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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-25246
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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.)
201 Cahaba Valley Parkway, Pelham, Alabama 35124
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (205) 403-0206
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock,
$.01 par value per share Nasdaq National Market
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of shares of Common Stock held by non-affiliates
of the registrant as of March 11, 1997, was approximately $47,250,973 based
on a $9.31 closing sale price for the Common Stock quoted on the Nasdaq
National Market System on such date. For purposes of this computation, all
executive officers, directors, and 5% beneficial owners are, in fact,
affiliates of the registrant.
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of March 11, 1997, was 7,438,083.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement for the registrant's
1997 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report, are incorporated into Part III hereof.
Page 1 of 46 pages.
Exhibit Index begins on page 41.
INDEX TO ITEMS
Part I Page
Item 1. Business .............................................. 3
Item 2. Properties ............................................ 14
Item 3. Legal Proceedings ..................................... 15
Item 4. Submission of Matters to a Vote
of Security Holders ........................... 15
Part II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters ................ 16
Item 6. Selected Financial Data ............................... 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 18
Item 8. Financial Statements and Supplementary Data ........... 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................ 40
Part III
Item 10. Directors and Executive Officers of the Registrant .... 40
Item 11. Executive Compensation ................................ 40
Item 12. Security Ownership of Certain Beneficial Owners
and Management ........................................ 40
Item 13. Certain Relationships and Related Transactions ........ 40
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K .................................. 41
Signatures ............................................................ 44
2
PART I
ITEM 1. BUSINESS
GENERAL
WinsLoew Furniture, Inc. (the "Company" or "WinsLoew") designs, manufactures
and distributes casual furniture, contract seating and ready-to-assemble
("RTA") furniture.
Casual Furniture. WinsLoew produces and distributes casual furniture for both
the residential and contract markets. WinsLoew's residential products are
constructed of extruded and tubular aluminum, wrought iron and cast aluminum.
WinsLoew markets its residential products through independent sales
representatives primarily to specialty patio stores, department stores and
furniture stores. WinsLoew's contract products are constructed of extruded,
tubular and cast aluminum, steel, wrought iron, wood and fiberglass. Contract
products are marketed primarily through an in-house sales force, primarily to
apartment developers and management companies, hospitality providers (hotel,
motel, restaurants, country clubs and resorts), and city and state
municipalities.
Contract Seating. WinsLoew assembles and distributes contract seating products
constructed of contemporary, traditional and transitional styles of wood and
metal. Products include upholstered chairs, sofas and love seats offered in
a variety of finish and fabric options. Products are designed for use in the
restaurant, lodging, office, healthcare facilities and retail stores. These
products are assembled pursuant to specific orders and are distributed to a
broad customer base which includes architectural design firms, office furniture
dealers, and restaurant and lodging chains through independent sales
organizations.
RTA Furniture. WinsLoew's RTA products consist of a promotionally priced
product line, upper priced ergonomically designed products and extensive line
of futons and related accessories. Futons (as used herein) consists of a frame,
mattress and cover which easily converts from a comfortable sofa to a bed.
WinsLoew designs, manufactures, and distributes RTA promotionally priced
"spindle" and "flatline" furniture designed for household use. Products include
coffee tables, end tables, wall units, desks, children's furniture and rolling
carts. Distribution is primarily through mass merchants and catalog
wholesalers. WinsLoew's upper priced ergonomically designed "space savers"
include computer desks, work stations and modular units. Marketing of these
products is through in-house and independent sales representatives to office
furniture wholesalers and catalog firms. Futon are manufactured in a variety
of styles and finishes, and are constructed of selected hardwood and pine.
The Company manufactures the futons and accessories, including coffee tables
and end tables. In addition, the Company imports a line of frames from
Indonesia. Futon products are distributed through specialty retailers,
selected mass merchants, and national accounts.
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PRODUCT LINES
WinsLoew has three principal product lines of furniture (Casual Furniture,
Contract Seating and RTA) that are produced or distributed in 9 manufacturing
locations as follows:
DIVISION AND LOCATION PRINCIPAL PRODUCTS PRINCIPAL CUSTOMERS
CASUAL FURNITURE:
Winston Residential casual Specialty patio stores,
Haleyville, Alabama furniture constructed department stores and
of aluminum furniture stores
Lyon-Shaw Residential casual Specialty stores,
Salisbury, North Carolina furniture constructed department stores and
of wrought iron furniture stores
Texacraft Contract casual furniture Apartment developers
Houston, Texas constructed of aluminum, and management companies
wrought iron, wood and hospitality providers
fiberglass and municipalities
Winston International Imported residential Specialty patio stores,
Haleyville, Alabama casual furniture department stores and
constructed of cast furniture stores
luminum
CONTRACT SEATING:
Loewenstein Contemporary, transitional Architectural design
Pompano Beach, Florida and traditional seating for firms, restaurant and
hospitality, office and lodging chains, office
other institutional uses furniture dealers and
retail store planners
Gregson Traditional office and Office furniture dealers
Liberty, North Carolina other institutional seating and lodging chains
RTA FURNITURE:
Southern Wood Promotional RTA furniture Mass merchandisers and
Sparta, Tennessee catalogue wholesalers
Promotional RTA furniture
Continental Ergonomically designed Catalog firms and
Irwindale, California space savers for home office furniture
and office use wholesalers
New West Futons, frames, covers, Specialty retailers
Cookeville, Tennessee and related accessories and selected mass
Sparta, Tennessee merchandisers
Santa Clara, California
COMPETITIVE STRENGTHS
WinsLoew believes that it has the following competitive strengths.
Casual Furniture. Management attributes casual furniture's historical success
to its (i) commitment to producing a quality product delivered "in time and on
time"; (ii) emphasis on providing extensive customer service; (iii) cost-
efficient manufacturing operations; (iv) innovatively styled products and
merchandising programs; and (v) results-oriented management, team philosophy and
culture. Management believes that WinsLoew can continue the growth it has
experienced in the casual furniture line by capitalizing on its existing
distribution channels, manufacturing capabilities and reputation for quality
and customer service. Specifically, WinsLoew intends to grow in its existing
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market through: (i) continued leadership in new products and merchandising
programs; (ii) expanding existing market penetration; (iii) increasing West
Coast sales and export sales; and (iv) expanding the Winston International
division's product line. Within WinsLoew's market, management will consider
attractive acquisition opportunities.
Contract Seating. WinsLoew is committed to providing value to its contract
seating customers by offering innovative designs, a broad range of high quality
products at competitive prices and responsive customer service with quick and
timely delivery. WinsLoew ensures that its products provide both superior
structural integrity and aesthetic styling through its adherence to strict
manufacturing and quality control standards and through its long-standing and
frequently exclusive relationships with a number of leading Italian designers
and manufacturers. These suppliers have extensive experience in the design,
engineering and production of contemporary and transitional-styled chairs.
The suppliers use steam-bending of solid wood components, intricate joinery
and other sophisticated manufacturing techniques generally unavailable in the
United States. In addition, WinsLoew's electrostatically applied, ultraviolet
cured wood finishing system produces one of the most consistent, durable and
vibrant finishes in the industry. The system also increases manufacturing
efficiency and reduces waste and air emissions. WinsLoew's commitment to
providing high levels of customer service is also typified by its policies of
paying freight charges if a guaranteed shipping date is missed and, under its
"Quick Ship" program, guaranteeing shipment of a significant portion of its
product line within 10 working days from receipt of a customer's order.
WinsLoew offers a broad selection of wood, metal and upholstered chairs, sofas
and love seats designed for restaurant, lodging, office and other institutional
uses, with prices generally ranging from $150 to $550. WinsLoew's custom
design capabilities also allow it to modify styles, materials and production
in order to provide customers with products that meet particular specifications.
WinsLoew's strategy of offering a broad selection of product styles and price
ranges provides it with access to distribution channels serving a variety of
end users, including restaurants, hotels, healthcare facilities, retail store
planners, corporate offices, schools, sports facilities, airport lounges and
cruise lines.
RTA Furniture. WinsLoew's RTA furniture product line consist of three products:
1) promotionally priced RTA products sold directly to mass merchandisers and
catalog wholesalers under the Southern Wood name, 2) upper priced ergonomically
designed "space savers", consisting of modular computer workstations, sold to
catalog firms and office furniture wholesalers under the MicroCentre name, and
3) futons, frames, covers and accessories under the New West name. Southern
Wood's low cost structure is based on its use of inexpensive raw materials, its
relatively low labor rates and its use of equipment to achieve cost savings.
WinsLoew believes that its focused price strategy will allow the Company to
maintain or increase market share and provide opportunities for product line
extensions. WinsLoew believes Continental increases its opportunities for
growing furniture distribution channels without incurring significant marketing
and selling expenses. Management believes WinsLoew is one of the largest
manufacturer of futons and accessories in the United States. During 1995,
management refocused the product line on serving specialty store retailers,
selected mass merchants and national accounts. Management efforts during
1996 emphasized: (i) a commitment to produce a quality product with prompt
delivery; (ii) consistent and extensive customer service; (iii) low cost
efficient operations; (iv) innovative product development; (v) uniform
merchandising/marketing programs; and (vi) nationwide independent sales
representative force.
BUSINESS STRATEGY
Casual Furniture
The business strategy of the Casual Division emphasizes the following elements:
Expansion of Sales and Market Share. WinsLoew's growth objectives for the
casual furniture line are primarily focused on areas where WinsLoew can
capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service, including (i) new product
introductions in WinsLoew's extruded and tubular aluminum and wrought iron
divisions; (ii) expansion into new geographic areas, particularly west of the
Rocky Mountains; and (iii) increased sales to commercial customers such as
hotels, restaurants, country clubs, interior designers and apartment and hotel
developers.
Provide Value to Customers. WinsLoew is committed to providing value to its
retailing customers by designing and manufacturing high quality, competitively
priced products and responding to its customers' needs for "in time and on
time" delivery. WinsLoew maintains a strong customer service orientation that
is typified by its PDQ shipping program, where WinsLoew either ships within 15
5
business days after credit approval or pays for the freight costs. Quick
delivery is particularly important to casual furniture retailers because of the
short selling season and the retailer's general desire to minimize inventory
levels. Another principal component of WinsLoew's marketing strategy is its
focus on special sales programs for customers. These programs also reduce
the effects of seasonality on WinsLoew's operations and minimize WinsLoew's
finished good inventory.
Commitment to Product and Industry Leadership. Management believes that the
high fashion style and variety of WinsLoew's casual furniture designs provide
a strong competitive advantage and WinsLoew therefore devotes significant
resources to new product development and introductions.
Enhanced Use of Manufacturing Capabilities. WinsLoew operates approximately
420,000 square feet of manufacturing space for casual furniture products and
produces most of such products from basic raw materials using strict quality
control measures. WinsLoew's vertical integration permits WinsLoew to (i)
produce a variety of chairs, tables and other furniture products; (ii)
manufacture cushions; and (iii) cut and assemble the fabric covers that are
combined with preassembled poles to produce outdoor umbrellas. WinsLoew also
maintains strict cost containment measures in order to ensure that its products
are manufactured in a cost-efficient manner.
Develop or Acquire Complementary Product Lines. WinsLoew continues to seek
opportunities to develop or acquire complementary product lines in order to
capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service.
CONTRACT SEATING
The business strategy of the contract seating divisions emphasizes the
following elements:
Historical Base Business. WinsLoew's base contract seating business has
historically been concentrated within the hospitality market. This market has
fluctuated with general economic cycles because many end users defer
expenditures for building new or refurbishing existing restaurant and lodging
facilities during economic downturns. Based upon its past experience, the
management believes that WinsLoew's core hospitality business will grow as
expenditures by the hospitality industry increase for new construction and
refurbishment of restaurants and lodging facilities.
Private Label Program. WinsLoew offers a "private label" program through
which contract seating products are marketed to nationally recognized designers
and manufacturers of office furniture systems. WinsLoew believes that its
success in generating private label business is primarily attributable to its
proven ability to produce a quality product on short lead time, its state-of-
the-art finishing capabilities, its competitive prices and the direct
involvement of its senior executives in private label marketing.
Develop or Acquire Complementary Product Lines. WinsLoew continues to seek
opportunities to develop or acquire complementary product lines in order to
capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service.
RTA FURNITURE
The business strategy of the RTA division emphasizes the following elements:
During 1996 WinsLoew brought the New West and Southern Wood operations under
one management team. WinsLoew intends to increase its futon and promotional
RTA product sales by marketing its products to its core customer base and to
broader channels of distribution within the furniture industry, including
national accounts and selected mass merchants. The Company has increased its
independent sales representative force and prepared new sales literature.
Continental Engineering is in the process of increasing its product offering
of ergonomically designed furniture, strengthening its in-house sales force
and making its products available through broader channels of distribution.
In each of these operations, WinsLoew will take advantage of its position as
a low cost producer.
Developing or Acquiring Complementary Product Lines. WinsLoew continues to seek
opportunities to develop or acquire complementary product lines in order to
capitalize on its existing distribution channels and manufacturing capabilities.
6
PRODUCTS
WinsLoew designs, manufactures and distributes three principal product lines:
(i) casual furniture for both the residential and contract markets, (ii)
contract seating designed for restaurant, lodging, office or other general
institutional use, and (iii) RTA furniture.
Casual Furniture
WinsLoew's casual furniture products for residential use consist principally
of medium to upper-medium priced indoor and outdoor furniture sold under four
brand names; "Winston" residential extruded and tubular aluminum furniture,
"Lyon-Shaw" residential wrought iron furniture, "Texacraft" contract casual
furniture, and "Winston International" imports casual furniture. WinsLoew
currently manufactures and sells numerous style collections 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. WinsLoew offers extruded and tubular aluminum and
wrought iron products with glider action, adjustable positions and rocking and
swivel motions. WinsLoew's casual seating products feature cushions, vinyl
strapping or mesh seats and backs in a variety of colors and patterns. All of
WinsLoew's casual furniture products feature a durable painted finish which is
also offered in a wide selection of colors. The suggested retail prices for
a table and four chairs currently range from approximately $500 to $1,700.
WinsLoew's casual contract products include chairs, chaise lounges, tables, and
umbrellas constructed of extruded, tubular and case aluminum, steel, wrought
iron, wood and fiberglass. WinsLoew's casual contract products include a
selection of restaurant and outdoor seating and site furnishings. Casual
contract products are marketed through Company and independent sales
representatives, primarily to apartment developers and management companies,
hospitality providers (hotel, motel, restaurants, country clubs, and resorts),
and city and state municipalities.
WinsLoew continually reviews and evaluates its casual furniture designs, and
annually adds and discontinues designs it deems appropriate. WinsLoew
identifies trends in shapes, colors and patterns through independent research,
contacts with WinsLoew's dealers and the occasional use of independent
designers. Management also solicits opinions from its manufacturer's
representatives, dealers and employees prior to final design selection.
WinsLoew has generally replaced or modified approximately one-third to one-half
of its casual furniture product lines annually. The costs of implementing these
annual changes have historically included certain: (i) research and development
costs; (ii) capital expenditures for tooling; and (iii) advertising and catalog
expenses. Shipments of WinsLoew's new designs generally begin in September of
each year.
Contract Seating
WinsLoew's contract seating products (other than the casual contract products
described above) include wood, metal and upholstered chairs, as well as
reception area love seats and sofas. WinsLoew's broad product line consists
of approximately 350 distinct models of chairs in contemporary, traditional
and transitional styles. WinsLoew's general merchandising strategy for
contract seating is to provide innovative seating products that are practical,
comfortable, sturdy and moderately priced.
Wood frames are produced from a variety of wood species and are finished with
one of WinsLoew's numerous standard colors or can be finished to customer's
specification. WinsLoew's 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. WinsLoew maintains an inventory
of unassembled chair components that enables it to respond quickly to large
quantity orders in a variety of finish and fabric combinations.
See " ---Manufacturing."
WinsLoew believes that an important element of its success in the contract
seating business is its long-standing and frequently exclusive relationships
with leading Italian design firms, as well as its proven ability to offer
innovative products that are sturdy, aesthetically appealing and scaled for the
United States market. This belief is based upon WinsLoew's extensive industry
experience and discussions with key customers, sales representatives and
competitors. WinsLoew continually reviews and reconsiders its contract
furniture designs, and annually adds and deletes designs as it deems
7
appropriate to address perceived marketing opportunities. WinsLoew generally
begins the design process by identifying marketing needs and conceptualizing
product ideas through regular meetings of its senior management team.
Reflecting its focus on both sales and manufacturing, WinsLoew also solicits
opinions with respect to trends in styles, colors and other design elements
from its sales representatives, customers, and employees prior to final design
selection. Preliminary sketches are provided to either WinsLoew's manufacturing
personnel or WinsLoew's European suppliers, who in turn engineer the product's
construction and produce one or more prototypes in preparation for actual full
- -scale production. New products are generally introduced at national or
regional furniture markets. WinsLoew's custom design capabilities also allow it
to modify styles, materials and production in order to provide customers with
products that meet their particular needs.
RTA Furniture
WinsLoew's promotionally priced RTA furniture "spindle" products include
coffee tables, end tables, wall units, desks, chairs, children's furniture and
rolling carts. Promotionally priced furniture products also include "flatline"
products such as bookcases and wall units. RTA products also include
ergonomically designed "space savers", including modular desk and computer
workstations. WinsLoew's futon products consist of futons (mattresses), frames,
covers and related accessories. Frames are constructed of hardwood and pine,
and come in a variety of sizes. Hardwood frames are finished in a variety of
stains, while pine frames are unfinished. Futons are constructed of fabric
shells stuffed with foam and cotton. Covers for futons are available in a
variety of fabrics. Accessories include ottomans, end tables and cocktail
tables. Frames are sold unassembled in a box containing all components,
hardware, and instructions necessary for assembly. In addition to manufactured
frames, the Company imports and distributes frames that account for
approximately one half of the frames sold.
RTA furniture products are sold unassembled in a box that contains all
components and hardware necessary for home-assembly. WinsLoew's merchandising
approach for RTA furniture products emphasizes products with a stable,
predictable demand, as well as self-service convenience. For example, the
lithographed product boxes include color pictures, a listing of product features
and assembly instructions that allow retailers to utilize available floor space
and shelf space efficiently.
MANUFACTURING
Casual Furniture
WinsLoew has manufacturing facilities for casual furniture products in
Haleyville, Alabama, Salisbury, North Carolina, and Houston, Texas. The
facilities in Haleyville manufacture extruded and tubular aluminum casual
furniture and most related accessories, including cushions and umbrellas. The
facility in Salisbury manufactures wrought iron casual furniture and most
related accessories. In the Houston facility, the Company manufactures
extruded and tubular aluminum, steel and wood furniture. WinsLoew's goal at its
facilities is to produce a high quality product at the lowest possible
manufacturing cost and deliver it in a timely manner to dealers. WinsLoew's
international products are manufactured in Mexico. See "---Marketing and Sales."
Winston Division - Haleyville, Alabama. WinsLoew's aluminum furniture
manufacturing facility in Haleyville manufactures goods exclusively to order.
Products are normally shipped on the day completed, eliminating the need to
maintain finished goods inventory. WinsLoew provides timely delivery service
by typically shipping goods within three weeks after credit approval.
In the manufacturing process, extruded aluminum tubes are cut to size and shaped
or bent 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. WinsLoew then adds to vinyl strapping, cushions,
fabric slings, or other accessories to the finished frame, as appropriate.
The product is then packaged with umbrellas, tempered glass and other
accessories, as applicable, and shipped to the customer.
WinsLoew's Haleyville facilities were extensively refurbished and modernized in
late 1984 and significantly expanded in 1990 and 1993. WinsLoew believes that
its Haleyville facilities are some of the most modern in the casual aluminum
8
furniture industry, and that the efficiencies attributable to these plants are
a significant factor in WinsLoew's relatively low manufacturing costs.
WinsLoew's vertical integration provides additional manufacturing efficiencies.
WinsLoew manufactures cushions for its aluminum furniture in Haleyville, and,
in addition, cuts, sews and assembles the fabric covers that are combined with
pre-assembled poles to produce outdoor umbrellas.
WinsLoew believes that it manufactures the highest quality aluminum casual
furniture in its price range. The major frame components of the aluminum
furniture are welded, and not riveted or bolted, thereby increasing the
durability and enhancing the appearance of the aluminum product line. The
powder coated painting process results in an attractive and durable finish.
To ensure that only the highest quality products are shipped to customers,
WinsLoew's quality control department has established control check points
where the quality of 100% of its aluminum products is examined during the
manufacturing process. These processes allow WinsLoew to offer a two-year
frame and finish guarantee on all of its aluminum products for residential
use. Warranty expense to date has been negligible.
Lyon-Shaw Division - Salisbury, North Carolina. The process of manufacturing
the wrought iron products of this division is essentially the same as
WinsLoew's aluminum line. WinsLoew offers a two-year frame guarantee on its
wrought iron products for residential use. To date, warranty expense has been
negligible.
Texacraft Division - Houston, Texas. WinsLoew's Houston facility includes an
aluminum furniture manufacturing facility with processes essentially the same
as WinsLoew's aluminum line in Haleyville. Additionally, the Houston facility
manufactures steel and wood furniture and includes a fiberglass manufacturing
facility for tables, umbrellas, and accessories.
Contract Seating
WinsLoew currently utilizes approximately 226,000 square feet of manufacturing
space for contract seating production in facilities located in Florida and
North Carolina.
Loewenstein Division - Pompano Beach, Florida. This facility assembles and
finishes to customer order most of WinsLoew's contract seating products (other
than the casual contract products described above). Component parts are either
purchased from a variety of suppliers, including a number of European
manufacturers, or manufactured by WinsLoew's Gregson division. The principal
elements of wood chair assembly include: (i) frame glue-up; (ii) sanding; (iii)
seat assembly (in which upholstered seats are constructed from component
bottoms, foam padding and cloth coverings); and (iv) painting/lacquering. To
provide consistency and speed in this finishing process, WinsLoew utilizes a
state-of-the-art conveyorized paint line with electrostatic spray guns and a
three-dimensional ultraviolet drying system. For upholstered products, the
specified fabric cloth is stretched to the chair frame over foam padding.
Metal chairs are generally assembled from imported components. After rework
and leveling, chairs are cartoned to prevent damage in transportation. The
manufacturing process also includes a number of product inspections and other
quality control procedures.
Gregson Division - Liberty, North Carolina. This manufacturing facility is
vertically integrated and includes such operations as kiln-drying, cutting,
planing, gluing, veneering, sanding, routing, carving, shaping, assembling,
upholstering, and finishing. Based on WinsLoew's experience during the past
several years, WinsLoew believes that this manufacturing flexibility minimizes
the risks of relying on third-party suppliers for component parts and frequently
permits a faster response to customer needs. While styling is continuously
updated, the basic construction process does not change significantly from year
to year, which reduces the need for substantial modifications to the production
process.
RTA Furniture
Southern Wood Division - Sparta, Tennessee. This facility constructs RTA
furniture from high density particle board, dowels, and wood scrap materials.
The particle board is available from various manufacturers. For "spindle"
furniture the dowels and wood scrap materials are available from various
sources and are generally the by-product of other processes such as the
production of wooden tool handles and dimension stock. WinsLoew is generally
9
able to purchase these scrap materials at an attractive cost because the
primary alternative use for such materials is as a waste fuel source. A wood
grain pattern is imprinted on the particle board using a laminating process,
and these boards are then cut to the proper length and width, shaped and
completed with plastic molding. Spindles are produced by automated lathes,
sanded, stained and lacquered. Each piece of furniture is individually boxed
and includes board, spindles, bolts and assembly instructions.
Continental - Irwindale, California. This facility designs and manufactures
ergonomically designed "space savers", modular computer desks and workstations.
The particle board is laminated and then cut and drilled, if necessary, on
automated machinery. The board moves from station to station on a conveyor
system, which moves material through the facility. The individual pieces then
have the appropriate hardware attached, and then are boxed along with assembly
instructions.
New West Futon Division - Sparta, Tennessee. This facility manufactures futons,
chairs, tables and related accessories marketed under the New West trademark.
The futon unit consists of three distinct components: frame, the mattress and
cover. Each of these components are manufactured, although WinsLoew purchases
some items both domestically and overseas. Dimension stock is then assembled
as a frame and one of a variety of finishes is applied to the frame. The
mattress is produced with specialized equipment and is usually filled with
cotton. However, upgrades include polyurethane foam and pocketed coil springs.
Finally, covers, in a wide variety of fabric options (including the customer's
own materials), are cut and sewn to fit the mattress. Each of these components
is then boxed and can be sold separately or in combination.
New West Division - Santa Clara, California. The California facility is used
primarily for distribution of product to West Coast customers. Mattresses are
produced at this facility using essentially the same processes as the Tennessee
facility.
Manufacturing Capacity
Management believes that the Company's manufacturing facilities are currently
operating, in the aggregate, at approximately 75% of capacity, assuming a
one-shift basis. Management considers the Company's present manufacturing
capacity to be sufficient for the foreseeable future and believes that, by
adding multiple shift operations, the Company can significantly increase the
total capacity of its facilities to meet growing product demand with minimal
additional capital expenditures. In addition, the Company engages in an ongoing
maintenance and upgrading program, and considers its machinery and equipment
to be in good condition and adequate for the purposes for which they are
currently used.
The Company has excess space in its futon production facilities and has plans
to consolidate and dispose of a portion of these facilities.
MARKETING AND SALES
Casual Furniture
WinsLoew markets its residential casual furniture products throughout the
United States, Canada and the Caribbean. Substantially all of WinsLoew's
residential sales are currently made to customers located east of the Rocky
Mountains. WinsLoew's residential products are marketed to approximately
2,500 active customers, including specialty patio stores, full-line furniture
retailers, and department stores. WinsLoew also sells its contract casual
products to certain commercial end-users such as hotels, restaurants, country
clubs, exporters, interior designers, and developers of apartments and motels.
Substantially all of WinsLoew's residential products are sold through
approximately 30 independent manufacturer's representatives. Each
representative (i) is assigned a territory in which to promote, solicit, and
sell WinsLoew's products; (ii) agrees to assist in the collection of
receivables and adjustment of any complaints with regard to his or her sales;
and (iii) receives commissions based on the net sales made in his or her
territory. WinsLoew determines the prices at which its products will be sold
and may refuse to accept any orders submitted by a sales representative for
credit-worthiness or other reasons. WinsLoew's representatives may carry
other products which do not directly compete with WinsLoew's product lines.
WinsLoew has long-standing relationships with most of its representatives.
10
WinsLoew's marketing program assists its representatives in various ways.
WinsLoew: (i) holds exhibitions at national and regional furniture shows and
leases a year-round showroom at the Merchandise Mart in Chicago, Illinois;
(ii) provides retailers with annual four-color catalogs of its products, sample
materials illustrating available colors and fabrics, point of sale materials,
and special sales brochures; (iii) provides information directly to
representatives at annual sales meetings attended by senior management and
manufacturing personnel; (iv) maintains a customer service department which
ensures that WinsLoew promptly responds to the needs and orders of WinsLoew's
customers; (v) maintains regular contact with key retailers; and (vi) conducts
ongoing surveys to determine dealer satisfaction. WinsLoew's casual contract
products are marketed nationally through a team of company and independent sales
representatives.
The Winston International division of WinsLoew was organized primarily for
the purpose of distributing casual furniture products that are not manufactured
by WinsLoew. Winston International's current product offerings include a line
of cast aluminum products. This product line is inventoried, distributed, and
administered in Haleyville, Alabama.
Contract Seating
WinsLoew's hospitality and other institutional contract seating products are
sold primarily to architectural design firms, restaurant, lodging chains,
office furniture dealers, and retail store planners. WinsLoew's office and
other institutional seating products are sold primarily to office furniture
dealers and lodging chains. Substantially all of WinsLoew's contract seating
products are sold through approximately 40 independent sales representative
organizations that employ approximately 100 sales associates. Each sales
representative (i) promotes and sells WinsLoew's products in an assigned
territory; (ii) assists WinsLoew in responding to customer service request;
and (iii) receives commissions based on the net sales made in his or her
territory. WinsLoew determines the prices at which its products will be sold,
and may refuse to accept any orders submitted by a sales representative for
creditworthiness or other reasons.
WinsLoew's marketing program assists its representatives in various ways.
WinsLoew (i) holds exhibitions at national shows; (ii) provides its
representatives and customers with four color catalogs of its products; (iii)
provides information to representatives at sales meetings, and (iv) maintains
a customer service department that ensures WinsLoew promptly responds to the
needs and orders of customers.
RTA Furniture
WinsLoew's promotional RTA furniture products are sold primarily by outside
sales representatives. The Company distributes price lists and catalogs of
its products. Promotionally priced RTA products are sold primarily to mass
merchandisers, discounters, and warehouse clubs.
Upper priced "space savers" are sold by a team of in-house and independent
representatives primarily to catalog and office furniture wholesalers. Product
catalogs, brochures and price lists are prepared by the Company as sales
material for its salespersons. Additionally the Company purchases "pages" in
catalogs issued by the wholesalers as a means of marketing its products to
retailers. The Company holds exhibitions at national shows and maintains a
customer service department to ensure WinsLoew promptly responds to the needs
and orders of customers.
Futons, frames, covers and related accessories are sold by independent sales
personnel to specialty store retailers and selected mass merchants and national
accounts. WinsLoew has distribution facilities in Tennessee and California.
The Company exhibits at national and regional shows and leases a showroom in
High Point, NC. The Company provides its representatives with four color
catalogs and price lists. WinsLoew maintains a customer service department
in Tennessee to assist customers nationwide.
BACKLOG
As of December 31, 1996, WinsLoew's backlog of orders was approximately $13.1
million, compared to $16.0 million at December 31, 1995. WinsLoew, in
accordance with industry practice, generally permits orders to be canceled
prior to shipment without penalty. Management does not consider backlog to be
predictive of future sales activity because of WinsLoew's short manufacturing
cycle and delivery time, and, especially in the case of casual furniture, the
seasonality of sales.
11
RAW MATERIALS AND FOREIGN SOURCING
WinsLoew manufactures most of its products to order from basic raw materials,
and, consequently, is able to avoid carrying large amounts of finished goods
inventory particularly in its casual and contract seating product lines.
WinsLoew also attempts to maintain minimum levels of raw material inventory.
WinsLoew's principal raw materials consist of extruded aluminum tubes, steel
rods, woven vinyl fabrics, paint/finishing materials, vinyl strapping, cushion
filler materials, cartons, glass table tops, component parts for contract
seating, particle board and other lumber products and hardware. Although
WinsLoew has no long-term supply contracts, it generally has a number of sources
for its raw materials and has not experienced any significant problems in
obtaining adequate supplies for its operations. Nevertheless, the purchase of
aluminum is, from time to time, highly competitive, and its price, as a
commodity, is subject to market conditions largely beyond WinsLoew's control.
In addition, fluctuations in lumber prices and the costs of other raw materials
have not historically had a material adverse effect on WinsLoew's results of
operations.
However, there can be no assurance that future price increases will not have
a material adverse effect on WinsLoew's financial condition and results of
operations. Management believes that WinsLoew's policy of maintaining several
sources for most supplies contributes to its ability to obtain competitive
pricing.
A significant portion of the Loewenstein raw materials and New West finished
goods consist of component chair parts and bed frames purchased from several
Italian, European, and Indonesian manufacturers. WinsLoew views its suppliers
as "partners" and works with such suppliers on an ongoing basis to design and
develop new products. WinsLoew believes that these cooperative efforts, its
long-standing relationships with these suppliers and its experience in
conducting on-site, quality control inspections provide it 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 Italian and European suppliers, WinsLoew generally contracts for its
purchases of such component parts in such manner as to minimize its exposure
to foreign currency fluctuations. Although WinsLoew has close working
relationships with its foreign suppliers, WinsLoew's future success may
depend, in part, on maintaining such 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, the Loewenstein division could experience a disruption in their
operations in the event of any required replacement of such suppliers. There
can also be no assurance that situations beyond WinsLoew's 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 will not have a material
adverse effect on WinsLoew.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is cyclical and affected by changes in general economic
conditions, consumer confidence and discretionary income, interest rate levels,
and credit availability. Sales of casual furniture products are also affected
by weather conditions during the peak retail selling season and the resulting
impact on consumer purchases of outdoor furniture products.
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies
which compete directly with WinsLoew may have greater financial and other
resources than WinsLoew. Based on its extensive industry experience, management
believes that competition in casual furniture and contract seating is generally
a function of product design, construction quality, prompt delivery, product
availability, customer service and price. Management similarly believes that
competition in WinsLoew's promotional price niche of the RTA furniture industry
is limited, and is based primarily on prompt delivery, product availability,
customer service and price.
WinsLoew believes that it successfully competes in the furniture industry
primarily on the basis of its innovatively styled product offerings and
merchandising programs, the quality of its products, and WinsLoew's emphasis
on providing high levels of customer service. While sales of imported, foreign
- -produced casual furniture have increased significantly in recent years,
WinsLoew's sales have not been adversely affected because such foreign products
are generally (i) limited in design, styles and colors; (ii) of lesser quality
than WinsLoew's products; (iii) marketed in the lower-end price range; and
(iv) not supported with competitive customer service and responsiveness to
customers' needs for quick delivery. WinsLoew's futon operations comprises one
of the largest futon manufacturers in the United States, with distribution
facilities coast-to-coast.
12
TRADEMARKS AND PATENTS
WinsLoew has registered the following trademarks with the United States Patent
and Trademark Office: Winston, Lyon-Shaw, Loewenstein/Oggo, From the Source,
Gregson, Southern Wood Products, and LeCasso. Management believes that
WinsLoew's trademark position is adequately protected in all markets in which
WinsLoew does business. WinsLoew also believes that its various trade names are
generally well recognized by dealers and distributors, and are associated with
a high level of quality and value.
WinsLoew holds several design and utility patents, and has applications pending
for issuance of other design and utility patents. Because WinsLoew believes
that it is an innovator of styles and designs, it is WinsLoew's policy to apply
for design and utility patents on those designs which WinsLoew believes may be
of significance to WinsLoew.
EMPLOYEES
At December 31, 1996, WinsLoew had approximately 1,266 full-time employees, of
whom 64 were employed in management, 161 in sales, general, and administrative
positions, and 1,041 in manufacturing, shipping, and warehouse positions.
The only employees subject to collective bargaining agreements are approximately
147 of WinsLoew's hourly employees in Haleyville, Alabama, who are represented
by the Retail, Wholesale, and Department Store Union. The labor agreement
between WinsLoew and such union, which expires on July 31, 2001, provides that
there shall be no strikes, slowdowns, or lockouts. WinsLoew considers its
employee relations to be good.
ENVIRONMENTAL MATTERS
WinsLoew's management believes that WinsLoew complies 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 WinsLoew govern air emissions, water quality, and the storage and
disposition of solvents. Compliance with environmental protection laws and
regulations has not had a material adverse impact on WinsLoew's financial
condition or results of operations in the past, and is not expected to have
a material adverse impact in the future.
On November 23, 1993, WinsLoew was named as a potentially responsible party
by the United States Environmental Protection Agency ("EPA") for cleanup at
the Carolawn Superfund Site in Ft. Lawn, Chester County, South Carolina.
WinsLoew denied it sent any waste to the site, nor is responsible in any way
for its cleanup. The EPA has produced documents showing that in 1972 (prior
to the acquisition of WinsLoew's Lyon-Shaw division), Lyon-Shaw may have had
Southeastern Pollution Control, Inc. ("SEPCO") pick up waste for disposal at
another site, and suspects that SEPCO may have moved some waste from that
site to the Carolawn site, which it also operated. In 1987, WinsLoew purchased
certain assets of Lyon-Shaw from a seller which is still in existence. The
agreement did not provide for an assumption of this type of liability. Based
on the percentage of the Lyon-Shaw waste to the total waste, it would appear
that if WinsLoew did have any liability at the Carolawn Superfund Site, it
would not exceed $10,000. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, however, any potentially responsible party
may be held jointly and severally liable for all remedial costs.
13
ITEM 2. Properties
The following table provides information with respect to each of the Company's
facilities:
________________________________________________________________________________
| | | |Approximate| | | |
| | | |Building |Approximate| | |
| | | |Area | Land Area | Owned| Lease |
| | | |(square) | Owned | or |Expiration|
| Location | Division | Primary Use | feet) | (acres) |Leased| Date |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Pelham, | | | | | | |
| AL | All |Headquarters | 11,500 | 1.8 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Haleyville,| |Manufacturing| | | | |
| AL | Winston | and Offices | 155,000 | 17 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Haleyville,| | | | | | |
| AL | Winston | Warehouse | 20,000 | 1 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Haleyville,| | | | | | |
| AL | Winston |Sewing Plant | 30,000 | 1 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Salisbury, | |Manufacturing| | | | 10/31/99 |
| NC |Lyon-Shaw | and Offices | 130,000 | N/A |Leased| (a) |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Salisbury, | | | | | | |
| NC |Lyon-Shaw |Sewing Plant | 15,000 | N/A |Leased| 10/09/05 |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Chicago, | Casual |Merchandise | | | | |
| IL | Division |Mart Showroom| 12,000 | N/A |Leased| 8/31/02 |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Houston, | |Manufacturing| | | | |
| TX |Texacraft | and Offices | 89,500 | N/A |Leased| 4/15/05 |
|----------------------|-------------|-----------|-----------|------|----------|
|Pompano | |Manufacturing| | | | |
|Beach, FL |Loewenstein| and Offices | 100,000 | 13.8 | Owned| N/A |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Pompano | | | | | | |
|Beach, FL |Loewenstein| Warehouse | 6,500 | N/A |Leased| 12/2/95 |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Liberty, | |Manufacturing| | | | |
| NC |Gregson | and Offices | 126,000 | 9.5 | Owned| N/A |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Sparta, |Southern | | | | | |
| TN | Wood |Manufacturing| 94,300 | 10.0 | Owned| N/A |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Sparta/ | | | |(three | | |
|Cookeville| | | |facilities)| | |
| TN |New West |Manufacturing| 190,400 | 43.5 | Owned| N/A |
|----------------------|-------------|-----------|-----------|------|----------|
|Santa Clara| |Manufacturing| | | | |
| CA |New West | and Offices | 47,680 | N/A |Leased| 6/30/99 |
|----------------------|-------------|-----------|-----------|------|----------|
|Irwindale,| |Manufacturing| | | | |
| CA |Continental| and Offices | 91,655 | N/A |Leased| 1/31/98 |
|______________________________________________________________________________|
__________________________
(a) Renewable for two successive five-year terms.
For additional information with respect to the Company's lease
obligations, see Note 8 of Notes to the Company's Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Substantially all of the company's assets are currently pledged as
collateral for a credit facility. See Note 3 of Notes to the Company's
Consolidated Financial Statements included in this Annual Report on Form 10-K.
14
ITEM 3. Legal Proceedings
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against potential claims in an amount which it believes to
be adequate. Based primarily on discussions with counsel and management
familiar with the underlying disputes, the Company believes that it is not
presently a party to any litigation, the outcome of which would have a
material adverse effect on its business or operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
15
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock has been listed for quotation on the Nasdaq National
Market System under the symbol "WLFI" since January 1, 1995. The following
table sets forth, for the period indicated, the high and low sales prices per
share of Common Stock as reported by the Nasdaq National Market System:
High Low
1995
First Quarter ............. $7 $5 1/4
Second Quarter ............ $6 1/8 $3 5/8
Third Quarter ............. $6 5/8 $4 1/8
Fourth Quarter ............ $6 7/8 $5 1/4
1996
First Quarter ............. $6 3/4 $4 7/8
Second Quarter ............ $6 1/4 $5 1/2
Third Quarter ............. $8 1/2 $5
Fourth Quarter ............ $10 1/8 $6 7/8
As of March 10, 1997, there were approximately 215 holders of record of Common
Stock. The closing sale price for the Common Stock on March 10, 1997, was
$9-5/16.
The Company has not declared nor paid any cash dividends on its Common Stock,
does not anticipate that any dividends will be declared nor paid in the
foreseeable future, and intends to retain earnings to finance the development
and expansion of the Company's operations. In addition, the Company's payment
of dividends is also restricted under the terms of its credit facilities (see
Note 3 of Notes to the Company's Consolidated Financial Statements).
16
Item 6. Selected Financial Data
The following selected financial data are derived from the Consolidated
Financial Statements of WinsLoew included elsewhere herein. The following
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.
Years Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 (1) 1992 (1)
---------------------------------------------------
(In thousands, except per share amounts)
Income Statement Data:
Net sales $143,979 $147,202 $137,842 $102,863 $93,296
Cost of sales 97,760 110,468 98,434 69,876 61,467
-------- -------- -------- -------- -------
Gross profit 46,219 36,734 39,408 32,987 31,829
Selling, general and
administrative expenses 28,501 26,699 22,256 17,516 16,257
Amortization 1,643 2,224 2,000 1,922 1,903
Charges for restructuring (2) -- 7,136 -- -- --
Non-recurring charges (2) -- -- 1,462 1,814 --
-------- -------- -------- -------- -------
Operating income 16,075 675 13,690 11,735 13,669
Interest expense 3,083 3,841 2,795 3,136 5,483
-------- -------- -------- -------- -------
Income (loss) before
income taxes and
extraordinary items 12,992 (3,166) 10,895 8,599 8,186
Provision for income taxes 4,708 285 4,543 3,381 3,196
-------- -------- -------- -------- -------
Income (loss) before
extraordinary items 8,284 (3,451) 6,352 5,218 4,990
Extraordinary items (2) -- (593) -- (1,223) --
-------- -------- -------- -------- -------
Net income (loss) $8,284 ($4,044) $6,352 $3,995 $4,990
======== ======== ======== ======== =======
Earnings (loss) per share:
Income (loss) before
extraordinary items $0.95 ($0.38) $0.66 $0.65 $0.76
Extraordinary items -- (0.07) -- (0.15) --
-------- -------- -------- -------- -------
Net income (loss) per share $0.95 ($0.45) $0.66 $0.50 $0.76
======== ======== ======== ======== =======
Weighted average shares and
common share equivalents
outstanding 8,724 9,029 9,655 8,075 6,596
======== ======== ======== ======== =======
December 31,
---------------------------------------------------
1996 1995 1994 1993 (1) 1992 (1
---------------------------------------------------
(In thousands)
Balance Sheet Data:
Working capital $40,152 $43,677 $51,957 $33,984 $19,159
Total Assets 101,408 105,370 114,925 93,424 75,027
Long-term debt
(less current portion) 38,776 40,191 39,098 21,330 43,132
Total debt 40,733 42,006 40,907 24,286 48,943
Stockholders' equity 48,400 53,228 60,680 56,536 14,806
(1) Represents the combined results of Winston and Loewenstein, which are
the predecessor companies to WinsLoew.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for discussion ofthese items.
17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
WinsLoew is comprised of companies engaged in the design, manufacture and
distribution of casual furniture, contract seating, and ready-to-assemble
("RTA") furniture. WinsLoew's casual furniture products are distributed
through independent manufacturer's representatives, and are constructed of
extruded and tubular aluminum, wrought iron and cast aluminum. These
products are distributed through fine patio stores, department stores and
full line furniture stores nationwide. WinsLoew's contract seating products
are distributed to a broad customer base which includes architectural design
firms, and restaurant and lodging chains. WinsLoew's RTA products include
ergonomically-designed computer workstations, which the company denotes as
"space savers", promotionally-priced coffee and end tables, wall units and
rolling carts and an extensive line of futons, futon frames and related
accessories. Distribution of RTA furniture products is primarily through
mass merchandisers, catalogue wholesalers and specialty retailers.
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, 1996, 1995 and 1994
for each of the Company's product lines (in thousands, except for percentages):
1996 1995 1994
---------------------- ---------------------- ----------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
------- ------- ------ ------- ------- ------ ------- ------- ------
Casual
furniture $58,066 $23,812 41.2% $55,758 $19,681 35.3% $46,505 $17,061 36.7%
Contract
seating 48,629 14,126 29.3% 39,685 10,763 27.1% 36,779 10,345 28.1%
RTA 37,284 8,281 22.2% 51,759 6,290 12.2% 54,558 12,002 22.0%
--------- ------- --------- ------- -------- -------
Total $143,979 $46,219 32.1% $147,202 $36,734 25.0% $137,842 $39,408 28.6%
========= ======= ========= ======= ======== =======
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales:
For the Years Ended December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
Gross profit 32.1% 25.0% 28.6%
Selling, general and
administrative expense 19.8% 18.1% 16.1%
Amortization 1.1% 1.5% 1.5%
Charges for restructuring -- 4.8% --
Operating income 11.2% 0.5% 9.9%
Interest expense 2.1% 2.6% 2.0%
Income (loss) before income
taxes and extraordinary item 9.0% (2.2%) 7.9%
Net income (loss) 5.8% (2.7%) 4.6%
18
Comparison of Years Ended December 31, 1996 and 1995
Net Sales: WinsLoew's consolidated net sales for 1996 decreased $3.2 million
to $144.0 million, compared to $147.2 million in 1995. Two of the Company's
three product lines experienced sales increases. Casual product line sales
increased by 4.1%. The Company believes that due to its high quality and
innovative designs, existing retail customers have allocated more floor space,
requiring larger inventories of the Company's casual aluminum furniture. The
contract seating product line experienced a sales increase of 22.5% since
construction in the lodging industry increased demand. RTA product line sales
decreased by 28.0% due to the Company's restructuring of this product line in
September, 1995. This restructuring resulted in the Company exiting the
promotionally-priced seating market, beginning a transition from traditional
lower margin RTA products to higher margin products. Also in 1996, some mass
merchants purchased fewer products as a result of price increases in the RTA
product line. In late 1995, WinsLoew began rebuilding its specialty store
futon business. However, sales of futon products to the specialty store market
have declined from the levels of 1995. These decreases were offset by
Continental Engineering Group, Inc., which was included for all of 1996.
Gross Margin: Consolidated gross margin increased to 32.1% in 1996, compared
to 26.1% (excluding provisions for excess and obsolete inventory of $1.4 million
for RTA and $325,000 for contract seating) in 1995. Each of WinsLoew's
product lines experienced increases in gross margin. The casual and contract
seating product lines had improved gross margins in 1996, due to greater
operating efficiencies from increased sales volumes. The casual product line
also experienced favorable raw material costs in 1996. The RTA product line
gross margin improved by 10.0 percentage points. This increase is primarily
the result of the acquisition of Continental Engineering Group, Inc., whose
products have higher gross margins than the Company's traditional RTA products
and the Company's sale of its promotionally-priced seating business which
eliminated sales of these lower margin products. As noted above, WinsLoew has
reduced lower margin product offerings and certain mass merchant market sales.
The Company has also reduced manufacturing overhead, labor and material costs
in the RTA product line. These factors have allowed WinsLoew to improve
margins at a lower level of sales.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased in 1996 due to the addition of Continental
for all of 1996, increased commissions as a result of increased sales volume
in the casual and contract seating product lines, increased sales promotional
expenses and increased provisions for uncollectable accounts receivable.
Operating Income: As a result of the above, WinsLoew recorded operating
income of $16.1 million (11.2% of net sales) in 1996 compared to operating
income of $675,000 (0.5% of net sales) in 1995.
Interest Expense: WinsLoew's interest expense decreased $758,000 in 1996,
compared to 1995. The Company had reduced its debt by $10.7 million up until
December 31, 1996, when it purchased $9.3 million of its common stock. This
stock purchase resulted in a net debt reduction in 1996 of $1.4 million. These
reductions in debt levels and the Company's increased profitability have led to
improved financial ratios and, in turn, allowed the Company to pay lower
spreads between the base rate and LIBOR and the rates which the Company is
obligated to pay to its lenders. These lower spreads decreased the Company's
effective interest rate below those incurred in 1995.
Provision for Income Taxes: WinsLoew's 1996 effective tax rate of 36.2% is
greater than the federal statutory rate due to the effect of state income
taxes and non-deductible goodwill amortization. The Company recorded an
income tax provision of $285,000 in 1995 while incurring a net loss for the
period. This anomaly in 1995 is due primarily to the non-deductibility of
goodwill amortization and the write-off of goodwill which was included in the
$2.5 million charge recorded for exiting the RTA seating product market as
described below.
19
1995 Charges for Restructuring
As discussed below and in Note 5 of the Notes to Consolidated Financial
Statements for 1996, WinsLoew recorded a charge in 1995 of $7.1 million
related to a plan to redirect the marketing and operations of the Company's RTA
product line. The restructuring plan was substantially completed during 1995.
However, as part of the restructuring, the Company had excess capacity at its
RTA manufacturing facilities. The Company disclosed plans to consolidate these
production facilities into fewer locations and sell any excess facilities. As
a result, WinsLoew recorded a charge of $655,000 to reduce excess facilities to
their estimated realizable value. In the first quarter of 1996, management
completed its review of its facilities, culminating in a decision to
consolidate its Tennessee operations from four facilities to two facilities.
This consolidation has resulted in no material change to the charge recorded
in 1995. WinsLoew's management is exploring ways to minimize the cost of this
consolidation effort so as to have an insignificant effect on cash flows. As a
result, while originally scheduled to be completed during the third quarter of
1996, the consolidation effort has extended into the first quarter of 1997.
Comparison of Years Ended December 31, 1995 and 1994
Charges for Restructuring and Other Special Charges: As described above, the
Company is the product of a merger of two companies which operated before the
merger in a variety of furniture markets, businesses and product line offerings.
Following the merger, management undertook a review of the marketing and
operations strategy of certain of the Company's businesses, including a
review of recorded asset balances, particularly inventories, for possible
reduction in carrying values.
As a result of this review, the Board of Directors adopted a plan to redirect
the marketing and operations of certain of the Company's businesses. The plan
included exiting certain markets and product lines. As a result of the changes
to be implemented, the Company recorded a charge of $7.1 million for
restructuring. This charge is the result of management's plan to make
changes in the product lines, management, marketing focus, and operational
strategy in the Company's RTA product line.
The table below summarizes the charges for restructuring recorded in 1995:
Reduction in carrying value of
promotionally-priced
seating subsidiary held for sale $2,526,000
Reduction in carrying values of
manufacturing facilities
held for sale and other asset write-downs 848,000
Reduction in inventory values from exiting
certain futon product lines 3,372,000
Severance costs for certain former management 390,000
-----------
Total $7,136,000
===========
Management's review also identified other operating and financial issues related
to ongoing operations of the Company, which were not recorded as part of the
charges for restructuring. The review resulted in additional operating charges
totaling $2.4 million (6.2% of net sales). These additional charges include
$1.7 million for inventory which was considered excess, unusable or obsolete and
$650,000 for accounts receivable which were considered uncollectable.
Management reviewed the marketing strategy and operating philosophies of the
RTA division and proposed several changes, noted below, that were approved as
part of the plan. The plan generally is to move the Company to higher margin
products and away from lower margin products.
20
In March, 1995, the Company acquired Continental Engineering Group, Inc.
("Continental"), a manufacturer of ergonomically-designed "space savers".
Continental's products are designed and priced in the upper-end price points
of the RTA furniture market, and provide a higher gross margin and growth rates
than current RTA product offerings of the Company. Continental's success led
management to explore the development of higher margin product lines within
its traditional RTA businesses.
Prior to the purchase of Continental, this division had served the low-end
price points of the RTA market by distributing through mass merchant retailers.
During 1995, the Division's margins declined due to a switch in product mix
from predominately spindle products to a more balanced mix of spindle and
flatline products. As part of the plan, the division expects to increase its
gross margins through new product introductions in both spindle and flatline
products, and at the same time, discontinue its traditional lower margin
products.
Another part of the plan was to re-focus the Company's marketing of its futon
products. During 1994, sales of futon products grew rapidly as a result of
the introduction of low-end products offered to mass merchants. In an effort
to serve those customers, service and quality suffered in the core specialty
store business. In 1995, the Company discontinued serving the low-end mass
merchant business and re-focused efforts on rebuilding the specialty store
business. The Company reduced the number of futon products offered to this
niche in order to improve manufacturing efficiencies, focus on its best selling
products and to reduce overall inventory levels.
As a result, Management determined that there were excess inventory levels
related to the old product lines from which the Company was exiting. The
Company reviewed the inventory for these product lines and, during the third
quarter, recorded a charge of $2,622,000 to reduce the carrying value of
related inventory. During the fourth quarter, Management continued its
review of the futon product line and identified additional inventory to be
included in the discontinued product lines which increased this charge to a
total of $3,372,000 for the year.
As an additional part of the restructuring of the RTA business, the Board of
Directors approved a plan to exit the market for promotionally-priced seating
products for office furniture wholesalers through the sale of a subsidiary
which manufactured and distributed this product line. These products, which
were generally at the lower price points in this market, produced low profit
margins, which no longer fit the strategy for the RTA division. During the
third quarter, the Company recorded a $3,276,000 charge to reduce the carrying
value of this subsidiary to an estimated net asset value of $600,000. During
the fourth quarter, the Company sold the subsidiary and reduced the recorded
loss by $750,000, to a loss of $2,526,000. The sales and operating income of
this subsidiary were not significant to the operations of the Company.
As final result of its restructuring plan, the Company had excess manufacturing
capacity. As part of its effort to reduce overhead costs and to improve
manufacturing efficiencies, the Company has consolidated its RTA production
facilities into fewer locations and is selling its excess facilities. As a
result, the Company recorded a charge of $655,000 to reduce these facilities
to their estimated realizable value. The sale of these facilities would lower
operating expenses by $178,000.
Also, included in the charge for restructuring is $193,000 for the write-off
of other assets related to the mass merchant product line and $390,000 for
severance costs for terminated division management.
Net Sales: The Company's consolidated net sales increased $9.4 million, or
6.8% to $147.2 million in 1995 from $137.8 million in 1994. Net sales
increased in all product lines except for RTA. Net sales increased
in the casual furniture product line primarily due to sales from Texacraft,
Inc., purchased in September, 1994, being included for a full year, and the
addition of new customers. Net sales in contract seating grew due to increased
sales to the Company's core business customers. Net sales in RTA decreased due
primarily to the Company's decision in the first quarter of 1995 to begin
discontinuing futon sales to mass merchants and the overall weakness in the
futon market. This decrease was offset by the addition of Continental
Engineering Group, Inc. in March, 1995, and the introduction and expansion of
the Company's flatline products.
21
Gross Profit: The consolidated gross margin decreased to 25.0% in 1995,
compared to 28.6% in 1994. The consolidated margin was unfavorably impacted
by the RTA product line. The contract seating and RTA gross margins declined
due primarily to increased reserves totaling $1.7 million for excess, unusable
and obsolete inventory. Gross margins also declined in RTA due to raw material
price increases that could not be immediately passed on to customers since
WinsLoew was committed to sell at a fixed price during the customer's catalog
season. RTA gross margin also decreased due to under-absorption of fixed
overhead expenses.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased by $4.4 million in 1995 compared to 1994.
The increase was due to additional expenses from the acquisitions of Texacraft
and Continental, marketing expenses associated with increased sales volume in
the contract seating division and increased provisions for uncollectable
accounts receivable of $650,000 in 1995. These increases were offset by
reductions in the RTA division.
Operating Income: As a result of the above, the Company's operating income was
$675,000 (0.5% of net sales) (including the charges for restructuring of $7.1
million and the other adjustments identified by management during the third
quarter of 1995 totaling $2.4 million) in 1995, compared to operating income
of $13.7 million (9.9% of net sales) in 1994.
Interest Expense, Net: The Company's net interest expense increased by
$1.0 million in 1995 due to increased average debt balances as a result of
borrowing $7.2 million for the Continental acquisition and $3.4 million to
repurchase common stock, offset by lower interest rates in 1995.
Income Tax Expense: The Company recorded an income tax provision of $285,000
in 1995 while incurring a net loss for the period. This anomaly is due
primarily to the non-deductibility of goodwill amortization and the write-off
of goodwill which is included in the $2.5 million charge recorded for exiting
the RTA seating product market described above. The Company's effective tax
rate of 41.7% for 1994 was more than the federal statutory rate due to the
effect of state income taxes and the non-deductibility of goodwill amortization.
Extraordinary item: The Company incurred an extraordinary charge of $593,000
(net of an income tax benefit of $360,000) related to prepayment penalties
and the write-off of unamortized deferred loan costs associated with the
retirement of the separate credit facilities in the first quarter of 1995.
Seasonality and Quarterly Information
The furniture industry is cyclical and sensitive to changes in general
economic conditions, consumer confidence, and discretionary income, interest
rate levels and credit availability.
Sales of casual products are typically higher in the second quarter and
fourth quarters of each year, primarily as a result of: (1) high retail
demand for casual furniture in the second quarter, preceding the summer months,
and (2) the impact of special sales programs on fourth quarter sales. The
Company's casual product sales can also be affected by weather conditions during
the peak retail selling season and the resulting impact on consumer purchases
of outdoor furniture products.
The following table presents the Company's unaudited quarterly data for 1996
and 1995. 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.
22
(In thousands, except per share amounts)
1995 Quarters First Second Third Fourth
------- ------- ------- -------
Net sales $29,463 $44,366 $38,326 $35,047
Gross profit 6,454 13,515 8,020 8,745
Charges for restructuring -- -- 7,136 --
Income (loss) from operations 564 5,245 (7,294) 2,160
Interest expense 1,011 1,222 826 782
Extraordinary item (593) -- -- --
Net income (loss) ($988) $2,396 ($6,288) $836
Earnings (loss) per share:
Income (loss) before
extraordinary item ($0.04) $0.27 ($0.70) $0.09
Extraordinary item (0.07) -- -- --
Net income (loss) ($0.11) $0.27 ($0.70) $0.09
Weighted average shares
and common share
equivalents outstanding 9,218 8,967 8,967 8,967
1996 Quarters First Second Third Fourth
------- ------- ------- -------
Net sales $30,957 $43,914 $37,332 $31,776
Gross profit 8,420 15,660 11,238 10,901
Income from operations 1,332 6,513 3,921 4,309
Interest expense 1,187 647 682 567
Net income $90 $3,618 $2,120 $2,456
Net income per share $0.01 $0.40 $0.25 $0.29
Weighted average shares
and common share
equivalents outstanding 8,967 8,967 8,589 8,383
Liquidity and Capital Resources
The Company's short-term cash needs are primarily for working capital to support
its debt service, 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, 1996,
the Company had $40.2 million of working capital and $9.0 million of unused and
available funds under its credit facilities.
The Company has a senior credit facility with a consortium of banks and other
institutional lenders. The facility, which matures in February 2001 and is
collateralized by substantially all of the assets of the Company, consists of
a revolving line of credit, term loan and an acquisition line of credit. The
working capital revolving line of credit allows the Company to borrow funds
up to a certain percentage of eligible inventory and accounts receivable. The
$12.5 million acquisition line of credit can be used for capital expenditures
and purchases of the Company's common stock.
In June 1996, WinsLoew amended its senior credit facility to provide the
Company with a variable amount available under the revolving line of credit
(as limited by its available accounts receivable and inventory). Due to the
seasonal nature of the casual furniture product line, WinsLoew's cash
requirements are usually greater in the first quarter of each year. The June
1996 amendment allows the amount available to fluctuate with the seasonal
nature of the Company's business. After the first quarter of each year, the
Company's cash requirements from its credit line are less. By use of a
variable amount of credit availability, the Company can avoid the cost of an
available but unused line of credit. At December 31, 1996, from an available
maximum line of credit of $40 million, WinsLoew has elected to set the amount
available at $39 million.
23
In July 1996, WinsLoew amended its senior credit facility to allow the Company
to borrow up to $6.6 million under its line of credit to purchase shares of
the Company's common stock. As of December 31, 1996, WinsLoew has $2.6 million
of this amount remaining to purchase shares of its common stock.
See Note 3 to the Company's Consolidated Financial Statements for a discussion
of the Company's credit facility.
Cash Flows From Operating Activities: For 1996, cash provided by operating
activities was $16.4 million, compared to $12.7 million provided in 1995. The
primary reasons for the increase in cash provided by operating activities were
the Company's program to reduce accounts receivable levels, increased
collections due to improved gross margins and increases in accounts payable.
Cash Flows From Investing Activities: The Company's net cash used in
investing activities was $1.5 million in 1996, compared to $9.7 million 1995.
The Company paid $7.3 million in cash, including capitalized acquisition costs,
to purchase Continental Engineering in 1995. WinsLoew also reduced its 1996
capital expenditures by $800,000 from 1995 levels.
At December 31, 1995, the Company has no material commitment for capital
expenditures.
Cash Flows From Financing Activities: Net cash used in financing activities
was $14.4 million in 1996, compare to $3.7 million in 1995. This increase was
due to cash used to repurchase $13.3 million of the Company's common stock in
1996.
Foreign Exchange Fluctuations and Effects of Inflation
WinsLoew purchases some raw materials from several Italian suppliers. These
purchases expose the Company to the effects of fluctuations in the value of the
U.S. dollar versus the Italian lira. If the U.S. dollar declines in value
versus the Italian lira, the Company will pay more in U.S. dollars for these
purchases. 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 at a
predetermined exchange rate, thereby transferring the risk of subsequent
exchange rate fluctuations to a third party. However, if the Company is
unable to continue such forward contract activities, and the Company's
inventories increase in connection with expanding sales activities, a
weakening of the U.S. dollar against the Italian lira could result in reduced
gross margins. In 1996, the Company purchased $7.5 million of these materials.
The Company elected to hedge a portion of its exposure to purchases made in
1996 by entering into foreign currency forward contracts with a value of
$515,000, none of which is outstanding and unsettled at December 31, 1996.
The Company did not incur significant gains or losses from these foreign
currency transactions.
Inflation has not had a significant impact on the Company in the past three
years, nor is it expected to have a significant impact in the foreseeable
future.
24
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Ernst & Young LLP, Independent Auditors ....................... 26
Consolidated Balance Sheets as of
December 31, 1996 and 1995 ...................................... 27
Consolidated Statements of Income
For the Years Ended December 31, 1996, 1995, and 1994 ........... 28
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994 ............ 29
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995, and 1994 ........... 30
Notes to Consolidated Financial Statements .............................. 31
25
REPORT OF 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, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of WinsLoew
Furniture, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young, LLP
Birmingham, Alabama
January 31, 1997
26
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands except per share amounts)
December 31,
--------------------------
1996 1995
---------- ----------
Assets
Cash and cash equivalents $ 897 $ 396
Accounts receivable, less allowances
for doubtful accounts of $2,702
and $1,531 at December 31, 1996
and 1995, respectively 27,203 30,162
Inventories 20,714 19,920
Prepaid expenses and deferred
income taxes 3,893 4,163
-------- --------
Total current assets 52,707 54,641
Property, plant and equipment, net 17,725 18,293
Goodwill, net 29,826 30,720
Other intangible assets, net -- 448
Other assets 1,150 1,268
-------- --------
$101,408 $105,370
======== ========
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 1,957 $ 1,815
Accounts payable 4,640 2,690
Other accrued liabilities 5,958 6,459
-------- --------
Total current liabilities 12,555 10,964
Long-term debt, net of current portion 38,776 40,191
Deferred income taxes 1,677 987
-------- --------
Total liabilities 53,008 52,142
-------- --------
Stockholders' equity:
Preferred stock, par value
$.01 per share, 5,000,000 shares
authorized, none issued -- --
Common stock; par value $.01 per
share, 20,000,000 shares
authorized, 7,481,783 and
8,967,112 shares issued and
outstanding at Decbember 31, 1996
and 1995, respectively 75 90
Additional paid-in capital 24,543 37,640
Retained earnings 23,782 15,498
-------- --------
Total stockholders' equity 48,400 53,228
-------- --------
$101,408 $105,370
======== ========
See accompanying notes.
27
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
Year Ended December 31
-----------------------------------------
1996 1995 1994
------------ ---------- -------------
Net sales $143,979 $147,202 $137,842
Cost of sales 97,760 110,468 98,434
-------- -------- --------
Gross profit 46,219 36,734 39,408
Selling, general and
administrative expenses 28,501 26,699 22,256
Amortization 1,643 2,224 2,000
Charges for restructuring -- 7,136 --
Non-recurring charges -- -- 1,462
-------- -------- --------
Operating income 16,075 675 13,690
Interest expense 3,083 3,841 2,795
-------- -------- --------
Income (loss) before
income taxes and
extraordinary item 12,992 (3,166) 10,895
Provision for income taxes 4,708 285 4,543
-------- -------- --------
Income (loss) before
extraordinary item 8,284 (3,451) 6,352
Extraordinary item -- (593) --
-------- -------- --------
Net income (loss) $8,284 ($4,044) $6,352
======== ======== ========
Earnings (loss) per share:
Income (loss) before
extraordinary item $0.95 ($0.38) $0.66
Extraordinary item -- (0.07) --
------- ------- --------
Net income (loss) $0.95 ($0.45) $0.66
======== ======== ========
Weighted average number
of shares 8,724 9,029 9,655
======== ======== ========
See accompanying notes.
28
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Common Stock Additional
------------------ Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
Balance,
December 31, 1993 9,250,760 $93 $43,253 $13,190 $56,536
Exercise of Warrant 531,625 5 7 -- 12
Repurchase and
cancellation
of stock (241,250) (3) (2,217) -- (2,220)
Net income -- -- -- 6,352 6,352
--------- ------ ---------- -------- -------
Balance,
December 31, 1994 9,541,135 95 41,043 19,542 60,680
Repurchase and
cancellation
of stock (574,023) (5) (3,403) -- (3,408)
Net loss -- -- -- (4,044) (4,044)
--------- ------ ---------- -------- -------
Balance,
December 31, 1995 8,967,112 90 37,640 15,498 53,228
Exercise of stock
options 25,100 -- 187 -- 187
Repurchase and
cancellation
of stock (576,925) (6) (3,958) -- (3,964)
Repurchase and
cancellation
stock from
affiliated company (933,504) (9) (9,326) -- (9,335)
Net Income -- -- -- 8,284 8,284
--------- ------ ---------- -------- -------
Balance,
December 31, 1996 7,481,783 $75 $24,543 $23,782 $48,400
========= ====== ========== ======== =======
See accompanying notes.
29
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
---------------------------------
1996 1995 1994
------- -------- -------
Cash flows from operating activities:
Net income (loss) $8,284 ($4,044) $6,352
Adjustments to reconcile net
income to net cash provided
(used in) operating activities:
Depreciation and amortization 3,702 4,125 3,663
Provision for losses on accounts
receivable 2,507 1,848 351
Write-off of goodwill included in
charges for restructuring -- 2,209 --
Write-off of loan costs related
to early retirement of debt -- 953 --
Changes in operating assets and
liabilities, net of effects
from acquistions:
Accounts receivable 452 210 (6,060)
Inventories (794) 12,266 (13,430)
Prepaid expenses and
deferred income taxes 270 (654) (1,273)
Other assets (183) 43 (89)
Accounts payable 1,950 (4,292) 588
Other accrued liabilities (501) 432 (409)
Deferred income taxes 690 (399) 14
-------- -------- --------
Total adjustments 8,093 16,741 (16,645)
-------- -------- --------
Net cash provided by
(used in) operating
activities 16,377 12,697 (10,293)
------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
disposals and reserves (1,491) (2,316) (4,206)
Payments for acquisitions, including
acquisition costs, less cash acquired -- (7,345) (3,409)
-------- -------- --------
Net cash provided by
(used in) investing
activities (1,491) (9,661) (7,615)
-------- -------- --------
Cash Flows from financing activities:
Repurchase and cancellation of stock (3,964) (3,408) (2,220)
Repurchase and cancellation of stock
from affiliated company (9,335) --
Payments on long-term debt (4,238) (1,861) (3,038)
Proceeds from issuance of long-term
debt 3,030 1,071 --
Net borrowings under revolving
credit agreements (65) 329 19,330
Proceeds from issuance of common
stock, net 187 -- 12
Loan costs -- (1,385) --
Increase in term loan upon refinancing -- 1,560 --
-------- -------- --------
Net cash provided by
(used in) financing
activities (14,385) (3,694) 14,084
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents 501 (658) (3,824)
Cash and cash equivalents at
beginning of year 396 1,054 4,878
-------- -------- --------
Cash and cash equivalents at
end of period $897 $396 $1,054
======== ======== ========
Supplemental disclosures:
Interest paid $3,296 $4,010 $2,514
Income taxes paid $3,937 $1,347 $5,513
Investing activities included the acquisition of Continental Engineering
Group, Inc. in 1995, and Texacraft, Inc. in 1994.
Assets acquired, liabilities assumed and consideration paid for these
acquisitions were as follows:
Fair value of assets acquired $8,660 $4,047
Cash acquired (131) (90)
Liabilities assumed (1,184) (548)
-------- --------
$7,345 $3,409
======== ========
See accompanying notes.
30
WinsLoew Furniture, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Basis of Presentation
In December, 1994, stockholders of Winston Furniture Company, Inc., ("Winston")
and Loewenstein Furniture Group, Inc., ("Loewenstein") approved a definitive
merger agreement whereby each of Winston and Loewenstein merged with and into
WinsLoew Furniture, Inc., ("WinsLoew" or the "Company").
The merger has been accounted for as a pooling of interests and, accordingly,
financial statements for all prior periods have been restated to reflect the
results of the operations, financial positions and cash flows of both companies
from the earliest period presented. There were no material intercompany
transactions. In connection with the merger, approximately $917,000 of merger
costs were charged to non-recurring expense in the fourth quarter of 1994.
In February 1994, New West Industries ("New West") was merged with and into
Loewenstein, and 650,999 shares of common stock were issued in exchange for
all of the outstanding common stock of New West. This transaction has been
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been restated for all periods prior to the merger to
include the results of operations, financial positions and cash flows of New
West. In connection with the merger, approximately $545,000 of merger costs
were charged to non-recurring expense in 1994.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany balances and transactions have
been eliminated.
Business
WinsLoew is comprised of companies engaged in the design, manufacture and
distribution of casual furniture, contract seating and ready-to-assemble ("RTA")
furniture. WinsLoew's casual furniture products are distributed through
independent manufacturer's representatives, and are constructed of extruded
and tubular aluminum, wrought iron and cast aluminum. These products are
distributed through fine patio stores, department stores and full line
furniture stores nationwide. WinsLoew's contract seating products are
distributed to a customer base which includes architectural design firms, and
restaurant and lodging chains. WinsLoew's RTA products include ergonomically
- -designed computer workstations, which the Company denotes as "space savers",
promotionally-priced coffee and end tables, wall units and rolling carts, and
futons, futon frames and related accessories. 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.
31
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
utilizing the first-in, first-out ("FIFO") and weighted average methods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation on a straight-line basis over the following estimated useful
lives: building and improvements, 8 to 40 years; manufacturing equipment, 2
to 10 years; office furniture and equipment, 3 to 7 years; and vehicles, 3 to
5 years.
Goodwill and Other Intangible Assets
Goodwill is amortized on a straight-line basis over forty years from the date
of the respective acquisition. The carrying value of goodwill is reviewed if
the facts and circumstances suggest it may be impaired. If the review, using
undiscounted cash flows over the remaining amortization period, indicates that
the cost of goodwill will not be recoverable, the Company's carrying value will
be reduced.
Other intangible assets, primarily customer lists, are amortized on a straight
- -line basis over their estimated lives, typically no more than seven years.
Deferred Costs
Loan acquisition costs and related legal fees, included in other assets, are
deferred and amortized over the respective terms of the related debt.
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.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of common
stock and common stock equivalents, when dilutive, outstanding during each of
the periods presented.
Revenue Recognition
Sales are recorded at time of shipment from the Company's facilities to
customers.
32
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.
Accounting for Stock-Based Compensation Plans
The Company follows the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related Interpretations to
account for its stock option plan. Accordingly, no compensation expense is
recognized for stock option grants.
Foreign Currency Forward Contracts
The Company has exposure to losses which may result from settlement of certain
raw materials purchases denominated in a foreign currency. To reduce this
exposure, the Company enters into forward contracts to buy foreign currency.
Gains and losses from settlement of the forward contracts are used to offset
gains and losses from settlement of the liability for the purchased raw
materials. Gains and losses are recognized in the same period in which gains
or losses from the raw material purchases are recognized. The volume of such
forward contract transactions and gains and losses from them are not
significant.
2. Acquisitions
In March, 1995, the Company purchased all of the stock of Continental
Engineering Group, Inc. for $7,345,000. Continental is a manufacturer of
ergonomically designed "space-savers" (computer workstations, desks, chairs,
modular systems and accessories). The acquisition resulted in goodwill of
$4,248,000. Funds for the acquisition were provided under WinsLoew's credit
facility. The acquisition was accounted for under the purchase method and,
accordingly, the operating results of Continental have been included in the
consolidated operating results since the date of acquisition.
The following unaudited pro forma information has been prepared assuming that
the acquisition of Continental occurred on January 1, 1994. Permitted pro forma
adjustments include only the effects of events directly attributable to the
transaction that are factually supportable and expected to have a continuing
impact. The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
(In thousands) For the Years Ended December 31,
---------------------------------
1995 1994
--------- --------
Net sales $148,977 $149,613
Net income (loss) before
extraordinary items (3,449) 6,753
Net income (loss) ($4,042) $6,753
Net income (loss) per share ($.45) $.70
In September 1994, the Company acquired certain assets and liabilities of a
manufacturer of aluminum casual furniture for the contract market ("Texacraft")
for a total purchase price of $3,409,000, paid in cash at closing. The
acquisition was accounted for as a purchase and, accordingly, the operating
results of Texacraft have been included in the consolidated operating results
since the date of acquisition. The acquisition resulted in goodwill of
$1,880,000, which is being amortized over forty years on a straight-line basis.
The operations of Texacraft are not material to the Company and have not been
included in the pro forma results above.
33
3. Long-Term Debt
Long-term debt consisted of the following at December 31, 1996 and 1995:
(In thousands) 1996 1995
------- -------
Revolving line of credit $21,418 $21,114
Term loan 5,471 8,333
Acquisition line of credit 12,500 11,214
Other 1,344 1,345
------- -------
$40,733 $42,006
Less: current portion 1,957 1,815
------- -------
$38,776 $40,191
======= =======
Senior Credit Facilities
In February, 1995, the Company refinanced separate senior credit facilities
with a new $75 million senior credit facility with a group of lenders and banks.
This facility was reduced to $62.5 million in November, 1995. The facility,
which matures in February, 2001, and is collateralized by substantially all of
the assets of the Company, consists of a working capital revolving line of
credit, a term loan and an acquisition line of credit. The working capital
revolving line of credit allows the Company to borrow funds up to a certain
percentage of eligible inventory and accounts receivable. The $10,000,000
term loan requires quarterly repayments of $342,000 and a payment equal to
50% of cash flow, as defined, for each year within 90 days of year-end. No
cash flow payment is required for 1997. The $12,500,000 acquisition line of
credit can be drawn down and repaid during the first three years of the line
of credit. At the end of the third year, the outstanding balance of the
acquisition line of credit converts to a term loan with principal payments
due in annual installments of 15% in 1998, 35% in 1999 and 50% in 2000. In
June 1996, WinsLoew amended its senior credit facility to provide the Company
with a variable amount available under the revolving line of credit. The
amendment reduced the amount available under its revolving line of credit to
$20 million effective June 30, 1996. The Company may, at its option, elect to
increase the revolving line of credit at December 31, 1996, to a maximum of
$40 million. Thereafter, on each June 30, the amount available will
automatically decrease to $20 million and on each December 31, the Company
may elect to increase the revolving line of credit to a maximum of $40 million.
As December of 31, 1996, WinsLoew has elected to increase the revolving line of
credit to $39 million.
In July 1996, the Company amended its senior credit facility to allow the
Company to borrow up to $6.6 million under its acquisition line of credit to
purchase shares of the Company's common stock (see Note 4 below).
The interest rates on the components of the senior credit facility are either
the base rate plus a spread, or the LIBOR rate plus a spread as elected by the
Company. The spread is determined by the leverage ratio, as defined, for the
twelve month period ending each quarter. At December 31, 1996, the loans are
priced at the base rate plus .25% (8.5% at December 31, 1996) and the LIBOR
rate plus 1.25% (7.0% at December 31, 1996). In addition, WinsLoew pays an
unused facility fee of .375% per annum on a quarterly basis in arrears.
The agreement requires the Company to meet certain financial ratios for
leverage, interest coverage, tangible net worth and includes other provisions
generally common in such agreements including restrictions on dividends,
additional indebtedness and capital expenditures. At December 31, 1996, the
Company was in compliance with its debt covenants. The carrying value of the
revolving line of credit, term loan and acquisition loan approximates their
fair value at December 31, 1996.
The Company incurred an extraordinary charge
34
of $593,000 (net of an income tax benefit of $360,000) related to prepayment
penalties and the write-off of unamortized deferred loan costs associated with
the retirement of the separate credit facilities in 1995. In connection with
the new senior credit facility, the Company incurred loan costs and related
fees of $1,385,000.
Other long-term debt consists of miscellaneous notes payable. The interest
rates range from 9% to 15.5%. Principal payments are amortized through the
life of the loans and obligations with final maturities from 1997 to 2008.
Total scheduled maturities of other long-term debt for each of the next five
years ending December 31 range from $137,000 in 1997 to $46,000 in 2001. The
carrying value of these loans approximates their fair value at
December 31, 1996.
4. Capital Stock
In 1995 and 1996, the Company's Board of Directors approved repurchase
programs to acquire up to 2,000,000 shares of the Company's stock in the open
market at times and prices deemed advantageous. In 1996, WinsLoew retired
576,925 of common stock purchased for $3,964,000. In 1995, the Company retired
574,023 shares of common stock purchased for $3,408,000. In 1996 in a
transaction separate from the above repurchase program, the Company retired
933,504 shares of its common stock purchased from an affiliated company at
$10 per share. In 1994 prior to the merger, Winston retired 131,250 shares of
common stock purchased on the open market for $902,000. As part of an earlier
resignation agreement, on January 3, 1994, Winston repurchased a former
president's 110,000 shares of common stock at $12.25 per share, the market price
at the date of the resignation.
5. Charges for Restructuring
During 1995, management reviewed the products, markets and strategy of the
combined operations of the Company. The review culminated in the third quarter
with decisions to exit certain product lines and markets and to focus the
Company's operations on those product lines and markets which would fit into
the overall corporate strategy. In September, 1995, management finalized plans
to discontinue or dispose of certain product lines. The Company provided a
charge totaling $7,136,000 for exiting these product lines, which has been
shown as a separate line in the Consolidated Statements of Income.
In connection with the restructuring charge, the Company recorded other
adjustments in 1995, primarily to increase inventory reserves and allowances
for uncollectable accounts receivable. These adjustments resulted in charges
of $1.7 million to cost of sales and $650,000 to selling, general and
administrative expenses.
6. Income Taxes
The provision (benefit) for income taxes consisted of the following:
For the Years Ended December 31,
--------------------------------
(In thousands) 1996 1995 1994
------- ------- --------
Federal:
Current $4,478 $1,145 $4,183
Deferred (251) (945) (119)
State:
Current 542 425 495
Deferred (61) (340) (16)
------- ------ -------
$4,708 $ 285 $4,543
======= ====== =======
35
At December 31, 1996 and 1995, deferred tax assets and liabilities consisted
of the following:
(In thousands)
1996 1995
------- -------
Deferred tax assets:
Capitalized inventory costs $ 461 $ 282
Reserves and accruals 1,842 1,544
State net operating loss carryforwards 301 395
------- ------
2,604 2,221
Less: valuation reserve (80) (80)
------- ------
Deferred tax assets 2,524 2,141
------- ------
Deferred tax liabilities:
Intangible asset basis difference (247) (248)
Excess of tax over book depreciation (1,283) (906)
Prepaid expenses (135) (157)
Other (20) (210)
------- ------
Deferred tax liabilities (1,685) (1,521)
------- -------
Deferred income taxes, net $ 839 $ 620
======= =======
Included in:
Other current assets $2,516 $1,607
Deferred income taxes (1,677) (987)
------- -------
$ 839 $ 620
======= =======
The following table summarizes the differences between the federal income tax
rate and the Company's effective income tax rate for financial statement
purposes:
For the Years Ended December 31,
--------------------------------------
1996 1995 1994
------ ------- ------
Federal income tax rate 34.0% (34.0%) 34.0%
State income taxes 2.2% 3.5% 3.7%
Goodwill amortization 2.0% 35.4% 2.2%
Merger costs -- -- 0.8%
Other (2.0%) 4.1% 1.0%
------ ------- ------
Effective tax rate 36.2% 9.0% 41.7%
====== ======= ======
7. 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 is $500,000, subject to cost of living
increases and increases for additional businesses acquired. For 1996 and 1995,
the amount expensed was $604,000 and $564,000, respectively. Included in loan
acquisition costs is $375,000 paid to Trivest in 1995 for negotiations on the
Company's behalf for the senior credit facility. In 1996, the Company retired
933,504 shares of its common stock purchased from an affiliated company at
$10 per share (see Note 4 above).
36
During 1994, WinsLoew's predecessor companies paid to Trivest or one of its
affiliates aggregate management fees of $1,274,000 (including fees of $250,000
relating to the acquisition of New West, $100,000 relating to the acquisition
of Texacraft and $150,000 relating to the merger of Winston and Loewenstein).
8. Commitments and Contingencies
Leases
The Company leases certain office space, manufacturing facilities and various
items of machinery and equipment under operating leases. Some leases for
office and manufacturing space contain renewal options and provisions for
increases in minimum payments based on various measures of inflation. Rental
expense amounted to approximately $1,555,000, $1,470,000, and $1,237,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. Operating
lease agreements in effect at December 31, 1996, have the following remaining
minimum payment obligations:
(In thousands)
1997 $1,460
1998 1,028
1999 764
2000 623
2001 614
2002 - 2005 1,895
Employment Agreements
The Company has five-year employment agreements with certain employees. The
agreements provide for minimum salary levels and bonuses based on a percentage
of pre-tax operating income, as defined in the agreements.
Employee Benefit Plans
The Company has 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 their division's
Plan. The Plans provide for voluntary employee contributions through salary
reduction, as well as discretionary employer contributions. No significant
Company contributions were made in the years 1996, 1995 and 1994.
Stock Option Plan
In 1994, the Company established a Stock Option Plan (the "Plan") as a means
to retain and motivate key employees and directors. The Compensation Committee
of the Board of Directors administers and interprets the Plan and is authorized
to grant options to all eligible employees of the Company and non-employee
directors who are affiliated with Trivest (See Note 7). The Plan provides for
both incentive stock options and non-qualified stock options. Options are
granted under the Plan on such terms and at such prices as determined by the
Compensation Committee, except that the per share exercise price of incentive
stock options cannot be less than the fair market value of the Company's
common stock on the date of grant. The Company has reserved 1,500,000 shares
of common stock for issuance upon exercise of stock options. All options
which have been granted have a term of ten years and vest ratably over five
years.
37
Pro forma net income and earnings per share have been determined as if the
Company had accounted for its employee stock options as compensation expense
based on their fair value. Fair value was estimated at the date of grant using
a Black-Scholes option pricing model for 1996 and 1995 assuming a risk-free
interest rate of 7.0% for 1995 and 6.2% for 1996, a volatility factor for the
Company's common stock of .513 in 1995 and .532 in 1996, and a weighted-average
expected life of the options of six years. The pro forma information is not
likely to be representative of the effects of options on pro forma net income
in future years because the Company is required to include only options granted
since 1994 in the pro forma information.
For the Years Ended December 31,
--------------------------------
1996 1995
(In thousands) ------- --------
Pro forma net income (loss) $8,198 ($4,127)
======= ========
Pro forma income (loss) per share:
Income (loss) before extraordinary item $0.94 ($0.39)
Extraordinary item -- (0.07)
------ --------
Net income (loss) per share $0.94 ($0.46)
====== ========
Information with respect to WinsLoew's Plan is as follows:
1996
--------------------
Weighted
Average
Exercise
Options Price 1995 1994
--------- -------- ------- -------
Options outstanding
at January 1 738,450 $8.26 525,575 338,125
Granted 25,000 $6.13 305,250 217,900
Exercised (25,100) $6.62 -- --
Canceled (66,800) $6.25 (92,375) (30,450)
--------- ------- -------
Options outstanding
at December 31 671,550 $8.34 738,450 525,575
========= ======= =======
Excercise prices
per share $5.88-$11.63 $5.88-$11.63 $6.67-$11.63
Options exercisable
at December 31 480,400 $7.00 488,450 525,575
========= ======= =======
Options available
for grant at
December 31 803,350 761,550 974,425
========= ======= =======
The estimated weighted average fair value of options granted in 1996 is $3.22
per option. The weighted average remaining contractual life for options
granted in 1996 is 9.2 years.
Litigation and Liability Claims
The Company is, from time to time, involved in routine litigation including
general liability and worker's compensation claims. It is the opinion of
management that sufficient insurance has been purchased to cover current and
potential general liability and worker's compensation claims. None of such
litigation in which the Company is presently involved is believed to be
material to its liquidity, financial position or results of operations.
38
9. Supplemental Information
The following balance sheet captions are comprised of the items specified
below :
December 31,
------------------------
1996 1995
(In thousands) ------- --------
Inventories:
Raw materials $9,639 $11,683
Work in process 3,685 1,864
Finished goods 7,390 6,373
------- -------
$20,714 $19,920
======= =======
Property, Plant and Equipment:
Land $2,225 $2,270
Building and improvements 10,202 9,550
Manufacturing equipment 10,112 9,933
Office equipment 5,164 4,785
Construction in progress 69 243
Vehicles 126 127
------- -------
27,898 26,908
Accumulated depreciation (10,173) (8,615)
-------- --------
$17,725 $18,293
======= =======
Other accrued liabilities:
Income taxes $1,031 $ 55
Compensation, commissions
and employee benefits 2,715 2,328
Interest 110 153
Customer deposits 882 583
Other 1,220 3,340
------- --------
$5,958 $6,459
======= ========
Depreciation expense was $2,059,000, $1,901,000, and $1,533,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Accumulated amortization at December 31, 1996 and 1995 related to goodwill
was $5,379,000 and $4,486,000, respectively. Accumulated amortization at
December 31, 1996 and 1995 related to other intangible assets was $7,536,000
and $7,089,000, respectively.
39
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No events nor occurrences required to be disclosed in this Item 9 have occurred.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required in this Item 10 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. Executive Compensation
The information required in this Item 11 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required in this Item 11 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 13. Certain Relationships and Related Transactions
The information required in this Item 11 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
40
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
Reference is made to the index set forth on page 25 of this Annual
Report on Form 10-K
(2) Financial Statements Schedules:
The following consolidated financial statement schedule is filed
herewith:
Sequential
Page Number
Schedule II -- Valuation and Qualifying Accounts 46
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 or 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)
Exhibit Description
2.1 Agreement and Plan of Merger, dated as of September 30, 1994,
by and among Registrant, Old Winston and Old Loewenstein (1)
3.1 Registrant's Articles of Incorporation (1)
3.2 Registrant's Bylaws (1)
*10.1 Registrant's 1994 Stock Option Plan, As amended and restated
effective January 23, 1997 (6)
10.2 Form of Indemnification agreement between the Registrant and
certain of its directors and executive officers, and schedule
of parties thereto (10.2) (2)
*10.3 Employment Agreements between the Registrant and each of Bobby
Tesney, R. Craig Watts, Stephen C. Hess, and Vincent A.
Tortorici, Jr. (10.3) (2)
*10.4 Investment Services Agreement, dated December 16, 1994, between
the Registrant and Trivest, Inc. (10.6) (2)
10.5 Agreement, dated August 1, 1996, between Winston and the Retail,
Wholesale, and Department Store Union, AFL-CIO (10.8) (1)
10.6 Lease, dated October 15, 1969, between 601 Industrial Development
Corporation and Winston, as amended (10.15) (1)
10.7 Lease, dated May 24, 1996, between LaSalle National Bank and
Winston, (6)
41
10.8 Business Lease, dated November 18, 1993, between Loewenstein and
Emanuel Vanzo (10.21) (2)
10.09 Lease Agreement by and between Teacher Insurance and Annuity
Association and Winston Furniture Company of Alabama, Inc.,
commencing December 15, 1995 (10.23) (4)
10.10 Lease Agreement, dated as of January 11, 1989, between W. Leslie
Pelio and Michael Haworth d/b/a Simworth, as amended (10.29) (2)
10.11 Multi-Tenant Triple Net Industrial Lease, dated as of
December 12, 1991, between Birtcher Campbell Reliance - MIP Ltd.,
and Continental Engineering Group, Inc., d/b/a Microcenter, as
amended (10.30) (2)
10.12 Stock Purchase Agreement among WinsLoew Furniture, Inc.,
Continental Engineering Group, Inc., and certain Shareholders,
dated February 15, 1995 (10.31) (3)
10.13 Credit Agreement, dated February 2, 1995, among the Registrant,
its subsidiaries, and Heller Financial, Inc. (10.32) (3)
10.14 First Amendment to Credit Agreement, dated February 22, 1995,
among the Registrant, its subsidiaries, and Heller Financial,
Inc. (4)
10.15 Second Amendment to Credit Agreement, dated May 8, 1995, among
the Registrant, its subsidiaries, and Heller Financial, Inc. (4)
10.16 Third Amendment to Credit Agreement, dated November 15, 1995,
among the Registrant, its subsidiaries, and Heller Financial,
Inc. (4)
10.17 Fourth Amendment to Credit Agreement, dated November 20, 1995,
among the Registrant, its subsidiaries, and Heller Financial,
Inc. (4)
10.18 Fifth Amendment to Credit Agreement, dated June 30, 1996 among
the registrants, its subsidiaries, and Heller Financial, Inc. (5)
10.19 Sixth Amendment to Credit Agreement, dated July 1, 1996, among the
registrants, its subsidiaries, and Heller Financial, Inc. (5)
10.20 Seventh Amendment to Credit Agreement, dated January 27, 1997,
among the registrants, its subsidiaries, and Heller Financial,
Inc. (6)
10.21 Commercial Lease by and between Triangle Investments and Winston
Furniture Company of Alabama, Inc., dated November 6, 1995 (10.21)
(4)
10.22 Registrant's Non-qualified Supplemental Retirement Plan for Key
Employees (6)
11 Computation of Earnings per Share (6)
21.1 Registrant's Subsidiaries (6)
42
23.1 Consent of Ernst & Young LLP, Independent Auditors (6)
__________________________
(1) Incorporated by reference to the exhibits, shown in parentheses and
filed with the Registrant's Registration Statement on Form S-4
(No. 33-85476).
(2) Incorporated by reference to the exhibits, shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994
(3) Incorporated by reference to the exhibits, shown in parentheses and
filed with the Registrant's Report on Form 8-K filed April 7, 1995.
(4) Incorporated by reference to the exhibits, shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
(5) Incorporated by reference to the exhibits, shown in parentheses and
filed with the Registrant's Report on Form 10-Q for the quarter
ended June 30,1996.
(6) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the last quarter of the period covered by this report.
(c) Exhibits required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item 14 (a) (3) of
this report and not incorporated by reference follows the
"Signatures" section hereof and is incorporated herein by
reference.
(d) Financial Statements Schedules required by Regulation S-X
The financial statement schedules required by Regulation
S-X which are excluded from the Registrant's Annual Report
to Shareholders for the year ended December 31, 1996, by
Rule 14a-3 (b)(1) are included above. See Item 14(a)2 for
index.
43
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 27, 1997 By: /s/ Bobby Tesney
----------------------------
Bobby Tesney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities, and on the dates indicated.
Signature Title Date
President,
Chief Executive Officer and
Director
/s/ Bobby Tesney (Principal Executive Officer) March 27, 1997
- -----------------------------
Bobby Tesney
Vice President and
Chief Financial Officer
(Principal Financial and
/s/ Vincent A. Tortorici, Jr. Accounting Officer)
- ----------------------------- March 27, 1997
Vincent A. Tortorici, Jr.
/s/ Earl W. Powell Chairman of the Board March 27, 1997
- -----------------------------
Earl W. Powell
/s/ Philip T. George, M.D. Director March 27, 1997
- -----------------------------
Phillip T. George, M.D.
/s/ Peter C. Brockway Director March 27, 1997
- -----------------------------
Peter C. Brockway
/s/ Peter W. Klein Director March 27, 1997
- ----------------------------
Peter W. Klein
/s/ M. Miller Gorrie Director March 27, 1997
- -----------------------------
M. Miller Gorrie
/s/ James S. Smith Director March 27, 1997
- -----------------------------
James S. Smith
/s/ Henry C. Cheek Director March 27, 1997
- -----------------------------
Henry C. Cheek
44
/s/ William H. Allen, Jr. Director March 27, 1997
- -----------------------------
William H. Allen, Jr.
/s/ Sherwood M. Weiser Director March 27, 1997
- -----------------------------
Sherwood M. Weiser
45
SCHEDULE II - Valuation and Qualifying Accounts
WinsLoew Furniture, Inc.
December 31, 1996
- --------------------------------------------------------------------------------------------
COL. A | COL. B COL. C COL. D COL. E COL. F |
- --------------------------------------------------------------------------------------------
| | Additions | | |
| |---------------------------| | |
| Balance at | Charged to | Charged to | | Balance |
| Beginning | Costs and | Other | | at End of |
Description | of Period | Expenses | Accounts | Deductions | Period |
- --------------------------------------------------------------------------------------------
Year Ended
December 31, 1994
Allowance for
doubtful accounts $ 703,000 $ 351,000 $ 0 ($ 420,000)(2) $ 634,000
========== ========== ======= =========== ==========
Year Ended
December 31, 1995
Allowance for
doubtful accounts $ 634,000 $1,848,000 $39,000 (1) ($ 990,000)(2) $1,531,000
========== ========== ======= =========== ==========
Year Ended
December 31, 1996
Allowance for
doubtful accounts $1,531,000 $2,507,000 $ 0 ($1,336,000) $2,702,000
========== ========== ======= ============ ==========
Year Ended
December 31, 1995
Allowance for excess
and obsolete
inventory $ 302,000 $6,015,000 $30,000 (3) ($4,101,000)(4) $2,246,000
========== ========== ======= =========== ==========
Year Ended
December 31, 1996
Allowance for
excess and obsolete
inventory $2,246,000 $1,666,000 $ 0 ($1,702,000)(4) $2,210,000
========== ========== ======= ============ ==========
(1) Allowance for uncollectable accounts receivable associated with the
Continental acquisition.
(2) Uncollectable accounts receivable written off.
(3) Allowance for excess and obsolete inventory associated with the Continental
acquisition.
(4) Excess and obsolete inventory written off.
46
E X H I B I T
10.1
WINSLOEW FURNITURE, INC.
1994 STOCK OPTION PLAN
(As Amended and Restated Effective January 23, 1997)
1. Purpose. The purpose of this Plan is to advance the interests of
WinsLoew Furniture, Inc., a Florida corporation (the "Company"), and
its Subsidiaries by providing an additional incentive to attract and
retain qualified and competent persons who provide services to the
Company and its Subsidiaries, and upon whose efforts and judgment
the success of the Company and its Subsidiaries is largely dependent,
through the encouragement of stock ownership in the Company by such
persons.
2. Definitions. As used herein, the following terms shall have the mean
ing indicated:
(a) "Board" shall mean the Board of Directors the Company.
(b) "Committee" shall mean the committee appointed by the
Board pursuant to Section 13(a) hereof.
(c) "Common Stock" shall mean the Company's Common Stock,
par value $.01 per share.
(d) "Director" shall mean a member of the Board.
(e) "Fair Market Value" of a Share on any date of
reference shall mean the "Closing Price" (as defined
below) of the Common Stock on the business day
immediately preceding such date, unless the Committee
in its sole discretion shall determine otherwise in a
fair and uniform manner. For the purpose of determining
Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be (i) if the Common
Stock is listed or admitted for trading on any United
States national securities exchange, or if actual
transactions are otherwise reported on a consolidated
transaction reporting system, the last reported sale
price of Common Stock on such exchange or reporting
system, as reported in any newspaper of general
circulation, (ii) if the Common Stock is quoted on the
National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or any similar system of
automated dissemination of quotations of securities
prices in common use, the last reported sale price of
Common Stock on such system or, if sales prices are not
reported, the mean between the closing high bid and low
asked quotations for such day of Common Stock on such
system, as reported in any newspaper of general
circulation or (iii) if neither clause (i) or (ii) is
applicable, the mean between the high bid and low asked
quotations for the Common Stock as reported by the
National Quotation Bureau, Incorporated if at least
two securities dealers have inserted both bid and asked
quotations for Common Stock on at least five of the
ten preceding days. If neither (i), (ii), or (iii)
above is applicable, then Fair Market Value shall be
determined in good faith by the Committee or the Board
in a fair and uniform manner.
(f) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Internal
Revenue Code.
(g) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(h) "Non-Qualified Stock Option" shall mean an Option which
is not an Incentive Stock Option.
(i) "Officer" shall mean the Company's Chairman of the
Board, President, Chief Executive Officer, principal
financial officer, principal accounting officer, any
vice-president of the Company in charge of a principal
business unit, division or function (such as sales,
administration or finance), any other officer who
performs a policy-making function, or any other person
who performs similar policy-making functions for the
Company. Officers of Subsidiaries shall be deemed
Officers of the Company if they perform such policy
-making functions for the Company. As used in this
paragraph, the phrase "policy-making function" does not
include policy-making functions that are not significant.
If pursuant to Item 401(b) of Regulation S-K (17 C.F.R.
229.401(b)) the Company identifies a person as an
"executive officer," the person so identified shall be
deemed an "Officer" even though such person may not
otherwise be an "Officer" pursuant to the foregoing
provisions of this paragraph.
(j) "Option" (when capitalized) shall mean any option
granted under this Plan.
(k) "Optionee" shall mean a person to whom a stock
option is granted under this Plan or any person who
succeeds to the rights of such person under this Plan
by reason of the death of such person.
(l) "Outside Director" shall mean a member of the Board
who qualifies as an "outside director" under Section
162(m) of the Internal Revenue Code and the regulations
thereunder and as a "Non-Employee Director" under Rule
16b-3 promulgated under the Securities Exchange Act.
(m) "Plan" shall mean this 1994 Stock Option Plan for the
Company.
(n) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(o) "Share" shall mean a share of Common Stock.
(p) "Subsidiary" shall mean any corporation (other than
the Company) in any unbroken chain of corporations
beginning with the Company if, at the time of the
granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns
stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one
of the other corporations in such chain.
3. Shares Available for Option Grants. The Committee or the Board
may grant to Optionees from time to time Options to purchase an
aggregate of up to One Million Five Hundred Thousand (1,500,000)
Shares from the Company's authorized and unissued Shares. If any
Option granted under the Plan shall terminate, expire, or be
cancelled or surrendered as to any Shares, new Options may
thereafter be granted covering such Shares.
4. Incentive and Non-Qualified Options.
(a) An Option granted hereunder shall be either an
Incentive Stock Option or a Non-Qualified Stock Option
as determined by the Committee or the Board at the time
of grant of such Option and shall clearly state whether
it is an Incentive Stock Option or a Non-Qualified Stock
Option. All Incentive Stock Options shall be granted
within 10 years from the effective date of this Plan.
Incentive Stock Options may not be granted to any person
who is not an employee of the Company or any Subsidiary.
(b) Options otherwise qualifying as Incentive Stock Options
hereunder will not be treated as Incentive Stock Options
to the extent that the aggregate fair market value
(determined at the time the Option is granted) of the
Shares, with respect to which Options meeting the
requirements of Section 422(b) of the Internal Revenue
Code are exercisable for the first time by any individual
during any calendar year (under all plans of the Company
and its parent and subsidiary corporations as defined in
Section 424 of the Internal Revenue Code), exceeds
$100,000.
5. Conditions for Grant of Options.
(a) Each Option shall be evidenced by an option agreement
that may contain any term deemed necessary or desirable
by the Committee or the Board, provided such terms are
not inconsistent with this Plan or any applicable law.
Optionees shall be (i) those persons selected by the
Committee or the Board from the class of all regular
employees of , or persons who provide consulting or
other services as independent contractors to, the
Company or its Subsidiaries, including Directors and
Officers who are regular employees, and (ii) Directors
or Officers who are not employees of the Company or of
any Subsidiaries. Any person who files with the
Committee or the Board, in a form satisfactory to the
Committee or the Board, a written waiver of eligibility
to receive any Option under this Plan shall not be
eligible to receive any Option under this Plan for the
duration of such waiver.
(b) In granting Options, the Committee or the Board shall
take into consideration the contribution the person has
made to the success of the Company or its Subsidiaries
and such other factors as the Committee or the Board
shall determine. The Committee or the Board shall also
have the authority to consult with and receive
recommendations from officers and other personnel of
the Company and its Subsidiaries with regard to these
matters. The Committee or the Board may from time to
time in granting Options under the Plan prescribe such
other terms and conditions concerning such Options as it
deems appropriate, including, without limitation, (i)
prescribing the date or dates on which the Option
becomes exercisable, (ii) providing that the Option
rights accrue or become exercisable in installments over
a period of years, or upon the attainment of stated goals
or both, or (iii) relating an Option to the continued
employment of the Optionee for a specified period of
time, provided that such terms and conditions are not
more favorable to an Optionee than those expressly
permitted herein.
(c) The Options granted to employees under this Plan shall
be in addition to regular salaries, pension, life
insurance or other benefits related to their employment
with the Company or its Subsidiaries. Neither the Plan
nor any Option granted under the Plan shall confer upon
any person any right to employment or continuance of
employment by the Company or its Subsidiaries.
(d) Notwithstanding any other provision of this Plan, an
Incentive Stock Option shall not be granted to any
person owning directly or indirectly (through
attribution under Section 424(d) of the Internal
Revenue Code) at the date of grant, stock possessing
more than 10% of the total combined voting power of all
classes of stock of the Company (or of its parent or
subsidiary corporation [as defined in Section 424 of
the Internal Revenue Code] at the date of grant) unless
the option price of such Option is at least 110% of the
Fair Market Value of the Shares subject to such Option
on the date the Option is granted, and such Option by
its terms is not exercisable after the expiration of
five years from the date such Option is granted.
(e) Notwithstanding any other provision of this Plan, and
in addition to any other requirements of this Plan,
the aggregate number of Options granted to any one
Optionee may not exceed 450,000, subject to adjustment
as provided in Section 10 hereof.
6. Option Price. The option price per Share of any Option shall be
any price determined by the Committee or the Board but shall not
be less than the par value per Share; provided, however, that in
no event shall the option price per Share of any Incentive Stock
Option be less than the Fair Market Value of the Shares underlying
such Option on the date such Option is granted.
7. Exercise of Options. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in
accordance with the terms of the Option, (ii) full payment of the
aggregate option price of the Shares as to which the Option is
exercised has been made, and (iii) arrangements that are
satisfactory to the Committee or the Board in its sole discretion
have been made for the Optionee's payment to the Company of the
amount that is necessary for the Company or Subsidiary employing
the Optionee to withhold in accordance with applicable Federal or
state tax withholding requirements. Unless further limited by the
Committee or the Board in any Option, and subject to such guidelines
as the Committee or the Board may establish, the option price of
any Shares purchased shall be paid (1) in cash, (2) by certified
or official bank check, (3) by money order, (4) with Shares, (5) by
the withholding of Shares issuable upon exercise of the Option or
by any other form of cashless exercise procedure approved
by the Committee or the Board , or (6) in such other consideration
as the Committee or the Board deems appropriate, or by a combination
of the above. The Committee or the Board in its sole discretion may
accept a personal check in full or partial payment of any Shares.
If the exercise price is paid in whole or in part with Shares, or
through the withholding of Shares issuable upon exercise of the
Option, the value of the Shares surrendered or withheld shall be
their Fair Market Value on the date the Option is exercised. The
Company in its sole discretion may, on an individual basis or
pursuant to a general program established in connection with this
Plan, lend money to an Optionee, guarantee a loan to an Optionee,
or otherwise assist an Optionee to obtain the cash necessary to
exercise all or a portion of an Option granted hereunder or to pay
any tax liability of the Optionee attributable to such exercise.
If the exercise price is paid in whole or part with Optionee's
promissory note, such note shall (i) provide for full recourse to
the maker, (ii) be collateralized by the pledge of the Shares that
the Optionee purchases upon exercise of such Option, (iii) bear
interest at the prime rate of the Company's principal lender, and
(iv) contain such other terms as the Board in its sole discretion
shall reasonably require. No Optionee shall be deemed to be a
holder of any Shares subject to an Option unless and until a stock
certificate or certificates for such Shares are issued to such
person(s) under the terms of this Plan. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for
which the record date is prior to the date such stock certificate
is issued, except as expressly provided in Section 10 hereof.
8. Exercisability of Options. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee
or the Board shall provide in such Option, except as otherwise
provided in this Section 8.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall
an Option be exercisable after the expiration of 10 years
from the date on which the Option is granted.
(b) The Committee or the Board may in its sole discretion
accelerate the date on which any Option may be exercised
and may accelerate the vesting of any Shares subject to
any Option or previously acquired by the exercise of any
Option.
9. Termination of Option Period. The unexercised portion of any Option
shall automatically and without notice terminate and become null and
void at those times determined by the Committee or the Board and set
forth in the option agreement that evidences the Option.
10. Adjustment of Shares.
If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or
decrease in the number of issued and outstanding Shares
through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant
under the Plan, or available for grant to any
person under the Plan, so that the same percentage
of the Company's issued and outstanding Shares
shall continue to be subject to being so
optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share
thereof then subject to any outstanding Option,
so that the same percentage of the Company's
issued and outstanding Shares shall remain
subject to purchase at the same aggregate
exercise price.
(b) Unless otherwise provided in any Option, the Committee
or the Board may change the terms of Options outstanding
under this Plan, with respect to the option price or the
number of Shares subject to the Options, or both, when,
in the Committee's or Board's sole discretion, such
adjustments become appropriate so as to preserve but not
increase benefits under the Plan.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock
of any class, or securities convertible into shares of
capital stock of any class, either in connection with a
direct sale or upon the exercise of rights or warrants
to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment
by reason thereof shall be made to, the number of or
exercise price for Shares then subject to outstanding
Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the
Plan shall not affect in any manner the right or power
of the Company to make, authorize or consummate (i) any
or all adjustments, recapitalizations, reorganizations
or other changes in the Company's capital structure or
its business; (ii) any merger or consolidation of the
Company; (iii) any issue by the Company of debt
securities, or preferred or preference stock that would
rank above the Shares subject to outstanding Options;
(iv) the dissolution or liquidation of the Company;
(v) any sale, transfer or assignment of all or any part
of the assets or business of the Company; or (vi) any
other corporate act or proceeding, whether of a similar
character or otherwise.
11. Transferability of Options and Shares.
(a) No Incentive Stock Option, and unless the prior written
consent of the Committee or the Board is obtained and
the transaction does not violate the requirements of
Rule 16b-3 promulgated under the Securities Exchange
Act no Non-Qualified Stock Option, shall be subject
to alienation, assignment, pledge, charge or other
transfer other than by the Optionee by will or the laws
of descent and distribution, and any attempt to make
any such prohibited transfer shall be void. Each Option
shall be exercisable during the Optionee's lifetime
only by the Optionee, or in the case of a Non-Qualified
Stock Option that has been assigned or transferred with
the prior written consent of the Committee or the Board,
only by the permitted assignee.
(b) Unless the prior written consent of the Committee or the
Board is obtained and the transaction does not violate
the requirements of Rule 16b-3 promulgated under the
Securities Exchange Act, no Shares acquired by an
Officer or Director pursuant to the exercise of an Option
may be sold, assigned, pledged or otherwise transferred
prior to the expiration of the six-month period following
the date on which the Option was granted.
12. Issuance of Shares.
(a) Notwithstanding any other provision of this Plan, the
Company shall not be obligated to issue any Shares
unless it is advised by counsel of its selection that
it may do so without violation of the applicable Federal
and State laws pertaining to the issuance of securities,
and may require any stock so issued to bear a legend,
may give its transfer agent instructions, and may take
such other steps, as in its judgment are reasonably
required to prevent any such violation.
(b) As a condition to any sale or issuance of Shares upon
exercise of any Option, the Committee or the Board may
require such agreements or undertakings as the Committee
or the Board may deem necessary or advisable to
facilitate compliance with any applicable law or
regulation including, but not limited to, the following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised,
that he is acquiring the Shares to be issued to
him for investment and not with a view to, or for
sale in connection with, the distribution of any
such Shares; and
(ii) a representation, warranty and/or agreement to
be bound by any legends endorsed upon the
certificate(s) for such Shares that are, in the
opinion of the Committee or the Board, necessary
or appropriate to facilitate compliance with the
provisions of any securities laws deemed by the
Committee or the Board to be applicable to the
issuance and transfer of such Shares.
13. Administration of the Plan.
(a) The Plan shall be administered by a committee appointed
by the Board (the "Committee") which shall be composed
of two or more Directors all of whom shall be Outside
Directors. The membership of the Committee shall be
constituted so as to comply at all times with the
applicable requirements of Rule 16b-3 promulgated under
the Securities Exchange Act and Section 162(m) of the
Internal Revenue Code. The Committee shall serve at the
pleasure of the Board and shall have the powers
designated herein and such other powers as the Board
may from time to time confer upon it.
(b) The Board may grant Options pursuant to this Plan to
Directors who are not employees of the Company or any
Subsidiary and/or other persons to whom Options may be
granted under Section 5(a) hereof.
(c) The Committee or the Board, from time to time, may adopt
rules and regulations for carrying out the purposes of
the Plan. The determinations by the Committee or the
Board, and the interpretation and construction of any
provision of the Plan or any Option by the Committee or
the Board, shall be final and conclusive.
(d) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the
members of the Committee at a meeting or (ii) without
a meeting by the unanimous written approval of the
members of the Committee.
14. Withholding or Deduction for Taxes. If at any time specified
herein for the making of any issuance or delivery of any Option
or Common Stock to any Optionee or beneficiary, any law or
regulation of any governmental authority having jurisdiction in
the premises shall require the Company to withhold, or to make
any deduction for, any taxes or take any other action in
connection with the issuance or delivery then to be made, such
issuance or delivery shall be deferred until such withholding or
deduction shall have been provided for by the Optionee or
beneficiary, or other appropriate action shall have been taken.
15. Interpretation.
(a) As it is the intent of the Company that the Plan comply
in all respects with Rule 16b-3 promulgated under the
Securities Exchange Act ("Rule 16b-3"), any ambiguities
or inconsistencies in construction of the Plan shall be
interpreted to give effect to such intention, and if
any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be
deemed null and void to the extent required to permit
the Plan to comply with Rule 16b-3. The Committee or
the Board may from time to time adopt rules and
regulations under, and amend, the Plan in furtherance
of the intent of the foregoing.
(b) The Plan shall be administered and interpreted so that
all Incentive Stock Options granted under the Plan will
qualify as Incentive Stock Options under section 422 of
the Internal Revenue Code. If any provision of the Plan
should be held invalid for the granting of Incentive
Stock Options or illegal for any reason, such
determination shall not affect the remaining provisions
hereof, but instead the Plan shall be construed and
enforced as if such provision had never been included in
the Plan.
(c) This Plan shall be governed by the laws of the State of
Florida.
(d) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is
appropriate.
16. Amendment and Discontinuation of the Plan. The Committee or the
Board may from time to time amend, suspend or terminate the Plan or
any Option; provided, however, that, any amendment to the Plan
shall be subject to the approval of the Company's shareholders if
such shareholder approval is required by any federal or state law
or regulation (including, without limitation, Rule 16b-3 or to
comply with Section 162(m) of the Internal Revenue Code) or the
rules of any Stock exchange or automated quotation system on which
the Common Stock may then be listed or granted. Except to the
extent provided in Sections 9 and 10 hereof, no amendment,
suspension or termination of the Plan or any Option issued
hereunder shall substantially impair the rights or benefits of
any Optionee pursuant to any Option previously granted without the
consent of the Optionee.
17. Effective Date and Termination Date. The effective date of the
Plan is October 19, 1994, the date on which the Board adopted this
Plan, and the Plan shall terminate on October 19, 2004.
E X H I B I T
10.22
WINSLOEW FURNITURE, INC.
NON-QUALIFIED SUPPLEMENTAL RETIREMENT PLAN FOR KEY EMPLOYEES
WHEREAS, the Company desires to establish the foregoing WinsLoew
Furniture, Inc. Non-Qualified Supplemental Retirement Plan for Key
Employees (the "Plan"); and
WHEREAS, the Plan is being established to attract and retain the
services of a select group of management and executive personnel
and to provide benefits to such employees upon their retirement,
death or disability;
NOW, THEREFORE, effective as one the 1st day of October, 1996 (the
"Effective Date"), the following Plan is hereby established:
ARTICLE I
DEFINITIONS
The following definitions shall apply under this Agreement;
1. BENEFICIARY means the person designed in writing to receive any amounts
which are unpaid upon the death of the Employee. If no such designation
is made or if the designated person is not living at the death of the
Employee, the Beneficiary shall be the deceased Employee's spouse, if
living, otherwise the Employee's personal representative, executors, or
administrators.
2. BOARD means the Board of Directors of the Company.
3. COMPENSATION means the salary and bonus paid to a Key Employee by the
Company. A Key Employee's Compensation for a calendar year will include
all salary which is paid to the Key Employee during such year and any
bonus paid to the Key Employee after the end of the calendar year for and
on account of services performed during such Year. For calendar 1996
compensation prior to the Effective Date shall be included as if the
effective date were January 1, 1996.
4. DEFERRED COMPENSATION means the portion of the Key Employee's Compensation
which the Key Employee elects to defer or contribute pursuant to the
provisions of this Plan.
5. KEY EMPLOYEE means an employee of the Company who is designated as being
eligible to participate in this Plan.
6. MATCHING CONTRIBUTIONS means the contributions which are made by the
Company on a matching basis to Deferred Compensation up to 10% of the
employee's contribution. Only the first ten percent of an employee's
Compensation will be matched.
7. YEAR means the year ended March 31.
ARTICLE II
ELIGIBILITY
Management will designate those Key Employees who are eligible to
participate in the Plan.
ARTICLE III
CONTRIBUTIONS
(a) An eligible Key Employee may elect to contribute all or any
part of his Compensation and have such amounts invested in
one or more of the investment alternatives from time to time
made available under the Plan. All Deferred Compensation
hereunder will be fully subject to federal and state
withholding taxes and to applicable payroll taxes, and the
amounts invested in the investment alternatives will be net
of such taxes.
(b) A Key Employee may change his election to make contributions
at any time during the Year by increasing or decreasing the
amount of his Compensation which is being contributed or by
revoking completely any such election. Any such change shall
be effective after the giving of reasonable notice by the Key
Employee to the Company.
(c) In addition to amounts contributed under subparagraph (a)
hereof, the Company shall, on or before the last business
day of March of the year for which Deferred Compensation
is paid, make Matching Contributions to the Plan based on
the amount of the key Employee's Deferred Compensation (prior
to reduction for withholding and payroll taxes) for the
preceding Year, provided that (i) the Key Employee is
actively employed on the date that such Matching Contributions
are made and, (ii) the amount of such Deferred Compensation
for the Year has not been withdrawn by the Key Employee from
the investment alternatives on the date that such Matching
Contributions are made. The requirements set forth in (i) and
(ii) will not apply to any Key Employee who died, became
totally disabled, or retired at or after attaining age 65
during the Year.
(d) All Matching Contributions will be invested in one or more of
the investment alternatives selected by the Key Employee.
(e) Matching Contributions will be based on the Key Employee's full
years of Continuous Service determined as of the last day of
Year for 1996 contributions and as of the last day of the fiscal
quarter for contributions thereafter, as follows:
Years of Continuous Service Matching Percentage
1 but less than 6 10%
6 but less than 9 20%
9 but less than 12 30%
12 but less than 15 40%
15 or more 50%
A Key Employee will be credited with one year of Continuous Service on each
anniversary date of his date of employment with the Company, with any
predecessor to the Company, or with any company which is a member of the
same controlled group of corporations as the Company. In the case of a
corporation which is acquired by the Company, the Key Employee's date of
employment will be the acquisition date.
(f) Matching Contributions will be subject to federal and state
withholding taxes and to applicable payroll taxes, which such
amounts shall be deducted prior to their investment in the
investment alternative (s) selected by the Key Employee.
(g) The employee is vested at all times in the Deferred
Compensation and is vested immediately in the Matching
Contribution.
ARTICLE IV
INVESTMENT GROWTH
The Key Employee agrees on behalf of himself and any Beneficiary to
assume all risks in connection with any investments made under this
Plan and agrees to hold the Company harmless with respect to losses
arising directly or indirectly therefrom.
ARTICLE V
DESPOSITION OF CONTRIBUTIONS
The Key Employee shall be the sole owner of each investment alternative
selected by him and may dispose of the amounts so invested in his sole
discretion.
ARTICLE VI
NO GUARANTEE OF EMPLOYMENT
Nothing in this Plan shall be construed as guaranteeing future
employment to the Key Employee. The Key Employee continues to be
an Employee of the Company solely at the will of the Company,
notwithstanding this Plan.
ARTICLE VII
AMENDMENT AND TERMINATION
The Company reserves the right to amend, modify, or terminate the
Plan at any time by resolution of the Board; provided, however, that
no such amendment, modification or termination will deprive any Key
Employee or Beneficiary of any portion of the amounts standing to his
or her credit in any investment alternative selected by the Key
Employee on the effective date of such amendment, modification or
termination.
WINSLOEW FURNITUE, INC.
By:/s/Vincent A. Tortorici, Jr.
Its: Vice President and CFO
E X H I B I T
10.23
SEVENTH AMENDMENT TO CREDIT AGREEMENT
This Seventh Amendment to Credit Agreement dated as of
January 27, 1997 (this "Agreement") is among WINSLOEW FURNITURE, INC., a
Florida corporation ("WinsLoew"), LOEWENSTEIN, INC., a Florida corporation
("Loewenstein"), WINSTON FURNITURE COMPANY OF ALABAMA, INC., an Alabama
corporation ("Winston"), TEXACRAFT, INC., a Texas corporation ("Texacraft"),
and ONTINENTAL ENGINEERING GROUP, INC., a California corporation ("Continental")
(WinsLoew, Loewenstein, Winston, Texacraft and Continental being hereinafter
referred to collectively as "Borrowers" and individually as a "Borrower"),
the financial institutions party hereto as "Lenders" and HELLER FINANCIAL,INC.,
a Delaware corporation in its capacity as agent for the Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, Agent, Borrowers and Lenders are parties to that certain
Credit Agreement dated February 2, 1995 (as heretofore amended from time to
time, the "Credit Agreement"; capitalized terms not otherwise defined herein
shall have the definitions provided therefor in the Credit Agreement) and to
certain other documents executed in connection with the Credit Agreement;
WHEREAS, pursuant to that certain letter dated December 11, 1996 from
Agent to Borrowers, Agent, on behalf of the Lenders, waived certain
covenant requirements in connection with the Affiliate Transaction
(as defined therein); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
provided herein.
NOW, THEREFORE, the parties agree as follows:
1. Amendments to the Credit Agreement.
(a) The definition of Operating Cash Flow hereby is
amended by deleting it, in its entirety, and
substituting in its place as follows:
"Operating Cash Flow" means, with respect to any Person, for any
period, EBIDAT of such Person, minus the unfinanced portion of Capital
Expenditures of such person which amount shall not be less than zero."
(b) Subsection 6.7 of the Credit Agreement hereby is
amended by deleting it, in its entirety, and
substituting in its place as follows:
"6.7 Tangible Net Worth. Borrowers shall not permit
Tangible Net Worth of WinsLoew on the last day of each
quarter during the periods set forth below to be less
than the amount set forth below for such period.
Period Amount
December 31, 1996 through
September 30, 1997 $13,664,960.00
December 31, 1997 through
September 30, 1998 $17,664,960.00
December 31, 1998 through
September 30, 1999 $23,664,960.00
December 31, 1999 and
thereafter $30,664,960.00
(c) Subsection 5.1(A)(3) of the Credit Agreement hereby is
amended by adding the following language to the last
sentence of the paragraph:
", such schedule shall include, but is not limited to, describing in
reasonable detail the individual balances of the Revolving Loan,
Term Loan and the Acquisition Loan."
2. Conditions. The effectiveness of the foregoing amendments is
subject to the satisfaction of the following conditions:
(a) No Default. No Default or Event of Default under the
Credit Agreement, as amended hereby, shall have occurred
and be continuing.
(b) Warranties and Representations. The warranties and
representations of Borrowers contained in this
Agreement, the Credit Agreement, as amended hereby,
and the Loan Documents shall be true and correct as of
the effective date hereof, with the same effect as
though made on such date, except to expressly relate
to an earlier date, in which case such representations
and warranties shall have been true and correct as of
such earlier date.
(c) Execution and Delivery. This Agreement shall have been
executed and delivered by Borrowers, Agent and Lenders.
3. Miscellaneous.
(a) Captions. Section captions used in this Agreement are
for convenience only, and shall not affect the
construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made
under and governed by the laws of the State of Illinois,
without regard to conflict of laws principles. Whenever
possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining
provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties on
separate counterparts, and each such counterpart shall
be deemed to be an original, but all such counterparts
shall together constitute but one and the same
Agreement.
(d) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the sole benefit of Borrowers,
Agent, Lenders and their respective successors and
assigns.
(e) References. Any reference to the Credit Agreement
contained in any notice, request, certificate, or other
document executed concurrently with or after the
execution and delivery of this Agreement shall be deemed
to be a reference to the Credit Agreement as amended by
this Agreement unless the context shall otherwise
require.
(f) Continued Effectiveness. Notwithstanding anything
contained herein, the terms of this Agreement are not
intended to and do not serve to effect a novation of
any of the Obligations created pursuant to the Credit
Agreement. The parties hereto expressly do not intend
to extinguish the Credit Agreement. Instead, it is the
express intention of the parties hereto to reaffirm the
existing Obligations under the Credit Agreement which
are evidenced by the Notes and secured by the
Collateral. The Credit Agreement as amended hereby and
each of the Loan Documents remain in full force and
effect.
Delivered at Chicago, Illinois, as of the day and year first above
written.
WINSLOEW FURNITURE, INC.
By:/s/ Vincent A. Tortorici, Jr.
Name Printed: Vincent A. Tortorici, Jr
Title: Vice President and CFO
LOEWENSTEIN, INC.
By:/s/ Vincent A. Tortorici, Jr.
Name Printed: Vincent A. Tortorici, Jr
Title: Vice President and CFO
WINSTON FURNITURE COMPANY
OF ALABAMA, INC.
By:/s/ Vincent A. Tortorici, Jr.
Name Printed: Vincent A. Tortorici, Jr
Title: Vice President and CFO
CONTINENTAL ENGINEERING
GROUP, INC.
By:/s/ Vincent A. Tortorici, Jr.
Name Printed: Vincent A. Tortorici, Jr
Title: Vice President and CFO
TEXACRAFT, INC., in its capacity as
Borrower and as a Guarantor
acknowledging the terms of
this Agreement
By:/s/ Vincent A. Tortorici, Jr.
Name Printed: Vincent A. Tortorici, Jr
Title: Vice President and CFO
HELLER FINANCIAL, INC.,
Individually and as Agent
By: /s/ Mark Hutchings
Name Printed: Mark Hutchings
Title: Assistant Vice President
BANK OF AMERICA ILLINOIS
By: /s/ Andrew A. Doherty
Name Printed: Andrew A. Doherty
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ Randolph T. Kohler
Name Printed: Randolph T. Kohler
Title: SVP
E X H I B I T
11
WinsLoew Furniture, Inc.
December 31, 1996
(In thousands except per share amounts)
1996 1995 1994
----- ----- -----
Primary
Average shares outstanding 8,724 9,029 9,655
Net effect of dilutive stock options
based on the treasury stock
method using the average market
price for the year 6 -- --
----- ----- -----
Total 8,730 9,029 9,655
===== ===== =====
Income (loss) before extraordinary item $8,284 ($3,451) $6,352
Extraordinary item -- (593) --
------ -------- ------
Net Income (loss) $8,284 ($4,044) $6,352
====== ======== ======
Earnings (loss) per share:
Income (loss) before extraordinary item $0.95 ($0.38) $0.66
Extraordinary item -- (0.07) --
------ ------ -----
Net Income (loss) $0.95 ($0.45) $0.66
====== ====== =====
Fully Diluted
Average shares outstanding 8,724 9,029 9,655
Net effect of dilutive stock options
based on the treasury stock
method using the year end market price 43 -- --
------ ----- -----
Total 8,767 9,029 9,655
====== ===== =====
Income (loss) before extraordinary item $8,284 ($3,451) $6,352
Extraordinary item -- (593) --
------ -------- ------
Net Income (loss) $8,284 ($4,044) $6,352
====== ======== ======
Earnings (loss) per share:
Income (loss) before extraordinary item $0.94 ($0.38) $0.66
Extraordinary item -- (0.07) --
------ ------ -----
Net Income (loss) $0.94 ($0.45) $0.66
====== ====== =====
E X H I B I T
21.1
LIST OF REGISTRANT'S SUBSIDIARIES
Name of Subsidiary State of Incorporation
- ------------------------------------------ -------------------------
Winston Furniture Company of Alabama, Inc. Alabama
Texacraft, Inc. Texas
Loewenstein, Inc. Florida
Continental Engineering Group, Inc. California
E X H I B I T
23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-87352) pertaining to the WinsLoew Furniture, Inc. 1994 Stock
Option Plan of WinsLoew Furniture, Inc. of our report dated January 31, 1997,
with respect to the consolidated financial statements of WinsLoew Furniture,
Inc. and Subsidiaries included in the Annual Report (Form 10-K) for the year
ended December 31, 1996.
Our audits also included the financial statement schedule of WinsLoew
Furniture, Inc. listed in item 14(a). This schedule is the resposibility of
the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
- ---------------------
Ernst & Young LLP
Birmingham, AL
March 25, 1997