SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 2002 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________to__________________
Commission file number I-91
----
Furniture Brands International, Inc.
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
Delaware 43-0337683
- -------------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
- ---------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
- -------------------------------------------------- ---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
- ------------------------------------------- --------------------------------
Common Stock - $1.00 Stated Value New York Stock Exchange
with Preferred Stock Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (X)
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 2003, was approximately $1,008,961,889.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
56,277,066 shares as of February 28, 2003
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 24, 2003................................. Part III
PART I
Item 1. Business
(c) Narrative Description of Business
The Company, one of the largest manufacturers of residential furniture in the
United States, markets its products through its four operating subsidiaries:
Broyhill Furniture Industries, Inc.; Lane Furniture Industries, Inc.;
Thomasville Furniture Industries, Inc., and HDM Furniture Industries, Inc.
PRODUCTS
The Company manufactures and distributes (i) case goods, consisting of bedroom,
dining room and living room furniture, (ii) stationary upholstery products,
consisting of sofas, loveseats, sectionals and chairs, (iii) occasional
furniture, consisting of wood, metal and glass tables, accent pieces, home
entertainment centers and home office furniture, (iv) recliners, motion
furniture and sleep sofas, and (v) accessories. The Company's brand name
positioning by price and product category is shown below.
UPHOLSTERY
----------------------------------------
PRICE RECLINER/
CATEGORY CASE GOODS OCCASIONAL STATIONARY MOTION ACCESSORIES
- -------- ---------- ---------- ---------- --------- -----------
PREMIUM Henredon Henredon Henredon Maitland-Smith
Drexel Heritage Drexel Heritage Drexel Heritage
Maitland-Smith Maitland-Smith Maitland-Smith
Hickory Chair Hickory Chair Hickory Chair
Pearson
BEST Thomasville Thomasville Thomasville Thomasville
Drexel Heritage Drexel Heritage Drexel Heritage
Broyhill Broyhill HBF
HBF Broyhill
Highland House
BETTER Drexel Heritage Drexel Heritage Drexel Heritage Lane
Lane Lane Lane Broyhill
Broyhill Broyhill Broyhill
Highland House
GOOD Broyhill Broyhill Broyhill Lane
Broyhill
PROMOTIONAL Founders
RTA Creative
Interiors
BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium-priced bedroom, dining room and living
area furniture aimed at middle-income consumers. Broyhill's wood furniture
offerings consist of bedroom, dining room and living room furniture, occasional
tables, accent items, free-standing home entertainment centers and home office
furniture. Upholstered products include sofas, sleep sofas, loveseats,
sectionals, chairs, and fully reclining furniture all offered in a variety of
fabrics and leathers. Broyhill's residential furniture divisions produce a wide
range of furnishings in country, traditional, European, contemporary and
lifestyle designs.
The widely recognized Broyhill trademarks include Broyhill and Broyhill
Indulgence. The flagship Broyhill product line concentrates on bedroom, dining
room, upholstered and occasional furniture designed for the "good" and "better"
price categories. The Broyhill Indulgence product line enjoys an excellent
reputation for highly styled, case goods collections in the "best" price
category.
LANE FURNITURE INDUSTRIES
Lane manufactures and markets a broad range of high quality furniture targeting
the "good" and "better" price categories. Lane targets niche markets with its
three operating divisions, which participate in such segments of the residential
furniture market as reclining chairs and motion furniture, cedar chests and
wicker and rattan.
Lane's upholstery division manufactures and markets reclining chairs and motion
furniture in the "good" and "better" price categories under the Lane brand name.
Motion furniture consists of sofas and loveseats with recliner-style moving
parts and comfort features. Other upholstered furniture consists of wall saver
recliners, pad-over chaise recliners, hi-leg recliners, sleep sofas and motion
sectionals. Royal Development Company, a division of Lane, designs and
manufactures the mechanisms used in Lane's reclining furniture products. The
Lane Leather collection represents an important source of growth for Lane's
upholstery division, as leather is the fastest-growing category in upholstered
furniture. The collection, priced in the "better" category comes in three styles
- - American ranch, American traditional and urban contemporary. Lane has also
recently introduced a stationary line of upholstered furniture which is enjoying
good success.
Lane's wood furniture division markets cedar chests, living room, bedroom and
dining room furniture, wall systems, desks, console tables and mirrors and other
occasional wood pieces. Sold under the Lane brand name, the case goods
collections and individual products are sold in the "good" and "better" price
categories.
Laneventure manufactures and markets moderately priced wicker, rattan, bamboo,
exposed aluminum and teak furniture, tables, occasional wood pieces and two
lines of upholstered furniture under the Laneventure brand name. One line is
comprised of contemporary and modern upholstered furniture and metal and glass
occasional and dining room tables, and the other which is comprised of
traditional and contemporary upholstered furniture, primarily sofas, loveseats,
chairs and ottomans. Laneventure also manufactures outdoor and patio furniture
featuring fast drying upholstered cushions under the sub-brand name
WeatherMaster, which has developed significant consumer acceptance.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville manufactures and markets wood furniture, upholstered products and
promotional/RTA furniture. Thomasville markets its products primarily under the
Thomasville brand name, and has several other divisions which market products
under separate brands. Thomasville offers an assortment of upholstery and wood
furniture under one brand name that targets the "best" price category.
Upholstery is primarily marketed in three major styles: traditional, American
traditional/country and casual/lifestyle contemporary. Upholstery style is
determined by both frame style and fabric or leather selection. Thomasville's
frame assortment allows the consumer to select from a wide variety of different
styles within the general style categories, and as much as 45% of the
Thomasville fabric and leather offering changes in a 12 month period, insuring
that the latest colors and textures are available. Wood furniture is primarily
marketed in four major styles: American traditional/country, 18th century,
European traditional and casual contemporary.
Hickory Chair manufactures and markets traditional styles of upholstered
furniture, dining room collections and occasional tables in the "best" and
"premium" price categories. The Hickory Chair division has been crafting fine
reproductions of 18th century furniture for over 80 years. For example, Hickory
Chair offers the James River collection which features reproductions of fine
furnishings from Virginia plantations, and the Mount Vernon collection, which
features reproductions from George Washington's home. In October 2000, Hickory
Chair introduced its Thomas O'Brien collection, which includes upholstery,
chairs, tables, beds and cabinetry in O'Brien's acclaimed "warm modernist"
style. A collection of case goods and upholstery designed by William Poole has
also been recently introduced.
Pearson has been manufacturing and selling contemporary and traditional styles
of finely tailored upholstered furniture including sofas, loveseats, chairs and
ottomans for over 50 years. Pearson furniture sells in the "premium" price
category and is distributed to high-end furniture stores and interior designers.
HBF manufactures and sells a line of office furniture, including chairs, tables,
conference tables, desks and credenzas, in the upper-middle price range.
Highland House manufactures upholstered products in the "better" and "best"
price categories. Recent introductions include the Rue de Provence collection of
Provencal French bedroom pieces, occasional furniture and upholstery pieces that
use unique fabric selections supplied exclusively to Highland House from
southern France and the Harrod's of Knightsbridge collection which includes
exclusive pieces based upon research from Harrod's Department Stores' archives.
Founders offers assembled bedroom sets, bookcases and home entertainment centers
under the Founders brand name to a variety of retailers for sale to consumer
end-users and certain contract customers. Creative Interiors markets RTA
(ready-to-assemble) furniture such as home entertainment centers, bookcases,
bedroom and kitchen/utility furniture and computer desks under the Creative
Interiors brand name.
HDM FURNITURE INDUSTRIES
HDM Furniture Industries has three operating subsidiaries: Henredon Furniture
Industries, Inc., Drexel Heritage Furniture Industries, Inc. and Maitland-Smith
Furniture Industries, Inc.
Henredon manufactures and markets bedroom, dining room, occasional and
upholstered furniture in the premium price category. Henredon markets its
furniture in 14 collections and is the furniture licensee for the Ralph Lauren
Home Collection and Historic Natchez. Henredon is an industry style and fashion
leader and provides the consumer with unique and distinct products ranging from
contemporary to traditional.
Drexel Heritage launched its new tri-branding strategy in 2002, marketing case
goods and upholstered furniture under three distinct brands: Heritage, Drexel
and dh. The price categories range from "mid to upper premium," targeting female
consumers from 27-year-olds to 50-plus, with beautifully made and designed
products. Furniture styles range from French and European traditional to
contemporary and transitional. Drexel Heritage also manufactures and markets a
line of sophisticated and elegant upholstery and case goods under the Lillian
August brand and produces furniture for the hospitality and government markets.
Drexel currently produces approximately 25 collections with four to six new
collections offered each year.
Maitland-Smith is a leading designer and manufacturer of "best" and "premium"
hand crafted, antique-inspired furniture, accessories and lighting, utilizing a
wide range of unique materials, including distinctive leather, fancy faced
veneer, stone and hand-painted metal. Maitland-Smith markets under the
Maitland-Smith and LaBarge brand names. The Maitland-Smith brand is inspired by
designs from the master craftsmen of 17th, 18th and 19th century England. The
LaBarge brand name emphasizes Continental European design in mirrors and
occasional furniture.
DISTRIBUTION
The Company's strategy of targeting diverse distribution channels such as
furniture centers, independent dealers, national and local chain stores,
department stores, specialty stores and decorator showrooms is supported by
dedicated sales forces covering each of these distribution channels. The Company
continues to explore opportunities to expand international sales and to
distribute through non-traditional channels such as wholesale clubs and catalog
retailers.
The Company's breadth of product and national scope of distribution enable it to
effectively service national retailers such as J.C. Penney and key regional
retailers such as Havertys, Bloomingdale's, Marshall Field, Dillard's, Breuner's
and Kittle's. The consolidation of the retail residential furniture industry has
made access to distribution channels an important competitive advantage for
manufacturers. The Company has developed dedicated distribution channels by
expanding its gallery programs and the network of independent dealer-owned
dedicated retail locations, such as Thomasville Home Furnishings Stores and
Drexel Heritage Home Inspiration Stores. The Company primarily distributes its
products through a diverse network of independently owned retail locations,
which includes 216 freestanding stores, 929 galleries and 700 furniture centers.
Broyhill, Lane, Thomasville and Drexel Heritage have all developed gallery
programs with dedicated dealers displaying furniture in complete room ensembles.
These retailers employ a consistent showcase gallery concept wherein products
are displayed in complete and fully accessorized room settings instead of as
individual pieces. This presentation format encourages consumers to purchase an
entire room of furniture instead of individual pieces from different
manufacturers. Each operating company offers substantial services to retailers
to support their marketing efforts, including coordinated national advertising,
merchandising and display programs and extensive dealer training.
Thomasville Home Furnishings Stores and Drexel Heritage Home Inspiration Stores
are dealer-owned, free-standing retail locations that exclusively feature
Thomasville and Drexel Heritage furniture, respectively. The Company believes
distributing its products through dedicated, free-standing stores strengthens
brand awareness, provides well-informed and focused sales personnel and
encourages the purchase of multiple items per visit.
Haverty Furniture Companies, Inc. and the Company have formed a strategic
alliance whereby Havertys allocates up to one-half of the retail floor space in
all of its stores to the prominent display of product manufactured by the
Company. The Company also has a similar strategic alliance with Kittle's Home
Furnishings, Inc. These alliances advance the Company's strategy of expanding
distribution and dedicated display space.
Showrooms for the national furniture market are located in Thomasville and High
Point, North Carolina and for regional markets in Atlanta, Georgia; Chicago,
Illinois; San Francisco, California; and Tupelo, Mississippi.
BROYHILL FURNITURE INDUSTRIES
One of Broyhill's principal distribution channels is the Broyhill Showcase
Gallery program. This program, started in 1983, involves 319 domestic and
international participating dealer locations. Each dealer in the Broyhill
Showcase Gallery program owns the gallery and the Broyhill furniture inventory.
The program incorporates a core merchandise program, advertising material
support, in-store merchandising events and educational opportunities for the
retail store sales and management personnel. A Broyhill Showcase Gallery
consists of a minimum of 7,500 square feet of dedicated display space. Furniture
is displayed in complete and fully accessorized room settings instead of as
individual pieces.
Introduced in 2001 as a dedicated distribution retail concept, 19 Broyhill
Furniture Showplaces are owned and operated by retail dealers who commit a
minimum of 12,500 square feet of display space to Broyhill products. This
program also offers extensive merchandising and marketing support.
In 2002, Broyhill introduced the Broyhill Home Collections Store dedicated
distribution retail concept. Broyhill Home Collections stores will be owned and
operated by a retail dealer who commits a minimum of 20,000 square feet of
display space to Broyhill products in a free-standing store environment. This
program also offers extensive merchandising and marketing support.
For the retailer that is currently not a participant in the gallery, Showplace
or Home Collections Store programs, Broyhill offers the Independent Dealer
Program. This concept, initiated in 1987, is designed to strengthen Broyhill's
relationship with these retailers by assisting them in overcoming some of the
significant difficulties in running an independent furniture business.
Participating retailers in the Independent Dealer Program commit to a minimum,
pre-selected lineup of Broyhill merchandise and, in return, receive a detailed,
step-by-step, year-round advertising and merchandising plan. The program
includes four major sales events per year, monthly promotional themes and
professionally prepared advertising and recognition on the local level. As part
of the Independent Dealer Program, Broyhill offers the Broyhill Furniture Center
Program to 700 retailers that have committed at least 2,500 square feet
exclusively to Broyhill products arranged in gallery-type room settings. This
program includes all of the benefits of the Independent Dealer Program, plus
additional marketing, design and advertising assistance. The Company seeks to
develop these relationships so that some of these retailers may eventually
become participants in the Broyhill Showcase Gallery, Broyhill Furniture
Showplace or Broyhill Home Collections Store programs.
LANE FURNITURE INDUSTRIES
Lane distributes its products nationally and internationally through a
well-established network of approximately 16,000 retail locations. A diverse
distribution network is utilized in keeping with Lane's strategy of supplying
customers with highly specialized products in selected niche markets. This
distribution network primarily consists of independent furniture stores,
regional chains such as Havertys and Art Van, and department store companies
such as J.C. Penney, May Department Stores, Federated Department Stores and
Dillard Department Stores.
Lane has established specialty gallery programs with 370 participating dealers.
This includes 321 dealer-owned Comfort Showcase Galleries and Comfort
Furnishings Galleries established by Lane's Upholstery division. These galleries
average approximately 4,200 square feet of retail space specifically dedicated
to the display, promotion and sale of Lane upholstery and wood products. Lane
plans to develop its own free-standing stores program through independent
retailers to complement but not compete with their existing distribution
networks.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at 642 independently-owned and three
Company-owned retail locations, including 173 Thomasville Galleries, 162
Thomasville Home Furnishings Stores and 310 authorized dealers. The Thomasville
Gallery concept was initiated in 1983. Thomasville Galleries have an average
7,500 square feet of retail space specifically dedicated to the display,
promotion and sale of Thomasville products. The first Thomasville Home
Furnishings Store opened in 1988. The typical Thomasville Home Furnishings Store
is a 15,000 square foot, independently-owned store offering a broad range of
Thomasville products, presented in a home-like setting by specially trained
salespersons.
Hickory Chair distributes through premium-quality dealers including 22 gallery
locations. Pearson distributes its products primarily through premium-quality
dealers and the interior design trade. The Founders division sells promotional
furniture to a variety of retailers for sale to consumer end-users and certain
contract customers. Promotional furniture is sold to retail chains such as
Costco, Value City, as well as independent furniture stores. Promotional
furniture is also sold in the hospitality and health care markets of
Thomasville's contract business. The Creative Interiors division sells RTA
furniture to customers which include national chains such as Target and
Wal-Mart, catalog showrooms, discount mass merchandisers, warehouse clubs and
home furnishings retailers.
HDM FURNITURE INDUSTRIES
Henredon distributes its products through a network of approximately 450 fine
furniture dealers, department stores and wholesale showrooms in this country and
abroad. The Ralph Lauren Home Collection is also distributed through Polo Ralph
Lauren retail stores. The typical Henredon display is 5,000 to 8,000 square
feet. Henredon dealers include Louis Shanks of Texas, Gabberts, Kittles, Boyles,
Baer's, Treasures, Marshall Field, Bloomingdales, Rich's, Lazarus, Macy's West
and Dillards.
Drexel Heritage products are offered at 464 independently owned retail
locations, including 45 Drexel Heritage galleries, 33 dedicated Drexel Heritage
Home Inspiration stores and 386 authorized dealers. Drexel Heritage galleries
have an average of 6,000 square feet of dedicated space. The typical Drexel
Heritage Home Inspiration store is a 14,000 square foot independently owned
store offering a broad range of Drexel Heritage products, presented in a
home-like setting by a salesperson or design consultant.
Maitland-Smith distributes its products nationally and internationally through a
well-established network of high-end retail furniture stores, designer
showrooms, antique dealers and specialty gift stores. The dealers are selected
to preserve and enhance the prestige and reputation of the Maitland-Smith brand
names.
MARKETING AND ADVERTISING
Advertising is used to increase consumer awareness of the Company's brand names
and is targeted to specific consumer segments through national and regional
television as well as leading shelter and other popular magazines such as Better
Homes and Gardens, People and Good Housekeeping. Each operating company uses
focused advertising in major markets to create buying urgency around specific
sale events and to provide dealer location information, enabling retailers to be
listed jointly in advertisements for maximum advertising efficiency and shared
costs. Each operating company seeks to increase consumer buying and strengthen
relationships with retailers through cooperative advertising and selective
promotional programs, and focuses its marketing efforts on prime potential
customers utilizing information from databases and from callers to each
operating company's toll-free telephone number. Extensive use of Internet
web-based technology for customer and consumer awareness and service is also
used by each operating company.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales. Broyhill's current marketing strategy features
national television advertising, in addition to its national print advertising
program and traditional promotional programs such as furniture "giveaways" on
television game shows and dealer-based promotions such as product mailings and
brochures. The national print advertising program, which consists of multi-page
layouts, is designed to appeal to the consumer's desire for decorating
assistance and increased confidence in making the decision to purchase a big
ticket product such as furniture. These advertisements are run in publications
such as Good Housekeeping and Better Homes and Gardens which appeal to
Broyhill's consumer base. Game show promotions, a long-standing Broyhill
tradition, include popular programs such as Wheel of Fortune and The Price is
Right. An extensive public relations campaign also exposes Broyhill products in
leading magazine and newspaper editorial features.
LANE FURNITURE INDUSTRIES
Lane's marketing approach reflects the diversity of its various divisions and
product lines. Lane employs an integrated marketing/advertising strategy in
which it coordinates magazine, newspaper, circular and television advertising
with other marketing programs to promote a single product. Each of the Lane
divisions advertises extensively in trade and consumer publications targeting
various niche markets.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville's current advertising appears on national network and cable
television during peak promotional periods. The campaign emphasizes Thomasville
fashion and quality leadership through the use of dramatic commercials featuring
individual, high quality wood and upholstery pieces. National cable networks
include A&E, The Discovery Channel, CNN, CNN Headline News, The Weather Channel,
TNN, The Travel Channel, TBS and Entertainment Network.
To help retailers sell its product through to consumers, Thomasville offers a
full twelve-month schedule of promotional support which includes promotional
concepts, selected product discounts, cooperative advertising funds, and a
complete advertising package with color newspaper layouts plus radio and
television commercials dealers can use as supplied. Thomasville runs national
sales events to coincide with major industry sale periods. These events include
national print ads or Thomasville-designed newspaper inserts for dealer use.
Thomasville's other divisions (Hickory Chair, Pearson, Highland House, Founders
and Creative Interiors) use or participate in various advertising publications
throughout the year.
HDM FURNITURE INDUSTRIES
Henredon's national advertising is focused in magazines such as Architectural
Digest and House & Gardens. Henredon produces full color catalogs in support of
each collection and maintains a web site which provides the consumer the
opportunity to view all current collections, order catalogs and locate dealers
in their local trading areas.
Drexel Heritage offers a fully integrated marketing program that includes
national brand advertising and a full calendar of promotional events. These
events include themed promotional concepts, selected product discounts,
cooperative advertising support and a complete advertising marketing portfolio.
This portfolio includes dealer television commercials, consumer sales circulars,
direct mail postcards, newspaper advertisements, radio commercials, in-store
events and a complete in-store point of sale package.
Maitland-Smith has chosen to do little advertising over the years. This approach
has created an aura of mystique around the brand that adds to its charm and has
worked well within its dealer base. Promotional activities with dealers are
designed to preserve and enhance Maitland-Smith's brand name in the home
furnishings industry.
MANUFACTURING
Broyhill operates 15 finished case goods and upholstery production and warehouse
facilities totaling over 5.0 million square feet. All finished good plants are
located in North Carolina. Broyhill pioneered the use of mass production
techniques in the furniture industry and by utilizing longer production runs
achieves economies of scale.
Lane operates 7 upholstery production and warehouse facilities in Mississippi
and North Carolina totaling over 2.9 million square feet. Significant capital
expenditures have been made to acquire technologically advanced manufacturing
equipment which has increased factory productivity as well as capacity.
Thomasville manufactures or assembles its products at 18 finished case goods and
upholstery production and warehouse facilities located in North Carolina and
Virginia, totaling approximately 6.5 million square feet. Each plant is
specialized, manufacturing premium furniture products allowing more efficient
production runs while maintaining high quality standards.
The manufacturing process for Thomasville's Founders and Creative Interiors
divisions are highly automated. Large fiberboard and particleboard sheets are
machine-finished in long production runs, then stored using highly automated
assembly lines. Completed goods are either assembled (Founders) or flat packed
(Creative Interiors) and stored in an automated warehouse to provide quicker
delivery to customers. Ninety percent of Creative Interiors products are shipped
within 14 days of production.
Henredon manufactures in 4 case goods and upholstery production and warehouse
facilities encompassing approximately 1.7 million square feet all located in
North Carolina. Henredon is a leader in cellular manufacturing which allows for
the efficient production of relatively small production runs.
Drexel Heritage operates 5 case goods and upholstery production and warehouse
facilities that total approximately 1.8 million square feet. All facilities are
located in western North Carolina except for an upholstery plant located in High
Point, North Carolina. Each facility is specialized to manufacture premium
quality furniture in a cellularized manufacturing environment.
Maitland-Smith and LaBarge are manufactured at production facilities in the
Philippines and Indonesia and by selected sub-contractors located throughout
Asia, Italy and Mexico. Each production facility utilizes specialized craftsmen
to produce premium home furnishings products.
RAW MATERIALS AND SUPPLIERS
The raw materials used by the Company in manufacturing its products include
lumber, veneers, plywood, fiberboard, particleboard, paper, hardware, adhesives,
finishing materials, glass, mirrored glass, fabrics, leathers, metals, stone,
synthetics and upholstered filling material (such as synthetic fibers, foam
padding and polyurethane cushioning). The various types of wood used in the
Company's products include cherry, oak, maple, pine and pecan, which are
purchased domestically, and mahogany, which is purchased abroad. Fabrics,
leathers and other raw materials are purchased both domestically and abroad.
Management believes that its supply sources for those materials are adequate.
The Company has an agreement with Furniture Brands Import Services Organization
(formerly Outlook International, Ltd.) which is the exclusive representative for
the Company for the manufacture of products in the Far East. Furniture Brands
Import Services, an independently owned company, provides sourcing assistance,
product quality control and other import-related services to the Company.
The Company has strategic alliances with several foreign manufacturers whereby
the operating companies have the ability to purchase, on a coordinated basis, a
significant portion of the foreign manufacturers' capacity, subject to quality
control and delivery standards. While an alliance represents a significant
portion of the foreign manufacturers' operations, no one foreign manufacturer
represents a material portion of the Company's consolidated import requirements.
The Company has no long-term supply contracts and has experienced no significant
problems in supplying its operations. Although the Company has strategically
selected suppliers of raw materials, the Company believes that there are a
number of other sources available, contributing to its ability to obtain
competitive pricing for raw materials. Raw materials prices fluctuate over time
depending upon factors such as supply, demand and weather. Increases in prices
may have a short-term impact on the Company's profit margins for its products.
The majority of raw materials for promotional and RTA products are purchased
domestically, although paper and certain hardware is purchased abroad. The
Company believes, however, that its proximity to and relationship with suppliers
are advantageous for the sourcing of such materials. In addition, by combining
the purchase of various raw materials (such as foam, cartons, springs and
fabric) and services, the operating companies have been able to realize cost
savings.
ENVIRONMENTAL MATTERS
The Company is subject to a wide-range of federal, state and local laws and
regulations relating to protection of the environment, worker health and safety
and the emission, discharge, storage, treatment and disposal of hazardous
materials. These laws include the Clean Air Act of 1970, as amended, the
Resource Conservation and Recovery Act, the Federal Water Pollution Control Act
and the Comprehensive Environmental, Response, Compensation and Liability Act
("Superfund"). Certain of the Company's operations use glues and coating
materials that contain chemicals that are considered hazardous under various
environmental laws. Accordingly, the Company closely monitors environmental
performance at all of its facilities. The Company believes it is in substantial
compliance with all environmental laws. While the Company may be required to
make capital investments at some of its facilities to ensure compliance, the
Company believes it will continue to meet all applicable requirements in a
timely fashion and that the cost required to meet these requirements will not
materially affect its financial condition or its results of operations.
The Company has been identified as a potentially responsible party ("PRP") at a
number of superfund sites. The Company believes that its liability with respect
to most of the sites is de minimis, and the Company is entitled to
indemnification by others with respect to liability at certain sites. The
Company believes that any liability as a PRP with regard to the superfund sites
will not have a material adverse effect on its financial condition or results of
operations.
COMPETITION
The residential furniture manufacturing industry is highly competitive. The
Company's products compete with products made by a number of furniture
manufacturers, including La-Z-Boy Incorporated, Ethan Allen Interiors, Inc. and
Ashley Furniture Industries, Inc., as well as approximately 600 smaller
producers. The elements of competition include pricing, styling, quality and
marketing.
EMPLOYEES
As of December 31, 2002, the Company employed approximately 23,600 people. None
of the Company's employees is represented by a union.
BACKLOG
The combined backlog of the Company's operating companies as of December 31,
2002 aggregated approximately $284 million compared to approximately $290
million as of December 31, 2001.
RISK FACTORS
The Company's operating results are subject to quarterly and annual fluctuations
as a result of a number of factors. Such factors include:
An economic downturn could result in a decrease in the Company's sales and
earnings.
The residential furniture industry has historically been subject to cyclical
variations in the general economy and to uncertainty regarding future economic
prospects. Economic downturns could affect consumer spending habits by
decreasing the overall demand for home furnishings. Such events would also
impact retailers, the Company's primary customers, resulting in a decrease in
sales and earnings.
Loss of market share due to competition would result in a decrease in future
sales and earnings.
The residential furniture manufacturing business is highly competitive and
fragmented. The Company competes with many other manufacturers some of which
offer widely advertised, well known, branded products. The highly competitive
nature of the industry means the Company is constantly subject to the risk of
losing market share to those privately held competitors who have lower sales and
profitability targets. As a result, the Company may not be able to maintain or
to raise the prices of its products in response to such inflationary pressures
as increasing costs. Also due to the large number of competitors and their wide
range of product offerings, the Company may not be able to differentiate its
products (through styling, finish and other construction techniques) from those
of its competitors.
Failure to anticipate or respond to changes in consumer tastes and fashion
trends in a timely manner could result in a decrease in future sales and
earnings.
Residential furniture is a highly styled product subject to fashion trends and
geographic consumer tastes. Consumer tastes and fashion trends can change
rapidly. If the Company is unable to anticipate or respond to changes in
consumer tastes and fashion trends in a timely manner it may lose sales and be
faced with excess inventory (both raw materials and finished goods). Disposal of
excess inventory may result in a decrease in sales and earnings.
Failure to achieve the Company's projected mix of product sales could result in
a decrease in its future sales and earnings.
Some of the Company's products are sold for a higher profit than other of its
products. An increase in the sales of lower profit products at the expense of
the sales of higher profit products could result in a decrease in earnings.
Business failures of large customers could result in a decrease in the Company's
future sales and earnings.
Although the Company has no customers who individually represent 10% or more of
its total annual sales, the possibility of business failures of large customers
could result in a decrease in its future sales and earnings in that these sales
are difficult to replace.
Distribution realignments and cost savings programs can result in a decrease in
the Company's near-term sales and earnings.
At times it is necessary for the Company to discontinue certain relationships
with customers (retailers) who do not meet its growth and profitability
standards. Until realignment is established, there can be a decrease in
near-term sales and earnings. The continuation in 2001 of such a realignment
program was in part responsible for the 10.6% decrease in its sales for that
year. The Company continually reviews relationships with its customers
(retailers) and future realignments are possible based upon such ongoing
reviews.
Manufacturing realignments could result in a decrease in the Company's near-term
earnings.
The Company continually reviews its domestic manufacturing operations and
offshore (import) sourcing capabilities. Effects of periodic manufacturing
realignments and cost savings programs could result in a decrease in near-term
earnings until the expected cost reductions are achieved. Such programs can
include the consolidation and integration of facilities, functions, systems and
procedures. Certain products may also be shifted from domestic manufacturing to
offshore sourcing. Such actions may not be accomplished as quickly as
anticipated and the expected cost reductions may not be achieved in full.
Increased reliance on offshore (import) sourcing of various products could
adversely affect the Company's ability to service customers which could result
in a decrease in sales.
During the last several years, the Company has been increasing its offshore
(import) capabilities to provide flexibility in product programs and pricing to
meet competitive pressures. The mix of various product lines has been moving
from domestically manufactured to offshore sourced. Offshore (import) sourcing
is subject to political instability in countries where contractors and suppliers
are located and possible delay due to managing at a distance. Either could make
it more difficult for the Company to service its customers. Other risks include
the imposition of regulations and quotas relating to imports; duties, taxes and
other charges on imports; and, significant fluctuation of the value of the U.S.
dollar against foreign currencies, all of which could increase costs and
decrease earnings.
Fluctuations in the price, availability and quality of raw materials could cause
delay which could result in a decrease in the Company's sales and increase costs
which would result in a decrease in earnings.
Fluctuations in the price, availability and quality of the raw materials that
the Company uses in manufacturing residential furniture could have a negative
effect on its cost of sales and ability to meet the demands of customers
(retailers). Inability to meet the demands of customers could result in the loss
of future sales. The Company uses various types of wood, fabrics, leathers,
glass, upholstered filling material and other raw materials in manufacturing
furniture. The costs to manufacture furniture depend in part on the market
prices of the raw materials used to produce the furniture. The Company may not
be able to pass along to its customers all or a portion of the costs of higher
raw materials due to competitive and marketing pressures.
A successful product liability claim brought against the Company in excess of
available insurance coverage would result in a decrease in earnings and any
claim or product recall that results in significant adverse publicity against
the Company may result in a decrease in sales and earnings.
The Company faces the business risk of exposure to product liability claims in
the event that the use of any of its products results in personal injury or
property damage. In the event that any of its products prove to be defective,
the Company may be required to recall or redesign such products. The Company
maintains insurance against product liability claims, but there can be no
assurance that such coverage will continue to be available on terms acceptable
to it or that such coverage will be adequate for liabilities actually incurred.
Future acquisitions and investment could result in dilution to earnings per
share and a decrease in the valuation of the Company's common stock.
As part of the Company's business strategy, it has made and expects to continue
to make acquisitions and investments in businesses that offer complementary
products. Risks commonly encountered in acquisitions include the possibility
that the Company pays more than the acquired company or assets are worth, the
difficulty of assimilating the operations and personnel of the acquired
business, the potential disruption of our ongoing business and the distraction
of management from ongoing business. Consideration paid for future acquisitions
could be in the form of cash or stock or a combination thereof. Dilution to
existing stockholders and to earnings per share may result in connection with
any such future acquisition.
Impairment of goodwill and other intangible assets would result in a decrease in
earnings.
Current accounting rules require that goodwill and other intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. The Company has substantial goodwill and other
intangible assets which based upon the outcome of the annual test could result
in the write-down of all or a portion of these assets and a corresponding
reduction in earnings and net worth.
The Company's current policy of not paying cash dividends means the only way to
realize a return on investment in its common stock is to sell it at a profit.
Currently, the only way a stockholder will realize a return on their investment
in the Company's common stock is to sell the stock at a profit.
Certain anti-takeover provisions and preferred stock could result in a decrease
in a potential acquirer's valuation of the Company's common stock.
Certain provisions of the Company's Certificate of Incorporation could make it
more difficult for a third party to acquire control of the Company, even if such
change in control would be beneficial to stockholders. Also, the Certificate of
Incorporation allows the Company to issue preferred stock without stockholder
approval. Such issuances could also make it more difficult for a third party to
acquire the Company.
INTERNET ACCESS
Forms 10-K, 10-Q, 8-K and all amendments to those reports are available without
charge through the Company's Internet web site as soon as reasonably practicable
after electronically filed with, or furnished to, the Securities & Exchange
Commission. The Company's website can be accessed at www.furniturebrands.com.
ITEM 2. Properties
The Company owns or leases the following principal plants, offices and
warehouses.
Division/Location Type of Facility Floor Space (sq.ft.) Owned or Leased
- ----------------- ---------------- -------------------- ---------------
Furniture Brands:
St. Louis, MO Headquarters 26,800 Leased
Broyhill:
Lenoir, NC Headquarters 136,000 Owned
Lenoir, NC Case goods plant/warehouse 312,632 Owned
Lenoir, NC Case goods plant/warehouse 628,000 Owned
Rutherfordton, NC Case goods plant/warehouse 575,656 Owned
Lenoir, NC Case goods plant/warehouse 419,000 Owned
Lenoir, NC Case goods plant/warehouse 390,020 Owned/Leased
Rutherfordton, NC Upholstery plant/warehouse 433,597 Owned
Conover, NC Case goods plant/warehouse 316,542 Owned
Lenoir, NC Case goods plant/warehouse 772,757 Owned
Lenoir, NC Upholstery plant/warehouse 252,380 Owned
Taylorsville, NC Upholstery plant/warehouse 212,754 Owned
Lenoir, NC Warehouse 124,700 Owned
Lenoir, NC Warehouse 96,000 Owned
Lenoir, NC Warehouse 252,250 Leased
Lenoir, NC Warehouse 205,964 Leased
Chino, CA Warehouse 79,456 Leased
Drexel Heritage:
Drexel, NC Offices 25,000 Owned
Marion, NC Case goods plant 501,133 Owned
Morganton, NC Upholstery plant 144,869 Owned
High Point, NC Upholstery plant 280,650 Owned
Hildebran, NC Case goods plant 360,710 Owned
Morganton, NC Warehouse 501,800 Owned
High Point, NC Headquarters/showroom 100,000 Owned
Henredon:
Morganton, NC Headquarters/
casegoods plant/warehouse 898,690 Owned
Spruce Pine, NC Case goods plant/warehouse 553,180 Owned
High Point, NC Upholstery plant 125,803 Owned
Mt. Airy, NC Upholstery plant 102,500 Owned
Lane:
Tupelo, MS Headquarters/
upholstery plant/warehouse 715,951 Owned
Saltillo, MS Upholstery plant/warehouse 570,328 Owned
Verona, MS Upholstery plant/warehouse 413,000 Owned
Pontotoc, MS Upholstery plant/warehouse 369,216 Owned
High Point, NC Plant 187,162 Owned
Conover, NC Upholstery plant 351,015 Owned
Conover, NC Upholstery plant/warehouse 347,500 Owned
Maitland-Smith:
High Point, NC Headquarters/warehouse 220,000 Leased
Cebu, Philippines Case goods plant 398,377 Owned
Semarang, Indonesia Plant/warehouse 128,925 Leased
Thomasville:
Thomasville, NC Headquarters/ Showroom 256,000 Owned
Thomasville, NC Case goods plant/warehouse 373,000 Owned
Thomasville, NC Case goods plant 240,000 Owned
Thomasville, NC Case goods plant 325,000 Owned
Thomasville, NC Case goods plant 309,850 Owned
Lenoir, NC Case goods plant/warehouse 828,000 Owned
Winston-Salem, NC Case goods plant/warehouse 706,000 Owned
Statesville, NC Upholstery plant 158,600 Owned
Troutman, NC Upholstery plant 238,200 Owned
Conover, NC Upholstery plant 123,200 Owned
Hickory, NC Upholstery plant 58,700 Owned
Thomasville, NC Warehouse 731,000 Owned
Appomattox, VA Case goods plant/warehouse 829,800 Owned
Carysbrook, VA Case goods plant 189,000 Owned
Hickory, NC Upholstery plant/warehouse 209,800 Leased
Conover, NC Case goods plant/warehouse 260,000 Owned
Hickory, NC Upholstery plant/warehouse 519,011 Owned
Hickory, NC Case goods/upholstery
plant/warehouse 211,391 Owned
High Point, NC Upholstery plant/warehouse 178,500 Owned
The Tupelo, Mississippi facility is encumbered by a mortgage and first lien
securing revenue bonds. The Company believes its properties are generally well
maintained, suitable for its present operations and adequate for current
production requirements. Productive capacity and extent of utilization of the
Company's facilities are difficult to quantify with certainty because in any one
facility maximum capacity and utilization varies periodically depending upon the
product that is being manufactured, the degree of automation and the utilization
of the labor force in the facility. In this context, the Company estimates that
overall its production facilities were utilized during 2002 at a moderate level
of productive capacity and believes that in conjunction with its import
capabilities the Company's facilities have the capacity, if necessary, to expand
production to meet anticipated product requirements.
Item 3. Legal Proceedings
- --------------------------
The Company is or may become a defendant in a number of pending or threatened
legal proceedings in the ordinary course of business. In the opinion of
management, the ultimate liability, if any, of the Company from all such
proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its subsidiaries.
The Company is also subject to regulation regarding environmental matters, and
is a party to certain actions related thereto. For information regarding
environmental matters, see "Item 1. Business - Environmental Matters."
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for The Registrant's Common Equity and Related Stockholder
Matters
As of February 28, 2003, there were approximately 1,980 holders of record of
Common Stock.
Shares of the Company's Common Stock are traded on the New York Stock Exchange.
The reported high and low sale prices for the Company's Common Stock on the New
York Stock Exchange is included in Note 15 to the consolidated financial
statements of the Company.
The Company has not paid cash dividends on its Common Stock during the two years
ended December 31, 2001 and 2002.
Item 6. Selected Financial Data
FIVE-YEAR CONSOLIDATED FINANCIAL REVIEW
- ------------------------------------------- ----------------------------------------------------------------------------------------
Year Ended December 31,
(Dollars in thousands ----------------------------------------------------------------------------------------
except per share data) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of operations:
Net sales $ 2,397,709 $ 1,891,313 $ 2,116,239 $ 2,088,112 $ 1,960,250
Gross profit 633,558 466,794 546,859 550,312 515,512
Interest expense 21,732 21,984 36,389 37,577 43,455
Earnings before income tax
expense and extraordinary item 184,424 87,694 165,997 176,764 152,143
Income tax expense 65,593 29,664 57,574 64,854 54,205
Earnings before extraordinary item 118,831 58,030 108,423 111,910 97,938
Extraordinary item - - (2,522) - -
Net earnings $ 118,831 $ 58,030 $ 105,901 $ 111,910 $ 97,938
Per share of common stock - diluted:
Earnings before extraordinary item $ 2.11 $ 1.13 $ 2.15 $ 2.14 $ 1.82
Extraordinary item - - (0.05) - -
Net earnings $ 2.11 $ 1.13 $ 2.10 $ 2.14 $ 1.82
Weighted average common shares
- diluted (in thousands) 56,387 51,325 50,443 52,335 53,809
Other information:
Working capital $ 652,095 $ 603,420 $ 548,463 $ 518,036 $ 509,148
Property, plant and equipment, net 333,371 321,640 303,235 297,746 293,777
Capital expenditures 50,214 22,991 53,310 48,951 44,358
Total assets 1,567,402 1,503,489 1,304,838 1,288,834 1,303,204
Long-term debt 374,800 454,400 462,000 535,100 589,200
Shareholders' equity $ 869,515 $ 759,659 $ 583,905 $ 474,197 $ 413,509
====================================================================================================================================
Item 7. Management's Discussion and Analysis of Result of Operations and
Financial Condition
General
The following analysis of the results of operations and financial condition of
the Company should be read in conjunction with the consolidated financial
statements and related notes. In addition, management believes the following
factors have had a significant effect on its recent financial statements.
Acquisition
On December 28, 2001, the Company acquired substantially all of the assets and
liabilities of Henredon Furniture Industries, Drexel Heritage Furnishings and
Maitland-Smith. Since the acquisition occurred near the last business day of
2001, it is reflected in the Company's consolidated balance sheet as of December
31, 2001; however, the Company's consolidated results of operations for 2001 do
not include any of the operations of the acquired companies. The purchase price
of the acquisition was $287.1 million, consisting of $176.5 million in cash and
4.0 million shares of the Company's common stock.
Restructuring
During 2001, the Company implemented a plan to reduce its domestic case goods
manufacturing capacity. This plan included the closing of 12 manufacturing
facilities and a permanent reduction of approximately 20% of the Company's total
employment. Pretax restructuring and impairment charges of $26.4 million were
recorded in 2001, consisting of $5.9 million charged to cost of operations, $2.5
million charged to selling, general and administrative expenses and $18.0
million in asset impairment charges.
Results of Operations
As an aid to understanding the Company's results of operations on a
comparative basis, the following table has been prepared to set forth certain
statements of operations and other data for 2002, 2001, and 2000.
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
-------------------------------------------------------------------------------------
2002 2001 2000
---------------------------- ---------------------------- ---------------------------
% of % of % of
Dollars Net Sales Dollars Net Sales Dollars Net Sales
- ------------------------------------------------------------------------------------------------------------------------
Net sales $2,397.7 100.0% $1,891.3 100.0% $2,116.2 100.0%
Cost of operations 1,721.7 71.8 1,387.6 73.4 1,529.9 72.3
Selling, general and
administrative
expenses 424.3 17.7 330.8 17.5 335.6 15.9
Depreciation and
amortization 49.3 2.1 55.8 2.9 58.1 2.7
Asset impairment charges - - 18.0 1.0 - -
- ------------------------------------------------------------------------------------------------------------------------
Earnings from
operations 202.4 8.4 99.1 5.2 192.6 9.1
Interest expense 21.7 0.9 22.0 1.2 36.4 1.7
Other income, net 3.7 0.2 10.6 0.6 9.8 0.4
- ------------------------------------------------------------------------------------------------------------------------
Earnings before income tax
expense and extraordinary item 184.4 7.7 87.7 4.6 166.0 7.8
Income tax expense 65.6 2.7 29.7 1.5 57.6 2.7
- ------------------------------------------------------------------------------------------------------------------------
Net earnings before
extraordinary item $118.8 5.0% $ 58.0 3.1% $108.4 5.1%
========================================================================================================================
Gross profit 1 $633.6 26.4% $466.8 24.7% $546.8 25.8%
========================================================================================================================
1 The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit has been
calculated by subtracting cost of operations and the portion of
depreciation associated with cost of goods sold from net sales.
-------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Year Ended December 31,
--------------------------------------------------------
2002 2001 2000
-------------------------------------------------------------------------------------------------------------------
Net sales $2,397.7 $1,891.3 $2,116.2
Cost of operations 1,721.7 1,387.6 1,529.9
Depreciation (associated with cost of goods sold) 42.4 36.9 39.5
-------------------------------------------------------------------------------------------------------------------
Gross profit $633.6 $466.8 $546.8
===================================================================================================================
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net sales for 2002 were $2,397.7 million compared to $1,891.3 million in
2001, an increase of $506.4 million or 26.8%. Excluding the acquisition of HDM,
which the Company acquired as of the close of business on December 28, 2001, the
Company's sales (Broyhill, Lane and Thomasville) showed growth of 6.4% for the
year. The increase in net sales (excluding the acquired companies) was primarily
due to strong performances at the mid-level price points, partially offset by
weak activity in the upper-end product categories.
Cost of operations for 2002 was $1,721.7 million compared to $1,387.6
million in 2001. The large increase was the result of the Company's acquisition
of HDM. Cost of operations as a percentage of net sales decreased from 73.4% for
2001 to 71.8% for 2002. This decrease was the result of increased plant
utilization arising from the sales volume increase, the favorable impact from
the 2001 restructuring activities and an increased focus on lower-cost imported
products.
Selling, general and administrative expenses increased to $424.3 million in
2002 from $330.8 million in 2001. The large increase was the result of the
Company's acquisition of HDM. As a percentage of net sales, selling, general and
administrative expenses rose modestly from 17.5% in 2001 to 17.7% in 2002.
Depreciation and amortization for 2002 was $49.3 million compared to $55.8
million in 2001, a decrease of 11.7%. The large decrease occurred because of the
adoption of Statement of Financial Accounting Standards No. 142, which
eliminated the amortization of goodwill and other intangible assets with
indefinite lives. This decrease was partially offset by the acquisition of HDM.
The amount of depreciation and amortization attributed to goodwill and other
intangible assets with indefinite lives in 2001 was $12.1 million.
Interest expense for 2002 totaled $21.7 million compared to $22.0 million
in 2001. The decrease in interest expense reflects the Company's debt reduction
program and lower interest rates, partially offset by increased indebtedness due
to the acquisition of HDM.
Other income, net for 2002 totaled $3.7 million compared to $10.6 million
for 2001. For 2002, other income consisted of interest on short-term investments
of $1.2 million and other miscellaneous income and expense items totaling $2.5
million. Other income, net in 2001 included non-operating income of $8.0 million
related to the sale of the Company's investment in a company which leases
exhibition space to furniture and accessory manufacturers, partially offset by
additions to reserves related to certain discontinued operations.
Income tax expense for 2002 totaled $65.6 million, producing an effective
tax rate of 35.6% compared with an effective tax rate of 33.8% for 2001. The
effective tax rates for both periods were adversely impacted by provisions for
state and local income taxes. The effective tax rate for 2001 was favorably
impacted by an adjustment to income tax accruals resulting from the completion
of certain Federal income tax audits.
Net earnings per common share item on a diluted basis were $2.11 and $1.13
for 2002 and 2001, respectively. Weighted average shares used in the calculation
of net earnings per common share on a basic and diluted basis were 55,507,000
and 56,387,000 in 2002, respectively, and 50,357,000 and 51,325,000 in 2001,
respectively.
Gross profit for 2002 was $633.6 million compared with $466.8 million for
2001, an increase of 35.7%. The increase resulted primarily from the acquisition
of HDM. The increase in gross profit margin from 24.7% in 2001 to 26.4% in 2002
was primarily due to increased plant utilization arising from the sales volume
increase , the favorable impact from the 2001 restructuring activities, and an
increased focus on lower cost imported products. In addition, the high-end
products produced by the HDM companies typically generate higher gross margins.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net sales for 2001 were $1,891.3 million compared to $2,116.2 million in
2000, a decrease of $224.9 million or 10.6%. The decrease in net sales was due
to the general economic slowdown which began in the third quarter of 2000, the
failure of several large customers and the continuation of an established
program of discontinuing relationships with retailers that did not meet the
Company's standards.
Cost of operations for 2001 was $1,387.6 million compared to $1,529.9
million for 2000, a decrease of 9.3%. Cost of operations as a percentage of net
sales increased from 72.3% for 2000 to 73.4% for 2001 primarily due to decreased
plant utilization resulting from the sales volume decrease and a focus on more
imported products as well as the restructuring charges.
Selling, general and administrative expenses decreased to $330.8 million in
2001 from $335.6 million in 2000, a decrease of 1.4%. As a percentage of net
sales, selling, general and administrative expenses rose from 15.9% in 2000 to
17.5% in 2001 due to the sales decrease, an increase in bad debt expense, and
the restructuring charges.
Depreciation and amortization for 2001 was $55.8 million compared to $58.1
million in 2000, a decrease of 4.1%. The decrease in depreciation expense was
due to lower capital expenditures and the restructuring.
Interest expense for 2001 totaled $22.0 million compared with $36.4 million
in 2000. The decrease in interest expense reflects the Company's debt reduction
program and lower interest rates.
Other income, net for 2001 totaled $10.6 million compared to $9.8 million
for 2000. For 2001, other income consisted of interest on short-term investments
of $0.8 million, other miscellaneous income and expense items totaling $1.8
million and non-operating income of $8.0 million. The non-operating income
results from the sale of the Company's investment in a company which leases
exhibition space to furniture and accessory manufacturers, partially offset by
additions to reserves related to certain discontinued operations.
Income tax expense for 2001 totaled $29.7 million, producing an effective
tax rate of 33.8% compared with an effective tax rate of 34.7% for 2000. The
effective tax rate for 2001 was favorably impacted by an adjustment to income
tax accruals resulting from the completion of certain Federal income tax audits.
Net earnings per common share before extraordinary item on a diluted basis
were $1.13 and $2.15 for 2001 and 2000, respectively. Weighted average shares
used in the calculation of net earnings per common share on a basic and diluted
basis were 50,357,000 and 51,325,000 in 2001, respectively, and 49,532,000 and
50,443,000 in 2000, respectively.
Gross profit for 2001 was $466.8 million compared with $546.8 million for
2000, a decrease of 14.6%. The decrease in gross profit margin to 24.7% in 2001
from 25.8% in 2000 was primarily due to the decreased plant utilization and
restructuring charges noted earlier.
Financial Condition and Liquidity
Liquidity
Cash and cash equivalents at December 31, 2002 totaled $15.1 million
compared to $15.7 million at December 31, 2001. For 2002, net cash provided by
operating activities totaled $112.7 million. Net cash used by investing
activities totaled $47.3 million. Net cash used by financing activities totaled
$66.0 million.
Working capital was $652.1 million at December 31, 2002 compared to $603.4
million at December 31, 2001. The current ratio was 4.3-to-1 at December 31,
2002 compared to 4.4-to-1 at December 31, 2001. The increase in working capital
between years is the result of the Company's expanding import program which has
increased inventory levels.
At December 31, 2002, long-term debt totaled $374.8 million compared to
$454.4 million at December 31, 2001. The decrease in indebtedness was funded by
cash flow from operations. The Company's debt-to-capitalization ratio was 30.1%
at December 31, 2002 compared to 37.4% at December 31, 2001.
Financing Arrangements
To meet short-term capital and other financial requirements, the Company
maintains a $630.0 million revolving credit facility with a group of financial
institutions. The revolving credit facility allows for the issuance of letters
of credit and cash borrowings. Letter of credit outstanding are limited to no
more than $150.0 million, with cash borrowings limited only by the facility's
maximum availability less letters of credit outstanding. On December 31, 2002,
there were $370.0 million in cash borrowings and $35.5 million in letters of
credit outstanding, leaving an excess of $224.5 million available under the
facility.
Cash borrowings under the revolving credit facility bear interest at a base
rate or at an adjusted Eurodollar rate plus an applicable margin which varies,
depending upon the type of loan the Company executes. The applicable margin over
the base rate and Eurodollar rate is subject to adjustment based upon achieving
certain credit ratings. At December 31, 2002, loans outstanding under the
revolving credit facility consisted of $360.0 million based on the adjusted
Eurodollar rate and $10.0 million based on the base rate, which in conjunction
with the interest rate swaps have a weighted average interest rate of 5.07%.
The Company believes that its revolving credit facility, together with cash
generated from operations, will be adequate to meet liquidity requirements for
the foreseeable future.
Other
Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company's exposure to interest rate risk consists of its floating rate revolving
credit facility. This risk is managed using interest rate swaps to fix a portion
of the Company's floating rate long-term debt. Based upon a hypothetical ten
percent increase in interest rates, the potential impact to the Company's net
earnings would be $0.1 million.
Funded Status of the Defined Benefit Pension Plan
As of December 31, 2002, the accumulated benefit obligation of the
Company's defined benefit pension plan exceeded the fair value of the plan's
assets. As a result, the Company recognized an additional minimum pension
liability of $42.5 million, $26.5 million net of tax. The after tax charge is
recorded as a component of other comprehensive income.
Critical Accounting Policies
Use of Estimates -The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results are likely to
differ from those estimates, but management believes such differences are not
significant.
Revenue Recognition-The Company recognizes revenue (sales) when finished
goods are shipped, with appropriate provisions for returns and uncollectible
accounts.
Allowance for Doubtful Accounts-The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of the
Company's customers to make required payments. The allowance for doubtful
accounts is based upon the review of specific customer account balances and an
overall aging of the accounts receivable.
Inventories-Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories are regularly reviewed for obsolescence and
appropriate adjustments recorded, if necessary, to ensure their value is
recoverable.
Long-lived Assets-Long-lived assets, which consist primarily of goodwill,
trademarks and property, plant and equipment, are reviewed for impairment
whenever events or changes in business circumstances indicate the carrying
values of the assets may not be recoverable. Impairment losses are recognized if
expected future cash flows of the related assets are less than the carrying
value.
Recently Issued Statements of Financial Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations, effective for fiscal years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting requirements for retirement
obligations associated with long-lived assets. The Company does not believe the
adoption of this statement will have a material impact on its financial
statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses the impairment or disposal of
long-lived assets and the reporting of discontinued operations. This statement,
which must be adopted in 2003, is not expected to have a material impact on the
Company's financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit and disposal activities initiated after
December 31, 2002. The Company does not believe the adoption of this statement
will have a material impact on its financial statements.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation expands the
disclosure requirements to be made by a guarantor about its obligations under
certain guarantees that it has issued. The disclosure requirements are effective
for periods ending after December 15, 2002. FIN 45 also requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation for guarantees issued or modified after December 31, 2002. The
Company is evaluating the provisions of FIN 45 to determine the impact, if any,
on its financial statements.
Outlook
Order trends in the fourth quarter of 2002 continued to be positive in the
middle and upper-middle price categories. While the Company has yet to see such
a turnaround at the upper end, the cost savings initiatives undertaken during
the year should position it for strong operating profit margin improvement as
that price category begins to turn as well. Business overall is expected to be
essentially flat for the first half of 2003, with a recovery beginning at
mid-year and accelerating through the second half. The Company is currently
projecting diluted earnings per common share of $2.40-$2.50 for the full year.
Capital expenditures are forecasted at $40.0 million to $50.0 million for
2003, with depreciation expense anticipated to be approximately $55.0 million.
Selling, general and administrative expenses for the year are expected to be
17.75% - 18.25% of net sales. Based upon current interest rates and budgeted
debt reduction, interest expense is expected to be approximately $21.0 million
for 2003. The Company expects to generate in excess of $100.0 million in cash
flow from operations, the majority of which will be used to reduce long-term
debt.
Forward-Looking Statements
The Company herein has made forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include the Company's expected sales,
earnings per share, profit margins, and cash flows, the effects of certain
manufacturing realignments and other business strategies, the prospects for the
overall business environment, and other statements containing the words
"expects," "anticipates," "estimates," "believes," and words of similar import.
The Company cautions investors that any such forward-looking statements are not
guarantees of future performance and that certain factors may cause actual
results to differ materially from those in the forward-looking statements. Such
factors include, but are not limited to: changes in economic conditions; loss of
market share due to competition; failure to anticipate or respond to changes in
consumer tastes and fashion trends; failure to achieve projected mix of product
sales; business failures of large customers; distribution and manufacturing
realignments and cost savings programs; increased reliance on offshore (import)
sourcing of various products; fluctuations in the cost, availability and quality
of raw materials; product liability uncertainty; impairment of goodwill and
other intangible assets. Other risk factors may be listed from time to time in
the Company's future public releases and SEC reports. See "Risk Factors" under
Item 1. for a more detailed explanation of the Company's risk factors.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company's exposure to interest rate risk consists of its floating rate Secured
Credit agreement. This risk is managed using interest rate swaps to fix a
portion of the Company's floating rate long-term debt. Based upon a hypothetical
ten percent increase in interest rates the potential impact to the Company's net
earnings would be $0.4 million.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 15,074 $ 15,707
Receivables, less allowances of $20,751
($18,841 at December 31, 2001) 375,050 359,493
Inventories (Note 5) 432,104 369,773
Deferred income taxes 17,768 26,160
Prepaid expenses and other current assets 9,463 7,582
- --------------------------------------------------------------------------------------------------------------------
Total current assets 849,459 778,715
Property, plant and equipment:
Land 22,217 18,090
Buildings and improvements 245,686 240,554
Machinery and equipment 393,034 346,460
- --------------------------------------------------------------------------------------------------------------------
660,937 605,104
Less accumulated depreciation 327,566 283,464
- --------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 333,371 321,640
Goodwill (Note 6) 184,480 156,435
Other intangible assets (Note 6) 171,008 210,870
Other assets 29,084 35,829
- --------------------------------------------------------------------------------------------------------------------
$1,567,402 $1,503,489
====================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 90,134 $ 83,508
Accrued employee compensation 31,531 23,815
Accrued interest expense 3,018 2,805
Other accrued expenses 72,681 65,167
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 197,364 175,295
Long-term debt (Note 7) 374,800 454,400
Deferred income taxes 58,850 69,032
Other long-term liabilities 66,873 45,103
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares,
no par value - issued, none - -
Common stock, authorized 200,000,000 shares,
$1.00 stated value - issued 56,277,066
shares at December 31, 2002 and 2001(Note 8) 56,277 56,277
Paid-in capital 221,696 219,469
Retained earnings 639,334 520,503
Accumulated other comprehensive income (35,917) (5,108)
Treasury stock at cost
(627,884 shares at December 31, 2002 and
1,664,666 shares at December 31, 2001) (11,875) (31,482)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 869,515 759,659
- --------------------------------------------------------------------------------------------------------------------
$1,567,402 $1,503,489
====================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data) Year Ended December 31,
----------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Net sales $2,397,709 $1,891,313 $2,116,239
Costs and expenses:
Cost of operations 1,721,714 1,387,632 1,529,874
Selling, general and administrative expenses 424,329 330,835 335,596
Depreciation and amortization 49,266 55,767 58,155
Asset impairment charges (Note 3) - 18,000 -
- ---------------------------------------------------------------------------------------------------------------------
Earnings from operations 202,400 99,079 192,614
Interest expense 21,732 21,984 36,389
Other income, net 3,756 10,599 9,772
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense and
extraordinary item 184,424 87,694 165,997
Income tax expense (Note 9) 65,593 29,664 57,574
- ---------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 118,831 58,030 108,423
Extraordinary item - early extinguishment
of debt, net of income tax benefit (Note 12) - - (2,522)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 118,831 $ 58,030 $ 105,901
=====================================================================================================================
Earnings per common share - basic (Note 8):
Earnings before extraordinary item $ 2.14 $ 1.15 $ 2.19
Extraordinary item - early extinguishment of debt - - (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Earnings per common share - basic $ 2.14 $ 1.15 $ 2.14
=====================================================================================================================
Earnings per common share - diluted (Note 8):
Earnings before extraordinary item $ 2.11 $ 1.13 $ 2.15
Extraordinary item - early extinguishment of debt - - (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Earnings per common share - diluted $ 2.11 $ 1.13 $ 2.10
=====================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------- ----------------------------------------------------
(Dollars in thousands) Year Ended December 31,
----------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 118,831 $ 58,030 $ 105,901
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net loss on early extinguishment of debt - - 2,522
Depreciation and amortization 49,266 55,767 58,155
Asset impairment charges - 18,000 -
Other, net (includes gains on sale of investments) (1,545) (11,586) 1,602
(Increase) decrease in receivables (15,557) 41,502 (6,419)
(Increase) decrease in inventories (62,331) 33,070 (9,059)
Increase in prepaid expenses and
intangible and other assets (22,614) (6,789) (7,737)
Increase (decrease) in accounts payable,
accrued interest expense and other accrued expenses 30,204 7,224 (9,226)
Increase (decrease) in net deferred tax liabilities 16,270 (8,356) (2,788)
Increase (decrease) in other long-term liabilities 212 (2,156) (807)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 112,736 184,706 132,144
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired - (176,235) -
Proceeds from the disposal of assets 2,924 18,197 316
Additions to property, plant and equipment (50,214) (22,991) (53,310)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (47,290) (181,029) (52,994)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments for debt issuance costs - - (2,090)
Additions to long-term debt - 140,000 486,500
Payments of long-term debt (79,600) (147,600) (559,600)
Proceeds from the issuance of treasury stock 13,521 5,024 3,237
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities ( 66,079) (2,576) (71,953)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (633) 1,101 7,197
Cash and cash equivalents at beginning of period 15,707 14,606 7,409
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 15,074 $ 15,707 $ 14,606
=====================================================================================================================
Supplemental Disclosure:
Cash payments for income taxes, net $ 36,807 $ 26,083 $ 63,120
=====================================================================================================================
Cash payments for interest $ 20,673 $ 28,940 $ 30,873
=====================================================================================================================
Issuance of common stock for acquisition $ - $ 110,640 $ -
======================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Year Ended December 31,
-----------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Common Stock:
Beginning balance $ 56,277 $ 52,277 $ 52,277
Stock issued for acquisition of business - 4,000 -
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $ 56,277 $ 56,277 $ 52,277
- ----------------------------------------------------------------------------------------------------------------------
Paid-In Capital:
Beginning balance $ 219,469 $ 118,360 $ 120,326
Stock plans activity (Note 8) 2,227 (5,531) (1,966)
Stock issued for acquisition of business - 106,640 -
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $ 221,696 $ 219,469 $ 118,360
- ----------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Beginning balance $ 520,503 $ 462,473 $ 356,572
Net earnings 118,831 58,030 105,901
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $ 639,334 $ 520,503 $ 462,473
- ----------------------------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Income:
Beginning balance $ (5,108) $ - $ -
Other comprehensive income (30,809) (5,108) -
- ----------------------------------------------------------------------------------------------------------------------
Ending balance $ (35,917) $ (5,108) $ -
- ----------------------------------------------------------------------------------------------------------------------
Treasury Stock:
Beginning balance $ (31,482) $ (49,205) $ (54,978)
Stock plans activity (Note 8) 19,607 17,723 5,773
- ----------------------------------------------------------------------------------------------------------------------
Ending balance % (11,875) $ (31,482) $ (49,205)
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 869,515 $ 759,659 $ 583,905
======================================================================================================================
Comprehensive Income:
Net earnings $118,831 $ 58,030 $105,901
Other comprehensive income, net of tax:
Cumulative effect of adopting SFAS No. 133 - 2,960 -
Financial instruments accounted for as hedges (3,872) (8,068) -
Minimum pension liability (26,512) - -
Foreign currency translation (425) - -
- ----------------------------------------------------------------------------------------------------------------------
Other comprehensive income (30,809) (5,108) -
- ----------------------------------------------------------------------------------------------------------------------
$ 88,022 $ 52,922 $105,901
======================================================================================================================
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. The Company
Furniture Brands International, Inc. (referred to herein as the
"Company") is one of the largest home furniture manufacturers in the United
States. During the year ended December 31, 2002, the Company had four
primary operating subsidiaries: Broyhill Furniture Industries, Inc.; Lane
Furniture Industries, Inc.; Thomasville Furniture Industries, Inc. and HDM
Furniture Industries, Inc.
On December 28, 2001, the Company acquired through a wholly owned
subsidiary - HDM Furniture Industries, Inc. -substantially all of the
assets and liabilities of Henredon Furniture Industries, Drexel Heritage
Furnishings and Maitland-Smith. Since the acquisition occurred prior to the
last business day of 2001, it is reflected in the Company's consolidated
balance sheet as of December 31, 2001; however, the Company's consolidated
results of operations for 2001 do not include any of the operations of the
acquired companies.
Substantially all of the Company's sales are made to unaffiliated
furniture retailers. The Company has a diversified customer base with no
one customer accounting for 10% or more of consolidated net sales and no
particular concentration of credit risk in one economic sector. Foreign
operations and net sales are not material.
2. Significant Accounting Policies
The significant accounting policies of the Company are set forth below.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reported period. Actual results
are likely to differ from those estimates, but management believes such
differences are not significant.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material intercompany transactions
are eliminated in consolidation. The Company's fiscal year ends on December
31. The operating companies included in the consolidated financial
statements report their results of operations as of the Saturday closest to
December 31. Accordingly, the results of operations will periodically
include a 53-week fiscal year. Fiscal years 2002, 2001, and 2000 were
52-week years. Fiscal year 2003 will include 53 weeks.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents. Short-term
investments are recorded at amortized cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are regularly reviewed for obsolescence and appropriate
adjustments recorded, if necessary, to ensure their value is recoverable.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when acquired.
Depreciation is calculated using both accelerated and straight-line methods
based on the estimated useful lives of the respective assets, which
generally range from 3 to 45 years for buildings and improvements and from
3 to 12 years for machinery and equipment. Long-lived assets are reviewed
for impairment whenever events or changes in business circumstances
indicate the carrying value of the assets may not be recoverable.
Impairment losses are recognized if expected future cash flows of the
related assets are less than the carrying value.
Intangible Assets
Intangible assets consist of goodwill and trademarks. Effective with
the Company's adoption of SFAS No. 142 on January 1, 2002, goodwill and
intangible assets with indefinite lives are no longer amortized, but
instead tested for impairment. Prior to adoption of SFAS No. 142, goodwill
and trademarks were amortized on a straight-line basis over 20 to 40-year
periods. Intangible assets will be reviewed for impairment annually or
whenever events or changes in business circumstances indicate the carrying
value of the assets may not be recoverable. Impairment losses are
recognized if future cash flows of the related assets are less than their
carrying values.
Fair Value of Financial Instruments
The Company considers the carrying amounts of cash and cash
equivalents, receivables, and accounts payable to approximate fair value
because of the short maturity of these financial instruments.
Amounts outstanding under long-term debt agreements are considered to
be carried on the financial statements at their estimated fair values
because they accrue interest at rates which generally fluctuate with
interest rate trends.
The Company periodically uses interest rate swap agreements
(derivative financial instruments) to hedge risk associated with its
floating rate long-term debt. Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which requires that all
derivative instruments be recorded on the balance sheet as an asset or
liability with any gain or loss recorded as a component of accumulated
other comprehensive income until recognized in earnings. The fair value of
the swap agreements is based upon quoted market prices. The net amount to
be paid or received under the interest rate swap agreements is recorded as
a component of interest expense. The fair value of the interest rate swap
agreements is included in other liabilities as of December 31, 2002 and
2001.
Revenue Recognition
The Company recognizes sales when finished goods are shipped, with
appropriate provisions for returns and uncollectible accounts.
Advertising Costs
Advertising costs are expensed when advertisements are first aired or
distributed. Advertising costs for 2002, 2001 and 2000 were $72,243,
$57,453 and $57,111, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized in income
in the period that includes the enactment date.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method.
Reclassification
Certain prior-year amounts have been reclassified to conform to the
current year presentation.
3. Restructuring and Asset Impairment Charges
During 2001, the Company implemented a plan to reduce its domestic
case goods manufacturing capacity. This plan included the closing of 12
manufacturing facilities and a permanent reduction of approximately 20% of
the company's total employment. Pretax restructuring and impairment charges
of $26,352 were recorded during 2001 of which $18,000 related to a fixed
asset impairment charge for properties and machinery and equipment of the
closed facilities. The balance, consisting of $5,913 charged to cost of
operations and $2,439 charged to selling, general and administrative
expenses, related to employee severance and benefits costs and plant
shutdown costs.
Real estate with a carrying value of $7,387 and $8,665 was included in
other assets as of December 31, 2002 and 2001, respectively. No events
occurred during the year ended December 31, 2002 that would indicate the
need for a change in the carrying value of these assets.
Restructuring charges included in other accrued expenses were $0 and
$1,000 at December 31, 2002 and 2001, respectively.
4. Acquisition of Business
On December 28, 2001, the Company acquired through a wholly owned
subsidiary - HDM Furniture Industries, Inc. -substantially all of the
assets and liabilities of Henredon Furniture Industries, Drexel Heritage
Furnishings and Maitland-Smith for $287,640. The acquisition established
the Company as the residential furniture industry's only full-line resource
in all middle and upper price categories. The purchase price, including
capitalized expenses of approximately $2,000, consisted of $177,000 paid in
cash and four million shares of the Company's common stock valued at
$110,640. The value of the common stock issued was determined based on the
average market price over the two-day period before and after the terms of
the acquisition were agreed to and announced. Since the acquisition
occurred prior to the last business day of 2001, it is reflected in the
Company's consolidated balance sheet as of December 31, 2001; however, the
Company's consolidated results of operations for 2001 do not include any of
the operations of the acquired companies.
The fair value of the assets acquired and liabilities assumed at the date of the acquisition were as follows:
- -------------------------------------------------------------------------------------------------------------------
Accounts receivable $ 48,998
Inventories 108,388
Other current assets 2,522
Property, plant and equipment 81,843
Goodwill 28,737
Other intangible assets 51,100
Other long-term assets 1,289
- --------------------------------------------------------------------------------------------------------------------
Total assets acquired $ 322,877
- --------------------------------------------------------------------------------------------------------------------
Current liabilities $ 32,181
Other long-term liabilities 3,056
- --------------------------------------------------------------------------------------------------------------------
Total liabilities assumed 35,237
- --------------------------------------------------------------------------------------------------------------------
Net assets acquired $ 287,640
====================================================================================================================
The total acquisition cost exceeded the fair value of the net assets
acquired by $28,737 with such amount being allocated to goodwill. The
determination of the final fair values of assets and liabilities resulted
in adjustments consisting of changes from initially recorded values as of
December 28, 2001 resulting in increases in property, plant and equipment
and trademarks of $13,748 and $51,100, respectively. Adjustments to other
balance sheet accounts were individually immaterial.
The following unaudited summary, prepared on a pro forma basis,
combines the consolidated results of operations of the Company for 2001 and
2000 with those of the acquired companies as if the transaction had
occurred at the beginning of each year presented.
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net sales $2,311,647 $2,620,151
Earnings before extraordinary item 68,260 127,507
Net earnings $ 68,260 $ 124,985
Net earnings per common share - diluted:
Earnings before extraordinary item $ 1.23 $ 2.34
Net earnings $ 1.23 $ 2.30
- -------------------------------------------------------------------------------------------------------------------
Such pro forma amounts are not necessarily indicative of what actual
consolidated results of operations might have been if the acquisition had
been effective at the beginning of each year presented.
5. Inventories
Inventories are summarized as follows:
- --------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Finished products $244,193 $187,523
Work-in-process 65,196 69,507
Raw materials 122,715 112,743
- --------------------------------------------------------------------------------------------------------------------
$432,104 $369,773
====================================================================================================================
6. Goodwill and Other Intangible Assets
Goodwill and other intangible assets include the following:
- --------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Goodwill $267,218 $239,173
Less: accumulated amortization 82,738 82,738
- --------------------------------------------------------------------------------------------------------------------
Goodwill $184,480 $156,435
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Trademarks and tradenames $207,928 $156,828
Intangible assets from acquisition - 90,962
- --------------------------------------------------------------------------------------------------------------------
207,928 247,790
Less: accumulated amortization 36,920 36,920
- --------------------------------------------------------------------------------------------------------------------
Other intangible assets $171,008 $210,870
====================================================================================================================
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142 , "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill and other intangible assets
with indefinite lives no longer be amortized, but instead be tested
annually for impairment or whenever events or changes in business
circumstances indicate the carrying value of the assets may not be
recoverable. No impairment was recorded in 2002. The Company's other
intangible assets consist of trademarks and trade names all having
indefinite lives. The following table presents net earnings on a
comparative basis, after adjusting to exclude the amortization of goodwill
and other intangible assets:
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item:
As reported $ 118,831 $ 58,030 $ 108,423
Exclude amortization of goodwill
and other intangible assets (net
of income tax benefit) - 11,162 11,162
- --------------------------------------------------------------------------------------------------------------------
$ 118,831 $ 69,192 $ 119,585
====================================================================================================================
Net earnings per common share before extraordinary item - basic:
As reported $ 2.14 $ 1.15 $ 2.19
As adjusted $ 2.14 $ 1.37 $ 2.41
Net earnings per common share before extraordinary item - diluted:
As reported $ 2.11 $ 1.13 $ 2.15
As adjusted $ 2.11 $ 1.35 $ 2.37
====================================================================================================================
7. Long-Term Debt
Long-term debt consists of the following:
- --------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Revolving credit facility (unsecured) $ 370,000 $ 440,000
Other 4,800 14,400
- --------------------------------------------------------------------------------------------------------------------
$ 374,800 $ 454,400
====================================================================================================================
The following discussion summarizes certain provisions of the
long-term debt.
Revolving Credit Facility
The revolving credit facility is unsecured, with a total commitment of
$630,000. The facility allows for issuance of letters of credit and cash
borrowings. Letter of credit outstandings are limited to no more than
$150,000, with cash borrowings limited only by the facility's maximum
availability less letters of credit outstanding.
Currently, for letter of credit issuances, a fee of 0.75% per annum
(subject to increase/decrease based upon the Company achieving certain
credit ratings from Standard & Poor's and Moody's) is assessed for the
account of the lenders ratably. A further fee of 0.125% is assessed on
standby letters of credit representing a facing fee. A customary
administrative charge for processing letters of credit is also payable to
the relevant issuing bank. Letter of credit fees are payable quarterly in
arrears.
Cash borrowings under the revolving credit facility bear interest at a
base rate or at an adjusted Eurodollar rate plus an applicable margin which
varies, depending upon the type of loan the Company executes. The
applicable margin over the base rate and adjusted Eurodollar rate is
subject to adjustment based upon achieving certain credit ratings. At
December 31, 2002, loans outstanding under the revolving credit facility
consisted of $360,000 based on the adjusted Eurodollar rate and $10,000
based on the base rate, which in conjunction with the interest rate swaps
have a weighted average interest rate of 5.07%.
At December 31, 2002, there were $370,000 of cash borrowings and
$35,491 in letters of credit outstanding under the revolving credit
facility, leaving an excess of $224,509 available under the facility.
The revolving credit facility has no mandatory principal payments;
however, the commitment matures on June 7, 2005. The facility requires the
Company to meet certain financial covenants including a minimum
consolidated net worth ($640,000 as of December 31, 2002) and maximum
leverage ratio (ratio of consolidated debt to consolidated EBITDA (as
defined in the credit agreement) of 2.75 to 1). In addition, the facility
requires repayment upon the occurrence of a change of control of the
Company. As of December 31, 2002, the Company was in compliance with all
financial covenants.
Other
Other long-term debt consists of various industrial revenue bonds with
interest rates ranging from approximately 6.6% to 9.0%.
Interest Rate Swap Agreements
In May 2001, in order to reduce the impact of changes in interest
rates on its floating rate long-term debt, the Company entered into three
interest rate swap agreements each having a notional amount of $100,000 and
a termination date in May 2004. The Company pays the counterparties a
blended fixed rate of 4.93% per annum and receives payment based upon the
floating three-month LIBOR rate.
Other Information
The Company has no mandatory long-term debt payments until 2005, at
which time $370,000 matures.
8. Common Stock
The Company's restated certificate of incorporation includes
authorization to issue up to 200 million shares of common stock with a
$1.00 per share stated value. As of December 31, 2002, 56,277,066 shares of
common stock were issued.
The Company has been authorized by its Board of Directors to
repurchase its common stock from time to time in open market or privately
negotiated transactions. Common stock repurchases are recorded as treasury
stock and may be used for general corporate purposes. As of December 31,
2002, the Company has Board of Directors' authorization for the repurchase
of an additional $100,000 of its common stock.
Shares of common stock were reserved for the following purposes at
December 31, 2002:
Number of Shares
- --------------------------------------------------------------------------------------------------------------------
Common stock options:
Granted 3,610,984
Available for grant 3,136,750
- --------------------------------------------------------------------------------------------------------------------
6,747,734
====================================================================================================================
The Company has outstanding option grants pursuant to the 1992 Stock
Option Plan and the 1999 Long-Term Incentive Plan. These plans are
administered by the Executive Compensation and Stock Option Committee of
the Board of Directors and permit certain key employees to be granted
nonqualified options, performance-based options, restricted stock, or
combinations thereof. Options must be issued at market value on the date of
grant and expire in a maximum of ten years. On April 25, 2002, stockholders
approved an amendment to the 1999 Long-Term Incentive Plan. The amendment
provided for an increase in the number of shares reserved for issuance from
2,250,000 to 4,950,000 shares of common stock.
In 2002, the Company issued 40,000 shares of restricted stock. The
restricted shares vest over various periods from three to five years. The
deferred compensation cost is amortized to expense over the period of time
the restrictions are in place and the unamortized portion is classified as
a reduction of paid-in-capital in the Company's consolidated balance
sheets.
Changes in options granted and outstanding are summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------------
2002 2001 2000
-----------------------------------------------------------------------------------
Average Average Average
Shares Price Shares Price Shares Price
-------------- ------------ ------------- ------------ -------------- ------------
Beginning of period 4,298,916 $17.55 4,345,634 $13.61 4,027,063 $12.67
Granted 425,900 34.67 954,900 24.00 734,600 16.70
Exercised (996,782) 13.57 (937,093) 5.36 (305,300) 6.83
Cancelled (117,050) 27.16 (64,525) 24.48 (110,729) 18.60
- ---------------------------------------------------------------------------------------------------------------------
End of period 3,610,984 $20.36 4,298,916 $17.55 4,345,634 $13.61
=====================================================================================================================
Exercisable at
end of period 2,038,134 2,324,391 2,591,726
=====================================================================================================================
Weighted average fair
value of options granted $18.08 $12.40 $ 9.52
=====================================================================================================================
Had compensation cost for the Company's stock-based compensation plan
been determined consistent with SFAS No. 123, the Company's net earnings
and net earnings per share would have been as follows:
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Net earnings
As reported $ 118,831 $ 58,030 $ 105,901
Pro forma 113,539 52,648 101,819
Net earnings per share - basic
As reported $ 2.14 $ 1.15 $ 2.14
Pro forma 2.05 1.05 2.06
Net earnings per share - diluted
As reported $ 2.11 $ 1.13 $ 2.10
Pro forma 2.02 1.04 2.05
=====================================================================================================================
The weighted average fair value of options granted is estimated as of
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
- ---------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Risk free interest rate 4.3% 4.9% 5.7%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life (years) 6.0 6.0 7.0
Expected volatility 49.0% 47.0% 47.0%
=====================================================================================================================
Summarized information regarding stock options outstanding and
exercisable at December 31, 2002 follows:
- ----------------------------------------------------------------------------------------------------------------------
Outstanding Exercisable
-------------------------------------- -----------------------------
Range of Average
Exercise Contractual Average Average
Prices Shares Life Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------
Up to $10 310,084 1.6 $ 7.74 310,084 $ 7.74
$10 - $20 1,332,975 4.6 14.79 1,028,675 14.23
$20 - $30 1,526,025 6.1 23.79 652,575 23.59
Over $30 441,900 7.6 34.19 46,800 31.38
- ---------------------------------------------------------------------------------------------------------------------
3,610,984 5.3 $20.36 2,038,134 $16.63
=====================================================================================================================
Weighted average shares used in the computation of basic and diluted
net earnings per common share for 2002, 2001, and 2000 are as follows:
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000
--------------------- ------------------- ----------------------
Weighted average shares used for
basic net earnings per common share 55,506,837 50,356,763 49,531,931
Effect of dilutive securities:
Stock options 879,990 968,227 910,805
- ---------------------------------------------------------------------------------------------------------------------
Weighted average shares used for
diluted net earnings per common share 56,386,827 51,324,990 50,442,736
=====================================================================================================================
Excluded from the computation of diluted net earnings per common share
were options to purchase 441,900 and 79,000 shares at an average price of
$34.19 and $30.84 per share during 2002 and 2001, respectively. These
options have been excluded from the diluted earnings per share calculation
since their impact is anti-dilutive.
9. Income Taxes
Income tax expense is comprised of the following:
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Current:
Federal $45,208 $34,672 $55,191
State and local 3,307 562 5,171
Foreign 808 - -
- ---------------------------------------------------------------------------------------------------------------------
49,323 35,234 60,362
Deferred 16,270 (5,570) (2,788)
- ---------------------------------------------------------------------------------------------------------------------
$65,593 $29,664 $57,574
=====================================================================================================================
The following table reconciles the differences between the federal
corporate statutory rate and the Company's effective income tax rate:
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal tax benefit 1.2 0.4 1.7
Nondeductible amortization of intangible assets
- 2.9 1.5
Dividend exclusion - - (1.1)
Adjustments to income tax accruals - (4.3) -
Other (0.6) (0.2) (2.4)
- ---------------------------------------------------------------------------------------------------------------------
Effective income tax rate 35.6% 33.8% 34.7%
=====================================================================================================================
The sources of the tax effects for temporary differences that give
rise to the deferred tax assets and liabilities were as follows:
- --------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Deferred tax assets attributable to:
Expense accruals $ 15,284 $ 16,579
Valuation allowances 13,770 16,858
Asset impairment charges 2,852 6,193
Employee pension and other benefit plans 12,406 1,375
Fair market value adjustments - receivables - 1,453
Other 1,942 2,567
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 46,254 45,025
- --------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities attributable to:
Fair value adjustments (68,532) (73,109)
Depreciation (10,011) (7,828)
Inventory costs capitalized (1,299) -
Other (7,494) (6,960)
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (87,336) (87,897)
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $(41,082) $(42,872)
====================================================================================================================
10. Employee Benefits
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 2002, 2001,
and 2000 was $7,075, $1,425, and $2,090, respectively.
Company-Sponsored Defined Benefit Plans
Employees are covered primarily by noncontributory plans, funded by
Company contributions to trust funds, which are held for the sole benefit
of employees. Monthly retirement benefits are based upon service and pay
with employees becoming vested upon completion of five years of service.
Annual cost for defined benefit plans is determined using the
projected unit credit actuarial method. Prior service cost is amortized on
a straight-line basis over the average remaining service period of
employees expected to receive benefits.
It is the Company's practice to fund pension costs to the extent that
such costs are tax deductible and in accordance with ERISA. The assets of
the various plans include corporate equities, government securities,
corporate debt securities and insurance contracts. The table below
summarizes the funded status of the Company-sponsored defined benefit
plans.
- ---------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Change in projected benefit obligation:
Projected benefit obligation - beginning of year $332,181 $323,511
Service cost 11,033 9,372
Interest cost 23,378 23,315
Plan amendments 374 -
Actuarial (gain) loss 1,761 (4,759)
Benefits paid (19,443) (19,258)
- ---------------------------------------------------------------------------------------------------------------------
Projected benefit obligation - end of year $349,284 $332,181
- ---------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets - beginning of year $320,133 $354,356
Actual return on plan assets (24,771) (16,284)
Employer contributions 16,230 1,319
Benefits paid (19,443) (19,258)
- ---------------------------------------------------------------------------------------------------------------------
Fair value of plan assets - end of year $292,149 $320,133
- ---------------------------------------------------------------------------------------------------------------------
Funded status $(57,135) $(12,048)
Fair value adjustment (14,292) (15,783)
Recognition of minimum liability (42,487) -
Unrecognized net actuarial loss 79,154 20,177
Unrecognized prior service cost 1,033 824
- ---------------------------------------------------------------------------------------------------------------------
Accrued pension cost $(33,727) $ (6,830)
=====================================================================================================================
The fair value adjustment relates to the Company's 1992 reorganization.
Net periodic pension cost for 2002, 2001, and 2000 included the following
components:
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 11,033 $ 9,372 $ 8,665
Interest cost on the projected benefit obligation 23,378 23,315 22,522
Expected return on plan assets (30,544) (32,655) (31,840)
Net amortization and deferral (1,736) (2,291) (2,914)
- --------------------------------------------------------------------------------------------------------------------
Net periodic pension (income) expense $ 2,131 $ (2,259) $ (3,567)
====================================================================================================================
Actuarial assumptions used to determine costs and benefit obligations
are as follows:
- --------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Expected long-term rate of return on plan assets 8.50% 9.00% 9.00%
Weighted average discount rate 6.75% 7.25% 7.25%
Long-term rate of compensation increase 4.50% 4.50% 4.50%
- --------------------------------------------------------------------------------------------------------------------
For 2003 the Company intends to adjust the long-term rate of return to
8.00% and the long-term expected rate of compensation increase to 4.00%.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes contributions
to defined contribution plans and sponsors employee savings plans. The cost
of these plans is included in the total cost for all plans reflected above.
11. Other Comprehensive Income
Other comprehensive income consists of the following:
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Change in market value of financial instruments
accounted for as hedges $ (5,957) $ (7,858) $ -
Minimum pension liability (42,487) - -
Foreign currency valuation (425) - -
- --------------------------------------------------------------------------------------------------------------------
(48,869) (7,858) -
Income tax benefit (18,060) (2,750) -
- --------------------------------------------------------------------------------------------------------------------
$(30,809) $ (5,108) $ -
====================================================================================================================
The components of accumulated other comprehensive income, each
presented net of tax benefit, are as follows:
- --------------------------------------------------------------------------------------------------------------------
December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Market value of financial instruments accounted for as hedges $ (8,980) $ (5,108)
Minimum pension liability (26,512) -
Foreign currency valuation (425) -
- --------------------------------------------------------------------------------------------------------------------
$(35,917) $ (5,108)
====================================================================================================================
<page>
12. Extraordinary Item - Early Extinguishment of Debt
In conjunction with the June 7, 2000 refinancing of an existing
secured credit agreement, the Company charged to results of operations
$2,522, net of income tax benefit of $1,520, representing the deferred
financing fees and expenses pertaining to the refinanced facility. The
charge was recorded as an extraordinary item.
13. Commitments and Contingent Liabilities
Certain of the Company's real properties and equipment are operated
under lease agreements. Rental expense under operating leases totaled
$26,882, $18,900, and $18,514 for 2002, 2001, and 2000, respectively.
Annual minimum payments under operating leases are $22,210 $18,082,
$12,203, $9,144, and $8,287 for 2003 through 2007, respectively. Future
minimum lease payments under operating leases, reduced by minimum rentals
from subleases of $7,875 at December 31, 2002, aggregate $98,281.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. This
interpretation expands the disclosure requirements to be made by a
guarantor about its obligations under certain guarantees that it has
issued. The disclosure requirements are effective for periods ending after
December 15, 2002. FIN 45 also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
for guarantees issued or modified after December 31, 2002.
The Company has provided guarantees related to store leases for
certain independent dealers opening Thomasville Home Furnishings Stores and
Drexel Heritage Home Inspiration Stores. The guarantees range from one to
fifteen years and generally require the Company to make lease payments in
the event of default by the dealer. In the event of default, the Company
has the right to assign or assume the lease. The total future lease
payments guaranteed at December 31, 2002 were $90,249. The Company believes
the risk of significant loss from these lease guarantees is remote.
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from
all such proceedings will not have a material adverse effect upon the
consolidated financial position or results of operations of the Company and
its subsidiaries.
14. Other Income, Net
Other income, net for 2002 consisted of interest on short-term
investments of $1,220 and other miscellaneous income and expense items
totaling $2,536.
For 2001, other income, net consisted of interest on short-term
investments of $844, other miscellaneous income and expense items totaling
$1,755 and non-operating income of $8,000. The non-operating income
resulted from the sale of the Company's investment in a company which
leases exhibition space to furniture and accessory manufacturers, partially
offset by additions to reserves related to certain discontinued operations.
For 2000, other income, net consisted of interest on short-term
investments of $538, a cash dividend (nonrecurring) of $7,642 received by
the Company relating to its minority investment in a company which leases
exhibition space to furniture and accessory manufacturers, and other
miscellaneous income and expense items totaling $1,592.
15. Quarterly Financial Information (Unaudited)
Following is a summary of unaudited quarterly information:
- ------------------------------------------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
==================================================================================================================
Year ended December 31, 2002:
Net sales $ 595,491 $ 563,246 $ 604,511 $ 634,461
Gross profit 154,077 147,978 164,336 167,167
Net earnings $ 29,317 $ 24,658 $ 32,085 $ 32,771
Net earnings per common share:
Basic $ 0.53 $ 0.44 $ 0.58 $ 0.59
Diluted $ 0.52 $ 0.44 $ 0.57 $ 0.58
Common stock price range:
High $ 28.00 $ 29.00 $ 42.30 $ 41.94
Low $ 19.02 $ 22.34 $ 30.25 $ 32.00
==================================================================================================================
Year ended December 31, 2001:
Net sales $ 476,801 $ 448,682 $ 459,648 $ 506,182
Gross profit 114,417 112,321 114,725 125,331
Net earnings $ 22,831 $ 13,871 $ 1,647 $ 19,681
Net earnings per common share:
Basic $ 0.45 $ 0.27 $ 0.03 $ 0.39
Diluted $ 0.44 $ 0.27 $ 0.03 $ 0.39
Common stock price range:
High $ 32.41 $ 29.17 $ 28.00 $ 26.76
Low $ 18.91 $ 18.25 $ 22.55 $ 20.44
- ------------------------------------------------------------------------------------------------------------------
Earnings per share were computed independently for each of the quarters
presented. The sum of the quarters may not equal the total year amount due to
the impact of computing average quarterly shares outstanding for each period.
The Company has not paid cash dividends on its common stock during the
three years ended December 31, 2002. The closing market price of the Company's
common stock on December 31, 2002 was $23.85 per share.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The sections entitled "Nominees" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's Definitive Proxy Statement for the Annual
Meeting of Stockholders on April 24, 2003 are incorporated herein by reference.
Executive Officers of the Registrant
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Wilbert G. Holliman 65 President of the Subsidiary - 1989
Action Industries, Inc.
Chief Executive Officer of
the Subsidiary - Action
Industries, Inc. 1994
Director X 1996
President X 1996
Chief Executive Officer X 1996
Chairman of the Board X 1998
John T. Foy 55 President and Chief Executive
Officer of the Operating Company -
Lane Furniture Industries, Inc. X 1996
Christian J. Pfaff 54 President and Chief Executive
Officer of the Operating Company-
Thomasville Furniture Industries, Inc. X 1997
Dennis R. Burgette 55 President and Chief Executive
Officer of the Operating Company -
Broyhill Furniture Industries, Inc. X 2000
C. Jeffrey Young 52 President and Chief Executive
Officer of the Operating Company-
Drexel Heritage Furniture Industries, Inc. X 2002
Seamus Bateson 52 President and Chief Executive Officer of
the Operating Company-Maitland-Smith
Furniture Industries, Inc. X 1999
Michael K. Dugan 62 President and Chief Executive Officer of the
Operating Company-Henredon Furniture
Industries, Inc. X 1987
Lynn Chipperfield 51 General Counsel 1993
Vice-President 1996
Secretary 1996
Senior Vice President X 2000
Chief Administrative Officer X 2000
David P. Howard 52 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Treasurer X 1996
Steven W. Alstadt 48 Controller X 1994
Chief Accounting Officer X 1994
- -----------------------
*Member of the Executive Committee
There are no family relationships between any of the executive officers of the
Registrant.
The executive officers are elected at the organizational meeting of the Board of
Directors which follows the annual meeting of stockholders and serve for one
year and until their successors are elected and qualified.
Each of the executive officers has held the same position or other positions
with the same employer during the past five years, except Seamus Bateson who
became President and Chief Executive Officer of Maitland-Smith in 1999 and prior
thereto was President of Rubbermaid Asia Pacific (a manufacturer and marketer of
consumer products) and C. Jeffrey Young who became President and Chief Executive
Officer of Drexel Heritage in 2002 and prior thereto was President and Chief
Executive Officer of Lexington Furniture Industries.
Item 11. Executive Compensation
The sections entitled "Executive Compensation", "Executive Compensation and
Stock Option Committee Report on Executive Compensation", "Stock Options",
"Retirement Plans", "Incentive Agreements" and "Performance Graph" of the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on
April 24, 2003 are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The section entitled "Security Ownership" of the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on April 24, 2003 is
incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth aggregate information regarding the Company's
equity compensation plans as of December 31, 2002:
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (1))
--------------------- ------------------------- ------------------------- ------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders (1) 3,670,317 20.36 3,136,750
Equity compensation
plans not approved
by security holders - - -
Total 3,670,317 20.36 3,136,750
(1) Includes the Company's 1992 Stock Option Plan and 1999 Long-Term
Incentive Plan. Included in column (a) are 59,333 shares of restricted
common stock that have been awarded and that vest over a period from 1
to 4 years. These shares of restricted common stock were disregarded
for purposes of computing the weighted-average exercise price in
column (b).
Annually, the Board of Directors determines the amount of fees to be paid to
non-employee Directors, including an award of restricted shares of Company
common stock, as described under "Compensation of Board of Directors" in the
2003 Proxy Statement, hereby incorporated by reference. These shares are
purchased in open-market transactions.
Annually, Lane Furniture Industries, Inc., a subsidiary of the Company, awards a
limited number of shares of Company common stock to a few of its truck drivers
as safety awards. 150 shares of the Company's common stock were issued as safety
awards in 2002. These shares are purchased in open market transactions.
Information regarding the 1992 Stock Option Plan and 1999 Long-Term Incentive
Plan set forth in Note 8 of Notes to Consolidated Financial Statements is hereby
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
None.
Item 14. Controls and Procedures
- --------------------------------
(a) The Company's chief executive officer and chief financial officer have
concluded that the Company's disclosure controls and procedures are
effective based on their evaluation of these controls and procedures
within 90 days of the date of this report.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheets, December 31, 2002 and 2001
Consolidated statements of operations for each of the years in the
three-year period ended December 31, 2002
Consolidated statements of cash flows for each of the years in the
three-year period ended December 31, 2002
Consolidated statements of shareholders' equity for each of the years
in the three-year period ended December 31, 2002
Notes to consolidated financial statements
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required information is presented in the
consolidated financial statements or related notes or are not applicable.
3. Exhibits:
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the SEC. The Company shall furnish copies of
exhibits for a reasonable fee (covering the expense of furnishing copies) upon
request.
3(a) Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3(a) to Furniture Brands
international, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.)
3(b) By-Laws of the Company revised and amended to May 6, 1998.
(Incorporated by reference to Exhibit 3(a) to Furniture Brands
International, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.)
3(c) Rights Agreement, dated as of July 30, 1998, between the Company
and Bank of New York, as Rights Agent. (Incorporated by reference
to Exhibit 4 (b) to Furniture Brands International, Inc.'s Report
on Form 10-Q for the quarter ended June 30, 1998.)
3(d) Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Company.
(Incorporated by reference to Exhibit 4(c) to Furniture Brands
International, Inc.'s Report on Form 10-Q for the quarter ended
June 30, 1998.)
4(a) Credit Agreement, dated as of June 7, 2000, among the Company,
Broyhill Furniture Industries, Inc., Lane Furniture Industries,
Inc., Thomasville Furniture Industries, Inc., Various Lenders,
First Union National Bank, as Documentation Agent, Bank of
America, N.A., as Syndication Agent and Deutsche Bank AG, New
York Branch, as Administrative Agent. (Incorporated by reference
to Exhibit 4 (a) to Furniture Brands International, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.)
4(b) Registration Rights Agreement, made and entered into as of
December 28, 2001, by and among the Company, Henredon Furniture
Industries, Inc., Drexel Heritage Furnishings, Inc.,
Maitland-Smith, Inc., Maitland-Smith Pacific, LTD and Lifestyle
Furnishings International, Ltd. (Incorporated by reference to
Exhibit 4 to Furniture Brands International, Inc.'s Report on
Form 8-K, dated January 11, 2002, as amended on March 14, 2002.)
No other long-term debt instruments are filed since the total
amount of securities authorized under any such instrument does
not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of such instruments to the Securities & Exchange
Commission upon request.
10(a) Furniture Brands International, Inc.'s 1992 Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10 (a) to
Furniture Brands International, Inc.'s Form 10-Q for the quarter
ended March 31, 2000.) *
10(b) Furniture Brands International, Inc.'s 1999 Long-Term Incentive
Plan, as amended. (Incorporated by reference to Exhibit 4(f) to
Furniture Brands International, Inc.'s Registration Statement on
Form S-8, file No. 333-100133.
10(c) Form of Indemnification Agreement between the Company and the
Company's directors. (Incorporated by reference to Exhibit 10(c)
to Furniture Brands International Inc.'s Annual Report on Form
10-K for the year ended December 31, 2001) *
10(d) Written description of bonus plan for management personnel of
Lane Furniture Industries, Inc. (Incorporated by reference to
Exhibit 10(e) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994.) *
10(e) Furniture Brands International, Inc. Restricted Stock Plan for
Outside Directors, dated as of July 29, 1997. *
10(f) Retirement Plan for directors. (Incorporated by reference to
Exhibit 10 (g) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1994.) *
10(g) First Amendment to Retirement Plan for Directors. (Incorporated
by reference to Exhibit 10 (e) to Furniture Brands International,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1994.) *
10(h) Furniture Brands International, Inc. Executive Incentive Plan, as
amended on October 25, 2001. (Incorporated by reference to
Exhibit 10(g) to Furniture Brands International Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2001) *
10(i) Broyhill Furniture Industries, Inc. Executive Incentive Plan, as
amended on January 24, 2002. (Incorporated by reference to
Exhibit 10(h) Furniture Brands International Inc.'s Annual Report
on Form 10-K for the year ended December 31, 2001) *
10(j) Thomasville Furniture Industries, Inc. Executive Incentive Plan,
as amended on January 24, 2002. (Incorporated by reference to
Exhibit 10(i) Furniture Brands International Inc.'s Annual Report
on Form 10-K for the year ended December 31, 2001) *
10(k) Henredon Furniture Industries, Inc. Executive Incentive Plan,
dated January 24, 2002. (Incorporated by reference to Exhibit
10(j) Furniture Brands International Inc.'s Annual Report on Form
10-K for the year ended December 31, 2001) *
10(l) Drexel Heritage Furniture Industries, Inc. Executive Incentive
Plan, dated January 24, 2002. (Incorporated by reference to
Exhibit 10(k) to Furniture Brands International Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2001) *
10(m) Maitland-Smith Furniture Industries, Inc. Executive Incentive
Plan, dated January 24, 2002. (Incorporated by reference to
Exhibit 10(l) to Furniture Brands International Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2001) *
10(n) Employment Agreement, dated as of April 29, 1997, between Action
Industries, Inc. and John T. Foy. (Incorporated by reference to
Exhibit 10 (d) to Furniture Brands International, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.) *
10(o) Employment Agreement, dated as of January 1, 2000, between the
Company and Wilbert G. Holliman. (Incorporated by reference to
Exhibit 10 (j) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998.) *
10(p) Employment Agreement, dated as of August 1, 1996, between the
Company and Lynn Chipperfield. (Incorporated by reference to
Exhibit 10 (c) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996.) *
10(q) Employment Agreement, dated as of January 29, 1998, between the
Company and Christian J. Pfaff. (Incorporated by reference to
Exhibit 10 (o) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997.) *
10(r) Employment Agreement, dated as of January 1, 2000, between the
Company and Dennis R. Burgette. (Incorporated by reference to
Exhibit 10 (p) to Furniture Brands International, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998.) *
10(s) Form of Agreement Not To Compete between the Company and Wilbert
G. Holliman, Dennis R. Burgette, John T. Foy, Christian J. Pfaff,
and Lynn Chipperfield. (Incorporated by reference to Exhibit 10
(r) to Furniture Brands International, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998.) *
10(t) Form of Split Dollar Agreement and Premium Retrieval Agreement
between the Company and Wilbert G. Holliman. *
10(u) Form of Split Dollar Agreement and Premium Retrieval Agreement
between the Company and Dennis R. Burgette, John T. Foy,
Christian J. Pfaff and Lynn Chipperfield. *
10(v) Furniture Brands Supplemental Executive Retirement Plan, dated
as of January 1, 2002.
10(w) Broyhill Furniture Industries, Inc. Supplemental Retirement
Income Plan, dated as of October 31, 2001.
10(x) Lane Furniture Industries, Inc. Supplemental Executive
Retirement Plan, dated as of January 1, 2003.
21 List of Subsidiaries of the Company
23 Consent of KPMG LLP
99(a) Certification of W.G. Holliman, Chief Executive Officer of the
Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99(b) Certification of David P. Howard, Chief Financial Officer of the
Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
*Indicates management contact or compensatory plan, contract or arrangement
(b) Reports on Form 8-K.
A Form 8-K was filed on October 25, 2002 announcing third quarter and
nine month operating results and projections for the fourth quarter
and full year 2002 earnings per share. A Form 8-K was filed on
December 10, 2002 affirming earlier projections for the fourth quarter
and full year 2002. A Form 8-K was filed on January 28, 2003
announcing fourth quarter and full year operating results and
projections for the first quarter and full year 2003. A Form 8-K was
filed on March 4, 2003 revising projections for the first quarter and
full year 2003.
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to consolidated Financial Statements and Schedules
Page No.
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2002 and 2001 26
Consolidated Statements of Operations for Each of the years in the three-year period
ended December 31, 2002 27
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended December 31, 2002 28
Consolidated Statements of Shareholders' Equity for each of the years in the three-
year period ended December 31, 2002 29
Notes to Consolidated Financial Statements 30
Financial Statement Schedule 46
Independent Auditors' Report 52
Consolidated Financial Statement Schedules:
Schedule
--------
Valuation and qualifying accounts II 51
Schedule II
-----------
FURNITURE BRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Dollars in Thousands)
------------------------------------------------------------------------------------
Additions
Balance at Charged to Deductions Balance at
Beginning Acquired Cost and from End of
Description of Period Companies Expenses Reserves Period
- ----------- --------- --------- ---------- ---------- ----------
Year Ended December 31, 2002
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $12,564 $ - $ 8,321 $ (7,168) (a) $13,717
Allowance for cash discounts/
chargebacks/other 6,277 - 3,222 (2,465) (b) 7,034
------- ---------- ------- ---------- -------
$18,841 $ - $11,543 $ (9,633) $20,751
======= ========== ======= ========== =======
Year Ended December 31, 2001
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $17,906 $ 2,084 $15,417 $(22,843) (a) $12,564
Allowance for cash discounts/
chargebacks/other 5,169 2,416 1,263 (2,571) (b) 6,277
-------- -------- ------- --------- -------
$23,075 $ 4,500 $16,680 $(25,414) $18,841
======= ======== ======= ========= =======
Year Ended December 31, 2000
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $15,960 $ - $12,002 $(10,056) (a) $17,906
Allowance for cash discounts/
chargebacks/other 3,097 - 3,470 (1,398) (b) 5,169
------- ---------- ------- --------- -------
$19,057 $ - $15,472 $(11,454) $23,075
======= ========== ======= ========= =======
(a) Uncollectible account written off, net of recoveries.
(b) Cash discounts taken by customers and claims allowed to customers.
See accompanying independent auditors' report.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Furniture Brands International, Inc.:
We have audited the accompanying consolidated balance sheets of Furniture
Brands International, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of operations, shareholders' equity,
cash flows and the related financial statement schedule for each of the years in
the three-year period ended December 31, 2002. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Furniture
Brands International, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As described in Note 6 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" in the year ended December 31, 2002.
KPMG LLP
St. Louis, Missouri
January 22, 2003
SIGNATURES
----------
Pursuant to the requirements of Section 13 of 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.
Furniture Brands International, Inc.
------------------------------------
(Registrant)
By /s/ Wilbert G. Holliman
------------------------------
Chairman of the Board,
President and Chief
Executive Officer
Date: March 25, 2003
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 and in the capacities indicated on March 25, 2002.
Signature Title
--------- -----
President and Director
/s/ Wilbert G. Holliman (Principal Executive Officer)
- -----------------------------------------------------------
Wilbert G. Holliman
/s/ Katherine Button Bell Director
- -----------------------------------------------------------
Katherine Button Bell
/s/ Bruce A. Karsh Director
- -----------------------------------------------------------
Bruce A. Karsh
/s/ Donald E. Lasater Director
- -----------------------------------------------------------
Donald E. Lasater
/s/ Lee M. Liberman Director
- -----------------------------------------------------------
Lee M. Liberman
/s/ Richard B. Loynd Director
- -----------------------------------------------------------
Richard B. Loynd
/s/ Albert E. Suter Director
- -----------------------------------------------------------
Albert E. Suter
Signature Title
--------- -----
Vice-President and Treasurer
/s/ David P. Howard (Principal Financial Officer)
- -----------------------------------------------------------
David P. Howard
Controller
/s/ Steven W. Alstadt (Principal Accounting Officer)
- -----------------------------------------------------------
Steven W. Alstadt
CERTIFICATIONS
--------------
I, Wilbert G. Holliman, certify that:
1. I have reviewed this annual report on Form 10-K of Furniture Brands
International, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 25, 2003
By /s/ Wilbert G. Holliman
-------------------------------------
Wilbert G. Holliman
Chairman of the Board, President
and Chief Executive Officer
I, David P. Howard, certify that:
1. I have reviewed this annual report on Form 10-K of Furniture Brands
International, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 25, 2003
By /s/ David P. Howard
-------------------------------------
David P. Howard
Vice President, Treasurer
and Chief Financial Officer