
obsolete
inventory $ 495,000 $593,632 $ - $(88,947) (2) $999,685
Successor Company:
Period ended August 27, 1999
to December 31, 1999 Allowance
for excess and
obsolete
inventory $ 999,685 $(128,632) $516,000 (3) $(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
Year ended December 31, 2001
Allowance for excess and
obsolete
inventory $ 1,083,771 $1,426,909 $2,402,681 (3) $(2,279,955) $2,633,406
(1) Uncollectible accounts receivable written-off
(2) Excess and obsolete inventory written-off
(3) Amounts established as a result of acquisitions
EXHIBIT 12.1
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31,
---------------------------------------------
2001 2000 1999 1998 1997
(In thousands)
----------------------------------------------
Income Statement Data:
Income from continuing
operations before income
taxes and extraordinary items $1,626 $13,888 $27,850 $29,247 $17,999
Add:
Interest expense 31,758 27,114 8,910 635 2,296
Earnings as defined 33,384 41,002 36,760 29,882 20,295
Fixed charges
Interest expense ( including
amortization of debt expense ) 31,758 27,114 9,309 635 2,296
Ratio of earnings to
fixed charges
1.1x 1.5x 3.9x 47.1x 8.8x
EXHIBIT 21.1
SUBSIDIARIES OF WINSLOEW FURNITURE, INC
State or Other
Jurisdiction of
Incorporation or
Name Organization
------------------------------------------------ ----------------------
1 Winston Furniture Company of Alabama, Alabama
Inc.
2 Loewenstein, Florida
Inc.
3 Charter Furniture Company California
4 Wabash Valley Manufacturing, Inc. Indiana
5 Brown Jordan International, Inc. Delaware