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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 2, 2001
Commission File Number 1-10226
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THE ROWE COMPANIES
(Exact name of registrant as specified in its charter)
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Nevada 54-0458563
(State or other (I.R.S.
jurisdiction EmployerIdentification
ofincorporation or Number)
organization)
1650 Tysons Boulevard,
Suite 710
McLean, Virginia 22102
(Address of principal (Zip Code)
executive offices)
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Registrant's telephone number, including area code: (703) 847-8670
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
------------------- which Registered
----------------
Common Stock, $1.00 par New York Stock Exchange
value
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 22, 2002 (the exclusion from such amount of the
market value of the shares owned by any person shall not be deemed to be an
admission by the registrant that such person is an affiliate of the registrant)
was $32,953,424.
As of February 22, 2002, there were issued and outstanding 13,136,340 shares
of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
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Portions of the Annual Report for the year ended December 2, 2001......... Parts I, II and IV
Portions of the Annual Proxy Statement for the year ended December 2, 2001 Part III
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PART I
Item 1. Business.
General
The Rowe Companies (the "Company") is a synergistic collection of
manufacturers and retailers in the home furnishings industry. Originally
founded in 1946 as Rowe Furniture Corporation, the Company changed its name in
March 1999 to more appropriately reflect the expanded scope of the Company's
operations.
In January 1998, the Company created a new subsidiary, The Wexford
Collection, Inc., ("Wexford"), to acquire the assets and liabilities of J&M
Designs, Ltd. In October 1998, the Company acquired The Mitchell Gold Company,
("Mitchell Gold"). In August 1999, the Company acquired Storehouse, Inc.,
("Storehouse"). These companies joined Rowe Furniture, Inc., ("Rowe"), our core
upholstered furniture subsidiary, and Home Elements, Inc., ("Home Elements"),
the Company's internally grown retail furniture chain. On November 10, 2000,
the Company announced its intention to discontinue operations at Wexford. The
transaction was completed and all assets were sold in January of 2001.
The Company operates in two segments of the home furnishings industry, the
wholesale (manufacturing) home furnishings segment and the retail home
furnishings segment. The wholesale home furnishings segment includes the design
and manufacture of upholstered and leather furniture. Upholstered and leather
furniture includes sofas, loveseats and chairs, covered in fabric or leather.
The retail home furnishings segment sells upholstered and leather furniture
(primarily obtained from the wholesale segment), case goods, dining sets, rugs
and other home furnishing accessories through Company-owned stores located
primarily throughout the mid-Atlantic, northeastern, southeastern, and
southwestern United States. The information on pages 23 to 24 in the Annual
Report to Stockholders for the fiscal year ended December 2, 2001, is included
in Exhibit 13 hereto and incorporated herein by reference.
The Company is incorporated under the laws of Nevada. Its principal
executive offices are located at 1650 Tysons Boulevard, McLean, Virginia 22102,
and its telephone number is (703) 847-8670. Unless the context indicates
otherwise, references herein to the "Company" include The Rowe Companies, its
predecessors, and its subsidiaries.
Executive Officers Who Are Not Directors
Barry A. Birnbach has been in the service of the Company since 1968. He has
served as the Company's Vice President of Corporate Development since March
1999. Prior to becoming Vice President of Corporate Development, he was Vice
President - Special Account Sales at Rowe. He is the brother of Gerald M.
Birnbach, the Company's President and Chairman of the Board.
Timothy J. Fortune has been in the service of the Company since 1997. He has
served as the Company's Vice President of Human Resources and Strategy since
March 1999. Prior to joining the Company, Mr. Fortune was Human Resources
Administrator of the Virginia Department of Transportation from 1993 until
August 1997.
Michael M. Thurmond has been in the service of the Company since January 22,
2001. He has served as the Company's Secretary/Treasurer, CFO since joining the
Company. Prior to joining the Company, Mr. Thurmond was the Managing Director
of Capital Hotel Partners, LLC from 1998 to
2
January of 2001 and the Managing Director and Chief Financial Officer of The
Appian Group from 1996 to 1998.
The Industry
As reported by the American Furniture Manufacturers Association in December
2001, the following table sets forth estimated factory shipments for the
domestic furniture industry in general, and the upholstered furniture segment
in particular, during each of the four years ended December 31, 2001.
1998 1999 2000 2001*
----- ----- ----- -----
(in billions)
Industry shipments............. $23.0 $25.0 $25.6 $22.9
Upholstered furniture shipments 9.5 10.6 10.9 9.7
- --------
* Estimated
The principal categories of furniture products include wood, upholstered and
metal furniture products. Of these categories, wood is the largest,
representing approximately half of total industry sales, while upholstered
furniture represents approximately 40% and metal and other products account for
the balance. Within each category, furniture manufacturers generally focus on
particular price ranges and styles.
The furniture industry historically has been cyclical, fluctuating with the
general economy. Management believes that the industry is significantly
influenced by consumer behavior and confidence, personal disposable income,
demographics, housing activity, interest rates, and credit availability. The
upholstered segment of the furniture industry generally has followed the same
trends as the rest of the furniture industry. There can be no assurance that an
economic downturn would not have a material adverse effect on the Company.
As Management indicated was likely in last year's report, a significant
economic downturn was encountered in 2001. Beginning just after the first of
the year, the Federal Reserve began cutting interest rates, its primary
recession fighting tool. Over the course of the year, short-term rates declined
by 475 basis points, with most of the decline in the first half of the year.
Incoming orders during the first six months of 2001 were negatively impacted.
In addition to the effects of general economic conditions on incoming volume,
the Rowe unit ceased doing business with two of its major customers early in
2001. One customer, Homelife Furniture Corporation, subsequently filed for
bankruptcy. These two customers accounted for more than half of the total
decline in shipments in 2001.
In response to the decline in orders, production capacity was reduced in
January 2001, and later, workweeks were shortened in the manufacturing plants
as the summer shutdown period approached. After returning from the shutdown,
incoming orders began to slowly improve, and by late August and early
September, Management was beginning to feel cautiously optimistic that the
economy was beginning to recover. The tragic events of September 11/th/,
however, significantly damaged those hopes. One impact of the events of
September 11/th/ has been a change in consumers' behavior that has promising
implications for the home furnishings industry. People have traveled less since
September 11/th/, and are spending more time at home with family and friends.
As a result, expectations are that consumers will use more of their disposable
income on home furnishings in the
3
coming months, rather than on travel and outside entertainment such as
restaurant meals. This trend was evident in the business press as holiday sales
were strong in areas such as home entertainment, and our own business improved
enough for the holiday season to return the Company to profitability in the
fourth quarter. Business so far in fiscal 2002 has continued this trend.
While fiscal 2002 has started on a positive note, it is unclear whether the
overall economy is ready to come out of recession. The Company has taken
numerous steps intended to improve operating results regardless of overall
economic conditions, and has identified other steps, which could be taken if
conditions were to deteriorate further. The Company continues to monitor
incoming order levels as well as sales at the retail units and dealers, and
will take steps as conditions require.
Wholesale Home Furnishings Segment
Product Lines
The wholesale home furnishings segment's products encompass a full line of
upholstered furniture including sofas, loveseats, occasional and dining chairs,
beds, ottomans, recliners and sleep sofas, covered in fabric or leather. The
wholesale segment's products are available in over 750 different fabrics.
Styles offered include traditional, contemporary and transitional designs.
The wholesale segment's product strategy is to provide a wide choice of
furniture styles, fabrics and leathers while providing high quality at
competitive prices. The wholesale segment continually reviews and evaluates its
designs, and primarily on a semi-annual basis, adds and discontinues designs as
it deems appropriate. The wholesale segment identifies trends in styles, colors
and patterns through independent research, contacts with the wholesale
segment's customers and the occasional use of independent designers. Management
also solicits opinions from its customers and manufacturing and marketing
employees prior to final design selection.
Marketing and Sales
The wholesale segment has developed a broad and diverse national customer
base. The wholesale segment sells its manufactured products primarily through
commissioned sales personnel who are employees of the wholesale segment,
dedicated to marketing the wholesale segment's products exclusively. Management
believes that this arrangement gives the wholesale segment a competitive
advantage over many of its competitors, which sell their products through
independent sales representatives who represent more than one manufacturer. The
wholesale segment's products are sold to over 1,100 national, regional and
local furniture retailers, including Jordan's Furniture, Crate & Barrel,
Pottery Barn, Restoration Hardware and the Company's wholly-owned subsidiaries,
Home Elements and Storehouse.
While the wholesale segment sells its products throughout the United States,
management believes that there are opportunities for greater penetration in the
regions where the wholesale segment's products are not widely distributed. The
wholesale segment has targeted key retailers in these markets as opportunities
for growth.
The general marketing practice in the furniture industry is to exhibit
products at international and regional furniture markets. The wholesale segment
displays its product lines and introduces new products in April and October of
each year at an eight-day furniture market held in High Point, North Carolina.
The wholesale segment maintains two showrooms totaling 67,400 square feet at
the High
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Point market. In addition, the wholesale segment has developed plans to
increase sales in foreign markets, primarily in North America and Europe.
Approximately 4% of 2001 segment sales were to customers located outside of the
United States.
Retail Distribution
Management believes there are ample opportunities to expand the wholesale
segment's retail distribution network. The wholesale segment strives to
maintain strong relationships with, and increase sales to its existing
retailers. It also attempts to increase sales by adding new retailers,
particularly in geographic regions where its products are not widely
distributed, such as the Southwest and the West. When adding retailers, the
wholesale segment targets what it believes to be financially sound retailers
committed to progressive marketing approaches and the desire to carry a broad
selection within the wholesale segment's product line.
Key Customers. The wholesale segment sells its products to over 1,000
accounts with normal credit terms being net 30 days. Shipments to the wholesale
segment's top three customers as a percentage of net shipments were 16% in
2001, 15% in 2000 and 17% in 1999. Shipments to the wholesale segment's top ten
customers as a percent of net shipments amounted to 26% in 2001, 28% in 2000
and 31% in 1999. Combined shipments to the Company's retail segment were
$23,775,000 in 2001, $23,616,000 in 2000 and $21,158,000 in 1999, including
shipments to Storehouse prior to its acquisition by the Company.
Manufacturing and Distribution
The wholesale segment manufactures its products in six production
facilities, of which five are owned and one is leased. Two facilities
manufacture upholstered furniture; one facility manufactures upholstered and
leather furniture and one facility is used for frame storage and assembly. The
remaining two facilities manufacture upholstered frames and wood components in
addition to kiln-drying lumber for outside customers. Total manufacturing space
is approximately 1.4 million square feet.
Manufacturing Process. The wholesale segment primarily utilizes a
vertically integrated manufacturing process which includes kiln-drying of
hardwood, wood milling, frame construction, fabric and leather cutting, sewing,
foam cutting and filling, upholstery and final assembly of the upholstered
product. Rowe utilizes computer-aided design patterns and CNC Routers to
manufacture frames for upholstered furniture and both Rowe and Mitchell Gold
utilize specialized machines in the fabric cutting process which facilitate
design work, help maximize fabric yield, and increase the efficiency of the
assembly process. The completed pieces of upholstered furniture are then
cleaned, inspected and packed for shipping.
Manufacturing Efficiencies. Management has taken a number of steps to
improve manufacturing efficiencies, including implementation of computerized
systems in its manufacturing facilities to more effectively manage its
inventories, purchasing, labor and manufacturing processes; changes in its
employee compensation program; and the establishment of new internal systems to
control overhead and material usage. Management believes through a combination
of increased efficiencies, improved product quality, accelerated deliveries and
stable pricing, the wholesale segment will maintain a competitive advantage in
marketing its products.
Product Quality and Value. The wholesale segment is committed to providing
high quality, value oriented furniture at competitive prices. Management
believes the wholesale segment adheres
5
to strict quality standards in all aspects of design and production, including
material selection, frame design and construction, workmanship, and appearance.
Product quality improvements in recent years include better undercarriage
construction, the use of higher quality cushioning materials and improved
fabric matching. A lifetime, limited warranty applicable to most of the
wholesale segment's products covering the frames, springs, mechanisms and
selected cushions reflects the wholesale segment's commitment to high quality.
The wholesale segment has been successful in providing this quality while
generally holding prices constant in recent years.
Dedication to Customer Service. The wholesale segment is dedicated to
providing a high level of service to all its customers. The wholesale segment
maintains close contact and communicates frequently with its customers in order
to better identify, understand and meet their needs. Management believes the
utilization of wholesale segment-employed sales persons enables it to better
communicate with its customers.
Important aspects of the wholesale segment's service to certain customers
include its automated order entry, bar coding and electronic data interchange
systems. These systems give customers the ability to place orders directly, and
allows the wholesale segment to monitor the status of orders and track
inventory and sales activity. The wholesale segment is in the process of
enhancing the capabilities of these systems and increasing the number of
customers who utilize them. In addition, the wholesale segment has introduced
point-of-sale computer systems into Home Elements stores, several Storehouse
stores and other dealer locations that allow retailers to display for consumers
full-color pictures of various combinations of furniture styles and fabric
patterns. The wholesale segment has established regional repair service centers
so that it can respond quickly to consumers' needs.
Another special emphasis of the wholesale segment's customer service is the
prompt delivery of its products, a significant portion of which are
manufactured and shipped generally within 30 days of receipt of an order. The
wholesale segment's order entry, credit approval, manufacturing and shipping
systems are all designed to provide prompt delivery to its customers.
Employee Compensation. At Rowe, employees are compensated primarily on
hourly rates plus bonuses for productivity improvements and cost reductions on
a facility-wide basis. Management believes that this program provides incentive
for employees to contribute to facility-wide efficiency, quality improvements
and cost reductions. On a facility-wide basis, 2001 monthly incentive bonuses
ranged from 0% to approximately 5% of hourly compensation. Salaried employees
also participate in this program; however, their bonuses cannot exceed the
highest amount paid to an hourly employee. At Mitchell Gold, a piecework system
is the primary method of compensation for production employees.
Computer Systems. The wholesale segment makes extensive use of a
computerized management information system (MIS) in the manufacturing process.
The MIS, which includes software developed by Rowe, helps manage order entry,
purchasing, labor, inventories, receivables and product shipments. Management
believes that its MIS is advanced by furniture industry standards; however, the
wholesale segment intends to continue to upgrade the system by developing
and/or purchasing new software to handle new applications and additional
demands of anticipated future growth.
During 2001, Rowe continued implementation of a new production planning and
scheduling system. The process has helped Rowe work toward more efficient
scheduling and production, increased visibility of orders through the
production process and improved efficiency of the finished
6
goods warehousing and truck loading operations. Enhancements to the system
during 2002 should continue to increase the benefits.
Manufacturing Capacity. The wholesale segment primarily operates its
manufacturing facilities on a one-shift, five-or-six-day per week basis,
although partial second shifts are used in some facilities. Management believes
that the wholesale segment could expand production within existing facilities
without substantial capital expenditures by increasing personnel on first and
second shifts. At this time, the Company has no plans to construct additional
manufacturing facilities.
Backlog. The wholesale segment generally manufactures its products in
response to actual customer orders and typically ships the finished product
within 30 days following receipt of the related order, depending upon fabric
availability. Accordingly, the level of backlog at any particular time is
limited, and is not necessarily indicative of the level of future shipments.
The wholesale segment's backlog of unshipped orders was approximately $17
million as of December 2, 2001, compared to $20 million as of December 3, 2000.
The wholesale segment anticipates that 100% of the backlog as of December 2,
2001 will be shipped in 2002.
Distribution. Rowe's products are primarily shipped to its customers
through a dedicated carriage service with a nationally recognized truck leasing
company. Under this agreement, Rowe's products are delivered in accordance with
Rowe's specifications on a modern fleet of over-the-road tractors and trailers
that prominently display the Rowe Furniture name. Management believes that this
agreement offers favorable terms, allows it to meet its delivery deadlines and
improves Rowe's name recognition. This agreement was renewed in 1999 for an
additional six years. West Coast shipments are provided by what management
believes to be a favorable arrangement for carriage of Rowe's products with a
third party motor carrier. International shipments of upholstered furniture are
primarily shipped in full containers utilizing third-party freight forwarders.
Approximately 80% of Rowe's fiscal year 2001 shipments were delivered under
these arrangements. Mitchell Gold primarily ships product via common carriers
utilizing either full or partial loads.
Raw Materials
The raw materials used by the wholesale segment include fabrics, leather,
lumber, plywood, assembled frames, polyurethane foam, metal components,
mattresses and finishing materials. Other than lumber, fabric and leather, all
raw materials used by the wholesale segment are generally available on an "as
needed" basis. The wholesale segment maintains what it believes to be an
adequate supply of raw materials in inventory.
The wholesale segment currently obtains its raw materials from a limited
number of suppliers, and in the case of hardwood plywood, primarily from a
single supplier. However, management does not believe the wholesale segment is
dependent upon a single supplier for any of its materials, as substitute
suppliers are available. Management believes that its sources of raw materials
are adequate. Management forms strong relationships with its suppliers and
negotiates favorable prices for its raw materials.
To improve quality, maximize the opportunities to implement labor saving
technology, hedge against the potential of rising wood costs and free up kiln
capacity, Rowe has increased the substitution of hardwood plywood for hardwood
in certain aspects of the construction of its furniture frames. Because plywood
construction is less labor-intensive, and in many respects more structurally
sound than hardwood construction, this method has improved product quality
while helping to reduce overall cost.
7
Retail Operations
Retail Home Furnishings Segment
The retail home furnishings segment includes the Home Elements and
Storehouse retail furniture chains. The retail segment is the largest customer
of the wholesale segment, and would be included in the top ten customer list if
the retail segment was an unaffiliated customer.
The retail segment operates 59 retail stores ranging in size from 4,000 to
18,000 square feet and three distribution centers averaging approximately
75,000 square feet each. All retail store locations and distribution centers
are leased. The stores are located throughout the mid-Atlantic, northeastern,
southeastern, and southwestern United States, particularly in Atlanta, Georgia,
Florida, Texas and the Washington, DC/Baltimore metropolitan area. These stores
sell upholstered and leather furniture, virtually all of which is provided by
the wholesale segment; case goods, such as tables, bedroom furniture, chairs
and entertainment centers; and lamps, rugs and other accessories.
The retail segment generally targets a well-educated, middle to upper income
customer. While in the past, advertising efforts have been primarily
print-based ads in newspapers and inserts, the segment began utilizing
television ads during 1999, and has been expanding in subsequent years. During
2001, however, the retail segment cut back on its television advertising.
Advertising costs are expected to decrease further in 2002, due to lower levels
of television advertising and revamped print advertising methods.
The retail segment added five new stores in fiscal year 2001, while closing
three smaller, unprofitable stores. In 2002, several additional store closings
are anticipated for unprofitable locations. The segment also expects to open
three new stores, as leasing conditions have become much more favorable in
light of recent economic conditions.
During 2002, changes will be made in the operations of the retail segment. A
consolidation of back office operations has begun, and additional consolidation
of operations, such as merchandising and advertising, will soon follow. At this
point, the impact on fiscal 2002's operating results is estimated to be
slightly negative, as costs such as systems conversation costs and moving costs
are incurred upfront, while benefits are realized later. For future years,
however, annual savings are expected to be positive, through reduced head count
overall in the administrative areas, efficiencies in advertising and delivery
networks and improved purchasing power with various vendors for the combined
operation.
Governmental Regulations and Environmental Considerations
The Company's operations are required to meet federal, state and local
regulatory standards in the areas of safety, health and environmental pollution
controls. Historically, compliance with these standards has not had a material
adverse effect on the Company's operations. Management believes that the
wholesale segment's plants are in compliance, in all material respects, with
applicable federal, state and local laws and regulations concerned with safety,
health and environmental protection.
The Company currently anticipates increased federal and state environmental
and health and safety regulations affecting the furniture industry,
particularly regarding flammability standards,
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emissions from paint and finishing operations and wood dust levels in the
manufacturing process. Any such additional regulations could affect the
wholesale segment's upholstery, wood milling and finishing operations. The
industry and its suppliers are attempting to develop water-based finishing
materials to replace commonly used organic-based finishes, which are a major
source of regulated emissions. The Company cannot at this time estimate the
impact of any new regulations on the Company's operations or the costs of
compliance.
Competition
The furniture industry is highly competitive and includes a large number of
manufacturers and retailers. The market in which the Company competes includes
a large number of manufacturers of upholstered and wood furniture as well as a
growing base of specialty furniture retailers. Certain of the Company's
competitors have greater financial resources than the Company. Management
believes that the high quality, design and competitive pricing of the Company's
products, the Company's unique retail format, the Company's reputation among
retailers and customers and the Company's commitment to customer service have
enabled the Company to compete successfully in this market.
Employees
As of December 2, 2001, the Company employed approximately 3,048 full-time
employees, of whom approximately 649 are in management, supervisory and sales
positions. None of the Company's employees are covered under a collective
bargaining agreement. The Company considers its employee relations to be good.
Trademarks
The Company, through a wholly-owned intellectual property holding company,
has registered its "Rowe", "A Whole New Way to Buy Furniture", "The Rowe
ShowPlace", "The ShowPlace Coordinated Home Furnishings by Rowe", "Rowe First
in Fashion", "Regency Manor", "The Rowe ShowMe Machine", "Limited Editions",
"The ShowPlace", "Cover Ups", "Comfortable Stuff", "Comfortable Stuff by Rowe",
"Robin Bruce", "MG", "Mitchell Gold", "Room Sense" and "Rowe Furniture Rowe"
trademarks with the United States Patent and Trademark Office. The Company,
through a wholly-owned operating subsidiary, has also registered with the
United States Patent and Trademark Office the "Storehouse" trademark.
Applications for registration of the Company's "Home Elements", "Home Wear",
"Room Scenes", "J. L. D. Jami L. Designs Really Smart Furniture", Jami L.
Designs", and "Really Smart Furniture" trademarks are pending before the United
States Patent and Trademark Office. In addition, the Company has certain of its
trademarks registered in Australia, Canada, Chile, the European Community,
Germany and Mexico, and applications for registration of certain of the
Company's trademarks are pending in Australia, Brazil, Canada, the European
Community and Mexico. The Company is in the process of applying for
registration of certain of its marks in Argentina, Chile, the Dominican
Republic, Egypt, Japan, Kuwait, Saudi Arabia, Singapore, South Korea, Thailand
and Turkey. Management believes that its trademark position is adequately
protected in all markets in which the Company does business. Management also
believes that the Company's trade names are recognized by dealers and
distributors and are associated with a high level of quality and value.
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Insurance
The Company maintains what management believes is a complete liability and
property insurance program. Additionally, the Company maintains self-insurance
programs for that portion of health care costs not covered by insurance.
Financing
The Company utilizes bank financing to partially fund working capital
requirements, capital expenditures, stock repurchases and funding of
acquisitions. In 1998 and 1999, overall funding requirements increased and the
Company entered into two borrowing arrangements in November 1998 and July 1999,
both as amended in October 2000, in the form of two $25 million revolver loans.
Beyond this financing, the Company maintains committed credit lines in the
amount of $10 million through one banking institution. At December 2, 2001, $51
million was outstanding under revolver loans. In addition, $9.4 million of
short-term borrowings were outstanding under the Company's short-term credit
facility.
In conjunction with the purchase of Mitchell Gold, the Company guaranteed
and assumed responsibility for the $6.0 million Industrial Revenue Bond used to
finance the construction of a new production facility. The Company also issued
$3 million of convertible debentures as part of the initial purchase price of
Mitchell Gold. The debentures matured on October 31, 2001. Effective November
1, 2001, the Company was in default under the repayment provisions of the
debentures, and the debentures are no longer convertible into shares of the
Company's common stock.
In August 1999, as amended in October 2000, the Company executed an
agreement to enter into a five-year lease for its new upholstery manufacturing
facility located in Elliston, Virginia. In addition, the Company entered into
operating leases of approximately $1.6 million for office equipment and rolling
stock at this location.
The Company's financing agreements (covering the revolving bank loans,
Industrial Revenue Bond and short-term borrowings) contain financial covenants.
Beginning in May, 2001 the Company was in default of these financial covenants.
The Company signed forbearance agreements with its lenders that provided the
Company with a period of time to arrange alternative financing. In conjunction
with the forbearance agreements, the interest rates on the Company's bank debt
converted from LIBOR plus a spread to prime plus a spread. In addition, the
Company was required to draw down all available funds under the existing
agreements.
In March 2002, the Company reached agreements with its existing lending
institutions and new lending institutions to refinance the Company's short-term
borrowings and revolving bank loans, pay off the debentures, and cure the
financial performance default under the Industrial Revenue Bond. Commitments
have been signed with these lenders, subject to satisfactory documentation, and
closing of these agreements is anticipated to occur in April 2002. Under the
terms of the new agreements, essentially all of the Company's assets are
pledged as collateral. See Note 6 of the Notes to the Consolidated Financial
Statements.
During the fourth quarter of fiscal 2000, the Company entered into two
interest rate derivative contracts for the purpose of hedging the Company's
exposure to rising interest rates under the lease for the Elliston facility.
The Company executed a contract to swap variable rates (based on 30 day LIBOR)
for fixed rates on $20 million notional principal through August 2004. The
contract locked in a fixed rate of 6.805% (plus a spread based upon financial
performance of the Company). The Company also executed an interest rate collar
contract on $5 million notional principal with a floor of 5.75% and a cap of
8.25% (both plus a spread based upon financial performance). As of December
10
2, 2001, 30 day LIBOR was 2.14%. The Company has recorded a liability for the
present value of the excess of payments under the swap contract. The fair value
of the swap is reflected in other comprehensive income, net of taxes, as the
Company has designated this contract as a cash flow hedge.
Goodwill
The Company recorded approximately $15 million in goodwill from the
acquisition of Mitchell Gold, including $5 million paid during fiscal year 2000
under the interim earn-out provisions of the purchase agreement. The Company
recognized approximately $16 million in goodwill from the acquisition of
Storehouse.
Item 2. Properties.
The following table sets forth certain information concerning the wholesale
segment's manufacturing facilities:
Approximate Owned
Size in or
Location Description Square Feet Leased
-------- --------------------- ----------- ------
Salem, Virginia.......... Manufacturing 241,000 Owned
Elliston, Virginia....... Administrative Office
and Manufacturing 435,000 Leased
Poplar Bluff, Missouri... Manufacturing 300,000 Owned
Morehouse, Missouri...... Manufacturing 136,000 Owned
Taylorsville, N. Carolina Administrative Office
and Manufacturing 265,000 Owned
Taylorsville, N. Carolina Manufacturing 50,000 Owned
In addition, the Company leases executive and administrative offices in
McLean, Virginia, administrative offices in Atlanta, Georgia, 59 retail store
locations, 3 retail distribution centers and 2 showrooms. The Company considers
these facilities to be adequate and well maintained.
In addition, the Company owns the following properties that are held for
investment and are leased on a net basis:
Approximate
Size in
Location Lease Expires Description Square Feet
-------- ------------- ----------------- -----------
Christiansburg, Virginia. Various thru Industrial 79,000*
07-31-02
Salem, Virginia.......... Various thru Industrial 335,000*
09-30-02
Jessup, Maryland......... Various thru Office/Industrial 180,000
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06-03-05
Sylmar, California. 03-31-04 Industrial 115,000
- --------
* 25% of these properties are currently leased
Investment properties located in Christiansburg, Virginia and Sylmar,
California were originally acquired by the Company between 1972 and 1985 for
utilization as manufacturing facilities. The Salem, Virginia property was Rowe
Furniture's main administrative offices and manufacturing facility for many
years. In past years (fiscal 2000 for the Salem, Virginia property), the
Company ceased utilizing these facilities for its own operations and determined
that the best return on these properties could be realized by leasing them to
third parties. In February 1995, the Company completed the sale of a 175,000
square foot warehouse in Sylmar, California. The warehouse had been held by the
Company as investment property. The after-tax gain was approximately $3.0
million, net of lost rents during the disposition period. In June of 1995, the
Company purchased other rental income-producing property in Jessup, Maryland to
permit a "tax-deferred" exchange with the proceeds realized from this
transaction. A retail property located in Leesburg, Florida, which was acquired
in 1984, was sold during fiscal year 1997. In 1998, the value of the investment
property in Christiansburg, Virginia was written down by $288,000 to more
appropriately reflect current value, as new tenants had not been secured to
occupy leasable space. Aggregate rental income from investment properties, net
of commissions, was $1,437,000, $1,570,000 and $1,902,000 in 1999, 2000 and
2001, respectively.
The Company also holds leasehold interests in two other properties (in
Carson and Pasadena, California) through its discontinued Wexford subsidiary.
The Company subleased these properties on a pass through basis in January of
2001.
Item 3. Legal Proceedings.
There are no pending legal proceedings, other than routine litigation
incidental to the business of the Company. While the outcome of these routine
legal proceedings cannot be predicted with certainty, it is the opinion of
management that the resolution of these legal proceedings should not have a
material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies, or otherwise, during the quarter ended December 2,
2001.
12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) The information contained under the caption "Stock Price and Dividend
Data" on page 28 in the Annual Report to Stockholders for the fiscal year ended
December 2, 2001 is included in Exhibit 13 hereto and incorporated herein by
reference.
(b) Approximate Number of Equity Security Holders.
Approximate Number of Record
Title of Class Holders as of December 2, 2001
-------------- ------------------------------
Common Stock, par value $1.00 per share 1,000
Item 6. Selected Financial Data.
The information contained under the caption "Five-year Summary" on page 6 in
the Annual Report to Stockholders for the fiscal year ended December 2, 2001 is
included in Exhibit 13 hereto and incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The management's discussion and analysis of financial condition and results
of operations section on pages 7 to 10 of the Annual Report to Stockholders for
the fiscal year ended December 2, 2001 is included in Exhibit 13 hereto and
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Risk Disclosures
Because the Company's obligations under its term loans, revolving loans,
lines of credit and industrial revenue bonds bear interest at variable rates,
the Company is sensitive to changes in prevailing interest rates. A 10%
fluctuation in market interest rates would result in a change of approximately
$430,000 in interest expense during the 2002 fiscal year.
Forward Looking Information
Certain portions of this report contain forward looking statements. These
statements can be identified by the use of future tense or dates or terms such
as "believe," "expect," "anticipate" or "plan." Important factors could cause
actual results to differ materially from those anticipated by some of the
statements made in this report. Some of the factors include, among other
things, changes from anticipated levels of sales, whether due to future
national or regional economic and competitive conditions, customer acceptance
of existing and new products, or otherwise; pending or future litigation;
pricing pressures due to excess capacity; raw material cost increases;
transportation cost increases; the inability of a major customer to meet its
obligations; loss of significant customers in connection with a merger or
acquisition, bankruptcy or otherwise; actions of current or new
13
competitors; increased advertising costs associated with promotional efforts;
change of tax rates; change of interest rates; future business decisions and
other uncertainties, all of which are difficult to predict and many of which
are beyond the control of the Company.
Item 8. Financial Statements and Supplementary Data.
The following information on pages 11 to 27 in the Annual Report to
Stockholders of the fiscal year ended December 2, 2001 is included in Exhibit
13 hereto and incorporated herein by reference:
. Consolidated Balance Sheets--December 2, 2001 and December 3, 2000
. Consolidated Statements of Operations and Comprehensive Income
(Loss)--Years Ended December 2, 2001, December 3, 2000 and November 28,
1999
. Consolidated Statements of Stockholders' Equity--Years Ended December 2,
2001, December 3, 2000 and November 28, 1999
. Consolidated Statements of Cash Flows--Years Ended December 2,
2001, December 3, 2000 and November 28, 1999
. Notes to Consolidated Financial Statements (includes selected quarterly
financial data)
. Report of Independent Certified Public Accountants
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
14
PART III
Notwithstanding anything below to the contrary, the Report of the
Compensation and Stock Option Committees and the Performance Graph contained on
pages 11 through 14 of the Company's 2002 Annual Meeting Proxy Statement are
not incorporated by reference in this Form 10-K.
Item 10. Directors and Executive Officers.
The information required by Item 10 is contained in the Company's 2002
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the Company's 2002
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the Company's 2002
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the Company's 2002
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The consolidated balance sheets as of December 2, 2001 and December 3, 2000
and the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity, cash flows and notes to consolidated financial
statements for each of the three years in the period ended December 2, 2001,
together with the report of BDO Seidman, LLP dated January 4, 2002, except for
Note 6 which is as of March 5, 2002, appearing in the 2001 Annual Report to
Stockholders are incorporated herein by reference. The following additional
financial data should be read in conjunction with the consolidated financial
statements in such 2001 Annual Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Certified Public Accountants on Financial Statement
Schedule.
Schedule II--Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the consolidated financial statements and notes thereto.
3. Exhibits:
Exhibit
Number Exhibit
- ------ -------
3.1 Articles of Incorporation of the Company (incorporated by reference to the Company's Registration
Statement on Form S-1 No. 33-74504 filed with the Securities and Exchange Commission on January
27, 1994)
3.2 Certificate of Amendment dated March 30, 1999, of Articles of Incorporation of The Rowe
Companies (incorporated by reference to the Company's Registration Statement on Form S-8 No.
333-82571 filed with the Securities and Exchange Commission on July 9, 1999)
3.3 By-laws of the Company (incorporated by reference to the Company's form 10-K files with the
Securities and Exchange Commission on February 26, 2001)
4 Specimen Stock Certificate (incorporated by reference to the Company's Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on January 5, 1994)
10.2 Rowe Furniture Corporation Amended and Restated Supplemental Executive Retirement Plan
II (incorporated by reference to the Company's Registration Statement on Form S-1 No. 33-
74504 filed with the Securities and Exchange Commission on January 27, 1994)
16
Exhibit
Number Exhibit
- ------ -------
10.5 Employment Agreement dated December 6, 1984 between the Company and Mr. Barry A.
Birnbach (incorporated by reference to the Company's Form 10-K filed with the Securities and
Exchange Commission on February 25, 2000)
10.6 First Amendment to the Salary Continuation Agreement By and Between Rowe Furniture
Corporation and Barry A. Birnbach dated August 28, 1995 (incorporated by reference to the
Company's Form 10-K filed with the Securities and Exchange Commission on February 25, 2000)
10.7 Amended and Restated The Rowe Companies Cash-or-Deferred Non-Qualified Executive
Retirement Plan effective March 28, 2000 (incorporated by reference to the Company's Form
10-K filed with the Securities and Exchange Commission on February 26, 2001)
10.10 Employment Agreement dated February 2, 1998 between the Company and Mr. Gerald M.
Birnbach (incorporated by reference to the Company's Form 10-K filed with the Securities and
Exchange Commission on February 12, 1998)
13 Portions of the Annual Report for the year ended December 2, 2001
21 List of Subsidiaries
23 Consent of BDO Seidman, LLP
(b) Reports on Form 8-K.: None
17
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.
THE ROWE COMPANIES
By: /s/ M. M. THURMOND
-------------------------
M. M. Thurmond
Chief Financial Officer,
Secretary-Treasurer
March 6, 2002
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ G. M. BIRNBACH Chairman of the Board March 6, 2002
- ----------------------------- President, Director
G. M. Birnbach (Principal Executive Officer)
/s/ R.E. CHENEY Director March 6, 2002
- -----------------------------
R. E. Cheney
- ----------------------------- Director March 6, 2002
M. S. Gold
/s/ H. I. PTASHEK Director March 6, 2002
- -----------------------------
H. I. Ptashek
/s/ C. T. ROSEN Director March 6, 2002
- -----------------------------
C. T. Rosen
/s/ K. J. ROWE Director March 6, 2002
- -----------------------------
K. J. Rowe
/s/ S. J. SILVER Director March 6, 2002
- -----------------------------
S. J. Silver
/s/ ALLAN TOFIAS Director March 6, 2002
- -----------------------------
Allan Tofias
/s/ G. O. WOODLIEF Director March 6, 2002
- -----------------------------
G. O. Woodlief
18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Rowe Companies
McLean, Virginia
The audits referred to in our report dated January 4, 2002, except for Note
6 which is as of March 5, 2002 relating to the consolidated financial
statements of The Rowe Companies, which is contained in Item 8 of this Form
10-K (incorporated in Item 8 of the Form 10-K by reference to the annual report
of stockholders for the year ended December 2, 2001) included the audit of the
financial statement schedule listed in the accompanying index. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO SEIDMAN, LLP
--------------------
BDO Seidman, LLP
High Point, North Carolina
January 4, 2002
19
THE ROWE COMPANIES
AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 2, 2001, December 3, 2000 and November 28, 1999
(Thousands of Dollars)
COL. A COL. B COL. C COL. D COL. E
- ---------------------- ---------- --------------------- ------------ ----------
Additions
---------------------
(2)
(1) Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions-- End of
Description of Period Expenses (Describe) (Describe) Period
- ----------- ---------- ---------- ---------- ------------ ----------
Allowance for doubtful
Accounts--2001....... $1,856 $4,421 $ -- $ 5,220(A) $1,057
Allowance for doubtful
Accounts--2000....... $ 864 $1,884 $ -- $ 892(B) $1,856
Allowance for doubtful
Accounts--1999....... $ 875 $ 413 $ -- $ 424(C) $ 864
- --------
(A) Accounts charged off less bad debt recoveries of $69,000
(B) Accounts charged off less bad debt recoveries of $132,000
(C) Accounts charged off less bad debt recoveries of $5,000
20