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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-18446
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Fairwood Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3472113
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Center
1201 N. Orange Street, Suite 790
Wilmington, DE 19801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-884-6749
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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None Not Applicable
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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 was zero as of February 28, 2001.
On February 28, 2001, the registrant had outstanding 500 shares of Class A
Voting common stock, $.01 par value and 999,800 shares of Class B Non-Voting
common stock, $.01 par value.
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PART I
ITEM 1. BUSINESS
Fairwood Corporation ("Fairwood") is a privately held Delaware corporation
organized in 1988 by investors including Citicorp Venture Capital Ltd. ("CVCL")
for the purpose of acquiring all of the common stock of Consolidated Furniture
Corporation, formerly named Mohasco Corporation ("Consolidated Furniture"). At
the date of acquisition, Consolidated Furniture's operations were diversified
and included the manufacture of residential furniture and carpet, and the rental
of residential and office furniture. Consolidated Furniture sold its carpet and
rental operations in 1988.
The principal executive offices of Fairwood are located at One Commerce
Center, 1201 Orange St., Suite 790, Wilmington, Delaware 19801. Fairwood is a
holding company with no independent operations: its primary asset is all of the
common stock of Consolidated Furniture.
On June 3, 1999, Furniture Comfort Corporation ("Furniture Comfort"
formerly Futorian Furnishings, Inc.), Consolidated Furniture's operating
subsidiary, sold substantially all of the assets of the Stratford Division for
approximately $14 million in cash plus the assumption of certain liabilities.
The proceeds from the sale were used to pay-down the revolving credit and term
loan. The sale included substantially all of the business and assets of the
Stratford Division, including the sale of its office and showroom in
Bannockburn, Illinois and the assignment of leases for certain other
manufacturing and showroom facilities. The final sales price for the net assets
of Stratford Division was subject to certain post-closing adjustments. As a
result of this sale, Furniture Comfort recognized a loss of approximately
$2 million, which includes $1 million for claims previously submitted by the
purchaser of Stratford regarding post-closing adjustments.
Fairwood's subsidiary, Consolidated Furniture, is the parent of Furniture
Comfort Corporation whose sole operating division, Barcalounger Division
("Barcalounger") manufactures upholstered stationary and motion furniture, such
as modular living room groups, recliners, rockers and glider chairs. In
September 1999, Barcalounger Division incurred substantial damage due to floods
caused by the heavy rains of Hurricane Floyd. The damage to inventory was
approximately $5.8 million. This amount includes the destruction of all finished
inventory, approximately 95% of work in process and approximately 50% of raw
materials. Lost sales of approximately $6 million resulted from the plant being
closed for approximately three weeks. Losses experienced by the Company were
largely offset by insurance proceeds. The net effect was a $0.5 million loss.
On January 3, 1996, certain holders of the Fairwood public debentures
(the "Bondholders") filed an involuntary Chapter 7 case against Fairwood in
the United States Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court." Fairwood, Consolidated Furniture and certain affiliates
filed a motion in response to the involuntary filing seeking to dismiss the
petition. By order dated December 4, 1996, the Bankruptcy Court denied the
motion to dismiss the petition.
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Thereafter, on December 26, 1996, Fairwood exercised its right to convert
the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood
continues to operate as a debtor in possession under Section 1108 of the
Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as its operating
division, Barcalounger, are not parties to the bankruptcy. In April 1997, the
Bondholders' filed a Motion with the Bankruptcy Court seeking to convert
Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the
appointment of a Chapter 11 trustee. By order dated March 2, 1999, the
Bondholders' motion to convert the case or, alternatively, for the appointment
of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the
District Court entered an Order affirming the Bankruptcy Court's decision in all
respects. The Bondholders appealed to the Second Circuit Court of Appeals, which
on January 4, 2001 entered an order affirming the judgment of the District
Court. It is not yet known what further action, if any, the Bondholders will
take or what the ultimate outcome of the Chapter 11 case will be. However,
Consolidated Furniture and subsidiaries in the meantime continue to operate in
the normal course of business.
In October 1998, the Bankruptcy Court approved the settlement of issues
arising out of an Internal Revenue Service ("IRS") audit examination of the
consolidated Federal income tax returns of Fairwood and its subsidiaries for the
periods ended July 11, 1988 through December 31, 1991. In the second quarter of
1999, payment of the Fairwood Group's estimated Federal tax liability was made
to the IRS. The tax payment, including estimated interest, was approximately
$4.5 million and was provided for in the financial statements in previous years.
See Item 3. LEGAL PROCEEDINGS.
Operations
Furniture Comfort, through its Barcalounger division, serves selected
segments of the highly diversified $22 billion residential furniture market.
Consolidated Furniture entered the furniture industry through a series of
acquisitions commencing in 1964. Currently a diversified line of upholstered
motion furniture is manufactured and sold under the Barcalounger brand name,
whose products have been successfully targeted to a more selective, higher
priced market. Barcalounger manufactures and sells higher-priced motion
furniture and is well known for its high-quality recliners. The products are
sold nationally to furniture retailers and department stores mainly through
commissioned sales forces.
The furniture industry is affected to a substantial degree by style, value
and fashion. Barcalounger participates in important furnishings market showings
held during the year in High Point, North Carolina to acquaint retailers with
the significant number of new products introduced each year. Barcalounger
frequently reviews its product lines to evaluate whether minor or major
restyling of such lines is warranted. To generate new product and style ideas
based upon consumer and retailer response, Barcalounger maintains in-house
design staffs and contracts with outside designers. The designers consult with
manufacturing management to analyze the economic feasibility of producing new
products based on their designs.
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Barcalounger operates in a highly competitive segment of the motion
furniture business. Many new competitors and existing stationary manufacturers
have entered this particular market, as well as existing competitors, which have
expanded their lines. Barcalounger has been able to maintain its market share by
focusing on its core high-end high-quality product lines. See Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES. For the years ended December 31,
2000, 1999 and 1998, net sales by Barcalounger were $58.7 million, $50.1 million
and $54.7 million, respectively.
The furniture market is highly competitive and includes a large number of
manufacturers, none of which dominates the market. Certain of these
manufacturers produce a broader range of furniture than Barcalounger, and many
of them have greater financial and other resources. In addition, there are
relatively few barriers to entry into the industry. Competition could require
Barcalounger to reduce prices, offer better credit terms, or increase spending
on product development, marketing or sales, any of which could adversely affect
the Company.
Barcalounger targets a selected market for its high-end recliner chair and
motion upholstered furniture. Barcalounger sells mainly to furniture stores and
department stores that carry more expensive products and provide interior design
services directly or indirectly. Barcalounger gives limited warranties for its
products. The value and fine quality of its furniture is apparent as hardwood
frames are emphasized and only the finest leather and fabric coverings are
offered. Barcalounger has significant brand recognition and has a reputation of
having one of the best product lines in terms of value, quality, design and
service in the higher priced segment of the motion furniture industry.
Barcalounger is well known in the furniture industry, which is
characterized, by a large number of relatively small manufacturers. The
following are among the Company's larger competitors: Life Style Furnishings
International, Furniture Brands International, La-Z-Boy, Klausner, Natuzzi, and
Bassett, many of which have greater financial resources than the Company.
Competition is intense at all levels, stressing price, style, fabric and product
finish.
Factors Affecting the Home Furnishings Industry
The furniture industry as a whole is affected by demographics, household
formations, the level of personal discretionary income, household mobility and
the rate of new home construction. There exists a substantial replacement market
that is relatively less affected by these factors.
Research and Development
Since the furniture industry is characterized by active competition among a
large number of companies, many of which also have substantial facilities and
resources, Barcalounger believes that the maintenance of high product quality
and the development of new products are essential to maintaining its competitive
position. In support of these goals, Barcalounger conducts research and
development activities.
The Furniture Comfort Corporation expended a total of $7,403,000 in the
past five years for research and development programs of which $466,000,
$1,187,000, and $2,026,000 was expended in 2000, 1999 and 1998, respectively.
Barcalounger's share included $2,250,000 for the past five years and $466,000,
$470,000 and $455,000 for 2000, 1999 and 1998, respectively.
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Employees
Fairwood has no employees but its subsidiaries and their operating division
employed 430 persons at December 31, 2000. The Barcalounger division has a long
record of generally harmonious relations with employees. None of the employees
are subject to a collective bargaining agreement.
Backlog
The backlog of orders for the Barcalounger division was approximately
$5,523,000 at December 31, 2000 and approximately $9,002,000 at December 31,
1999. The decrease in backlog is attributable to the higher than normal backlog
in prior year because of the loss of inventory and production time due to the
flood in 1999. It is expected that the backlog at December 31, 2000 will be
filled in the current year. Furniture Comfort does not consider backlog to be a
significant indicator of the sales outlook for its products beyond the period of
a few months.
Seasonality, Major Customers and Export Sales
There are seasonal factors, which affect Barcalounger's business. Spring
and fall are generally considered periods of increased interest by consumers in
interior furnishings since these are periods of increased real estate activity
involving relocation of families. The Christmas holiday season and other special
occasions usually generate increased sales of some of Barcalounger's furniture
lines. On the other hand, inclement weather in mid-winter generally discourages
the purchase of interior furnishings. Similarly, the closedown of a portion of
Barcalounger's activities for vacation periods in July has a limiting effect on
production as well as sales. Barcalounger maintains adequate levels of inventory
to meet seasonal demands.
Export sales for 2000, 1999 and 1998 were approximately 2% of sales for
each year, of which approximately 1% was made to Canada for each year.
Environmental and Raw Materials
In 2000, there were no significant effects upon the capital expenditures,
earnings and competitive position of Barcalounger occasioned by compliance with
provisions of federal, state and local laws regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment.
Raw materials purchased by Barcalounger are all procured in the open market
from a number of suppliers. In general, no major difficulties have been
experienced in obtaining raw materials.
Patents
Patents are not a significant consideration in the manufacture of most of
Barcalounger's products. Barcalounger does not believe that their operating
income is materially dependent on any one patent or license or group of related
patents or licenses.
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ITEM 2. PROPERTIES
The furniture manufacturing activities of Barcalounger are conducted in a
modern facility of suitable construction. This facility is in good operating
condition, reasonably maintained and contains reasonably modern equipment. All
of the principal items of machinery and equipment located in this facility are
owned by Furniture Comfort or its operating division.
Barcalounger also leases showrooms in High Point, North Carolina and San
Francisco, California for display and storage of products. Fairwood and
Consolidated Furniture lease office space in Wilmington, Delaware.
Barcalounger believes that its plant and facilities, in the aggregate, are
adequate, suitable and of sufficient capacity for purposes of conducting its
current business for the foreseeable future without making capital expenditures
materially higher than historical levels.
As of December 31, 2000, Furniture Comfort Corporation has leased furniture
facilities as follows:
Location Use Square Footage
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Barcalounger
Leased
Rocky Mount, NC Manufacturing plant 364,000
High Point, NC Showroom 9,808
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373,808
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Stratford
Leased
Guntown, MS Warehouse subleased to third party 216,000
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589,808
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Substantially all of the assets of Consolidated Furniture and its
subsidiaries are subject to a lien in favor of Court Square Capital Limited
("CSCL") granted in connection with the Credit Agreement (See Note 4 to the
Company's Consolidated Financial Statements set forth in item 8).
ITEM 3. LEGAL PROCEEDINGS
In October 1998, the Bankruptcy Court approved the settlement of issues
arising out of an Internal Revenue Service ("IRS") audit examination of the
consolidated Federal income tax returns of Fairwood and its subsidiaries for the
periods ended July 11, 1988 through December 31, 1991. In the second quarter of
1999, payment of the Fairwood Group's estimated Federal tax liability was made
to the IRS. The tax payment, including estimated interest, was approximately
$4.8 million and was provided for in the financial statements in previous years.
As approved by the Bankruptcy Court, the settlement was funded by
additional borrowings under Consolidated Furniture's existing revolving credit
agreement, with any refund obtained returned to the lender under that facility.
The settlement significantly reduced Fairwood's available net operating loss
carry forwards.
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Fairwood is obligated to the extent of any adjustment by the IRS to the
interest component of the settlement and the state tax effect of this
settlement. A provision for additional interest of $1.9 million and taxes of
$0.1 million, as of December 31 2000 remains. The provision for interest and
provision for taxes are included in accrued interest and Federal and state
income taxes, respectively on the accompanying consolidated balance sheet. The
Company has not reached final settlement with all taxing authorities, therefore
the amount of the provisions are subject to change.
On October 4, 1994, Consolidated Furniture was served with a complaint
filed in U.S. District Court in Philadelphia by third party plaintiffs against
Consolidated Furniture and its former subsidiary, Sloane Blabon Corporation,
which engaged in the linoleum business, U.S. VS. BERKS ASSOCIATES, et al., Civ.
No. 91-4868, E.D. PA. The original complaint in the case was filed by the
Environmental Protection Agency against Berks Associates and others to recover
over $200 million from twelve defendants (not including Consolidated Furniture)
for costs incurred or to be incurred in connection with the investigation and
remediation of a Super Fund site in Douglasville, Pennsylvania. The original
defendants then sued over 600 third party defendants to share in the liability,
if any. Sloane Blabon is alleged to have disposed of benzine at the site from
1949 through May 1953, when Sloane Blabon sold its relevant assets to Congoleum
Corporation. During the period in question, Sloane Blabon disposed of
substantial quantities of benzine to Berks Associates at the Douglasville site.
However, Consolidated Furniture does not believe its disposals were toxic as
alleged. The damages sought from Sloane Blabon and Consolidated Furniture are
unspecified. On August 28, 1995 Consolidated Furniture joined with five other
Potentially Responsible Parties and made an offer of settlement to the EPA.
Consolidated Furniture's share of the offer is approximately $190,000. The EPA
has not rejected or accepted the offer.
On January 3, 1996, certain holders of the Fairwood public debentures (the
"Bondholders") filed an involuntary Chapter 7 case against Fairwood in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court." Fairwood, Consolidated Furniture and certain affiliates
filed a motion in response to the involuntary filing seeking to dismiss the
petition. By order dated December 4, 1996, the Bankruptcy Court denied the
motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert
the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood
continues to operate as a debtor in possession under Section 1108 of the
Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as its operating
division, Barcalounger, are not parties to the bankruptcy. In April 1997, the
Bondholders' filed a Motion with the Bankruptcy Court seeking to convert
Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the
appointment of a Chapter 11 trustee. By order dated March 2, 1999, the
Bondholders' motion to convert the case or, alternatively, for the appointment
of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the
District Court entered an Order affirming the Bankruptcy Court's decision in all
respects. The Bondholders appealed to the Second Circuit Court of Appeals, which
on January 4, 2001 entered an order affirming the judgment of the District
Court. It is not yet known what further action, if any, the Bondholders will
take or what the ultimate outcome of the Chapter 11 case will be. However,
Consolidated Furniture and subsidiaries in the meantime continue to operate in
the normal course of business.
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As of the date hereof, there are certain other legal proceedings pending,
which arise out of the normal course of the Companies' business, the financial
risk of which is not considered material in relation to the consolidated
financial position of Fairwood.
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 SHAREOWNER
MATTERS
Fairwood's common stock is privately held, and therefore, no established
public trading market exists. At December 31, 2000 and 1999, there were three
shareowners of Fairwood's common stock. No dividends were declared on Fairwood's
common stock in 2000 and 1999. The ability of Fairwood to pay dividends and make
distributions in respect of its common stock is restricted by instruments
relating to Fairwood's debt. Furthermore, the ability of Consolidated Furniture
and its subsidiaries to transfer moneys to Fairwood (including without
limitation by dividend or distribution) is restricted by instruments relating to
Consolidated Furniture's and its subsidiaries' debt, including the Credit
Agreement. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and Note 4
to Fairwood's Consolidated Financial Statements set forth in Item 8.
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ITEM 6. SELECTED FINANCIAL DATA
FAIRWOOD CORPORATION AND SUBSIDIARIES
Five-Year Summary of Consolidated Financial Data
(Dollar Amounts in Millions)
Years ended December 31,
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2000 1999 1998 1997 1996
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Net sales $ 58.7 100.1 154.2 148.1 151.3
Operating income (loss) 2.6 ( 9.6) ( 13.8) ( 20.6) ( 6.4)
Interest expense, net ( 85.9) ( 76.3) ( 71.7) ( 65.4) ( 61.2)
Loss on sale of division - ( 2.0) - - -
Loss due to flood damage - ( 0.5) - - -
Net loss ( 83.3) ( 88.3) ( 85.5) ( 86.1) ( 67.4)
Total assets 24.5 23.3 56.2 56.8 46.6
Long-term debt, including
current maturities * 678.6 621.5 556.7 505.8 453.1
Redeemable preferred stock .1 .1 .1 .1 .1
* - Does not include accrued interest for 2000, 1999, 1998, 1997 and 1996
of $176.4, $147.5 million, $118.5 million, $91.4 million and $64.4 million,
respectively.
In 1999, operations data includes the activities of the Stratford Division
for the period from January 1 through June 3, 1999 (date of sale). Accordingly,
the data presented for 1999 is not comparable with 2000 or 1998, 1997 and 1996.
For additional information, see the Company's Consolidated Financial
Statements included with this report, including Notes 3 and 11 thereto regarding
certain tax and liquidity matters.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
Certain information in this annual report on Form 10-K, including but not
limited to the Management's Discussion and Analysis of Financial Condition and
Results of Operations, may constitute forward-looking statements as such term is
defined in Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934. Certain forward-looking
statements can be identified by the use of forward-looking terminology such as,
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimates," or "anticipates" or the negative thereof or
derivatives thereof or other comparable terminology, or by discussions of
strategy, plans or intentions. Forward-looking statements involve risks and
uncertainties, which could cause actual results to be materially different than
those in the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company assumes no obligation to update such information.
2000 vs. 1999 Results of Operations
Consolidated net sales of approximately $58.7 million for 2000 decreased
41.4% from 1999 net sales of approximately $100.1 million, due primarily to the
sale of Stratford operations in 1999. Consolidated cost of sales decreased 48.6%
in 2000 to approximately $47.0 million, or 80.1% of net sales as compared to
$91.4 million, or 91.4% of net sales, in 1999. These sales and cost of sales
decreases were caused largely by the sale of Stratford.
On June 3, 1999, Furniture Comfort Corporation ("Furniture Comfort")
formerly named Futorian Furnishings, Inc., Consolidated Furniture's operating
subsidiary, sold substantially all of the assets of the Stratford Division for
approximately $14 million in cash plus the assumption of certain liabilities.
The proceeds from the sale were used to pay-down the revolving credit and term
loan. The sale included substantially all of the business and assets of the
Stratford Division, including its office and showroom in Bannockburn, Illinois
and the assignment of leases for certain other manufacturing and showroom
facilities. The final sales price for the net assets of Stratford Division was
subject to certain post-closing adjustments. As a result of this sale, Furniture
Comfort recognized a loss of approximately $2 million, which includes $1 million
for claims previously submitted by the purchaser of Stratford regarding
post-closing adjustments.
Net sales for 2000 by Barcalounger increased 17.2% to approximately $58.7
million as compared to $50.1 million in 1999, principally due to lost sales in
1999 from the flood related closure at Barcalounger's Rocky Mount, North
Carolina facility and a 7.7% increase in average selling prices. The average
selling price increase is the result of the sale of products with more expensive
upper grade leather. Barcalounger continues to add to its product offerings of
higher-priced recliner and motion upholstered furniture through an emphasis on
more expensive leather and fabric coverings. Concurrent with these new
offerings, Barcalounger discontinued certain lower-priced products. This change
led to a sales mix, which resulted in increases in average sales prices.
Barcalounger cost of sales increased to 80.4% of net sales in 2000, as compared
to 79.3% in 1999. The increase in cost of sales as a percentage of sales is
primarily the result of unfavorable labor variances attributable to hiring and
training of new personnel in order to handle the large backlog at the end of
1999 because of the flood related closure in September 1999.
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Consolidated selling, administrative and general expenses decreased 50.5%
to approximately $9.1 million in 2000 from approximately $18.2 million in 1999.
The decrease was largely a result of the sale of Stratford. Selling,
administrative and general expenses of Barcalounger increased 4.8% to
approximately $6.6 million in 2000, as compared to approximately $6.3 million
for 1999.
Consolidated interest expense increased 12.4% to $86.1 million from $76.6
million due primarily to additional borrowings under the Credit Agreement, as
discussed in Liquidity and Capital Resources and increases in the prime lending
rate during the year.
Barcalounger pretax earnings increased 35.1% to approximately $5.0 million
in 2000 from approximately $3.7 million in 1999. The increase in pretax earnings
was due primarily to the lost sales in 1999 from the flood related closure.
1999 vs. 1998 Results of Operations
Consolidated net sales of approximately $100.1 million for 1999 decreased
35.1% from 1998 net sales of approximately $154.2 million, due primarily to the
sale of Stratford operations in 1999. Consolidated cost of sales decreased 36.5%
in 1999 to approximately $91.4 million, or 91.4% of net sales as compared to
$143.9 million, or 93.3% of net sales, in 1998. These sales and cost of sales
decreases were caused largely by the sale of Stratford.
On June 3, 1999, Furniture Comfort, Consolidated Furniture's operating
subsidiary, sold substantially all of the assets of the Stratford Division for
approximately $14 million in cash plus the assumption of certain liabilities.
The proceeds from the sale were used to pay-down the revolving credit and term
loan. The sale included substantially all of the business and assets of the
Stratford Division, including its office and showroom in Bannockburn, Illinois
and the assignment of leases for certain other manufacturing and showroom
facilities. The final sales price for the net assets of Stratford Division was
subject to certain post-closing adjustments. As a result of this sale, Furniture
Comfort recognized a loss of approximately $2 million, which includes $1 million
for claims previously submitted by the purchaser of Stratford regarding
post-closing adjustments.
Net sales for 1999 by Barcalounger decreased 8.4% to approximately $50.1
million as compared to $54.7 million in 1998, principally due to lost sales from
the flood related closure at Barcalounger's Rocky Mount, North Carolina facility
partially offset by a 3.7% increase in average selling prices. The average
selling price increase is the result of the sale of products with more expensive
upper grade leather. Barcalounger continues to add to its product offerings of
higher-priced recliner and motion upholstered furniture through an emphasis on
more expensive leather and fabric coverings. Concurrent with these new
offerings, Barcalounger discontinued certain lower-priced products. This change
led to a sales mix, which resulted in increases in average sales prices.
Barcalounger cost of sales decreased to 79.3% of net sales in 1999, as compared
to 80.4% in 1998. The decrease in cost of sales as a percentage of sales is
primarily the result of lower costs associated with certain raw materials.
Consolidated selling, administrative and general expenses decreased 24.5%
to approximately $18.2 million in 1999 from approximately $24.1 million in 1998.
The decrease was largely a result of the sale of Stratford. Selling,
administrative and general expenses of Barcalounger remained constant at
$6.3 million for 1999 and 1998.
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On September 16, 1999, Barcalounger incurred substantial damage due to
floods caused by the heavy rains of Hurricane Floyd. The damage to inventory was
approximately $5.8 million. This amount includes the destruction of all finished
inventory, approximately 95% of work in process and approximately 50% of raw
materials. Lost sales of approximately $4 million resulted from the plant being
closed for approximately three weeks. Losses experienced by the Company were
largely offset by insurance proceeds. The net effect was a $0.5 million loss.
Consolidated interest expense increased 6.5% to $76.6 million from $71.9
million due primarily to additional borrowings under the Credit Agreement, as
discussed in Liquidity and Capital Resources.
Barcalounger pretax earnings decreased 15.9% to approximately $3.7 million
in 1999 from approximately $4.4 million in 1998. The decrease in pretax earnings
was due primarily to the lost sales from the flood related closure.
Liquidity and Capital Resources
Capital requirements for operations during 2000 and 1999 were provided
primarily by borrowings under the revolving credit facility and operating cash
flows at Barcalounger.
Fairwood had a working capital deficit of approximately $(331.9) million
and $(302.8) million at December 31, 2000 and 1999, respectively. At December
31, 2000, Fairwood had long-term debt of approximately $678.6 million of which
$168.8 million was current. Long-term debt at December 31, 1999 was
approximately $625.5 million of which $168.8 million was current. Accrued
interest on long-term debt was $176.4 million at December 31, 2000 and $147.5
million at December 31, 1999. Accrued interest is classified as a current
liability. All of the current maturities of long-term debt at December 31, 2000
and 1999, and $168.9 million and $141.9 million of accrued interest at December
31, 2000 and 1999, respectively are subject to compromise in the bankruptcy
proceedings.
In conjunction with Fairwood's acquisition by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with loans
under a credit agreement with Court Square Capital Limited ("CSCL") (the "Credit
Agreement") and senior subordinated pay-in-kind debentures due to CSCL. In
exchange for the approximately 6.85% of Consolidated Furniture common stock
then outstanding, Fairwood issued $33.5 million of subordinated pay-in-kind
merger debentures and 918,170 warrants to purchase, in the aggregate, 142,900
shares of Fairwood's Class A common stock. The exercise period for the warrants
issued with the merger debentures expired on September 22, 1995. The assets of
Consolidated Furniture and its subsidiaries are pledged as security for the
amounts due under the Credit Agreement. Certain instruments related to the
Credit Agreement have been amended and certain covenants therein have been
waived at various times through December 2000.
Throughout 2000, 1999 and 1998, Consolidated Furniture funded interest
obligations related to long-term indebtedness through increased borrowings from
CSCL. Increases in outstanding borrowings from CSCL under the Credit Agreement
during the years ended December 31, 2000, 1999 and 1998 were approximately $57.0
million, $70.9 million and $51.1 million, respectively. All outstanding debt and
accrued interest at December 31, 2000, excluding the $62.9 million of
outstanding merger debentures plus $66.4 million accrued interest thereon is
payable to CSCL, which is an indirect subsidiary of Citigroup and an affiliate
of CVCL. Consolidated Furniture has obtained an extension of the debt payable to
CSCL to January 2002. Interest on the revolving credit loan of Consolidated
Furniture and its subsidiaries is payable quarterly at 1-1/2% above the
applicable prime rate, which prime rate was 9.50% at December 31, 2000.
- 12 -
13
Interest on the senior subordinated debentures of Consolidated Furniture is
payable semi-annually at 18%. Interest on the senior subordinated pay-in-kind
debentures and merger debentures of Fairwood is payable semi-annually at 15-1/2%
and 16-7/8%, respectively.
Interest payments during the years ended December 31, 2000, 1999 and 1998
of approximately $57.0 million, $48.1 million and $44.8 million, respectively
were primarily made through increased borrowings under the revolving credit
agreement. No principal payments were made in the years ended December 31, 2000
and 1999 and $.2 million was made during 1998.
Annual maturities on debt for the years ended December 31, 2001 and 2002
are approximately $168.8 million and $509.8 million, respectively. Interest
payments expected to be made through increased borrowings and cash from
operations for the years ended December 31, 2001, 2002 and 2003 are estimated to
be approximately $63.3 million, $70.3 million and $78.0 million.
On April 1, 1995 and each semi-annual interest payment date thereafter,
Fairwood failed to make the required interest payments due on the senior
subordinated pay-in-kind debentures and merger debentures (collectively, the
"Fairwood Debentures") and Fairwood does not expect to make the cash interest
payments required under the Fairwood Debentures on any future semi-annual
interest payment dates. Accrued interest of $168.9 million on the Fairwood
Debentures, which includes $102.5 million due to CSCL, is included in accrued
interest on the consolidated balance sheet as of December 31, 2000. See Note 4
to the accompanying Consolidated Financial Statements.
Based on the terms of the Fairwood Debentures, the failure to make the
interest payment constitutes an event of default, which permits the acceleration
of the Fairwood Debentures by the demand of the holders of the requisite
aggregate principal amount of the debentures. Upon acceleration, the Fairwood
debentures and all accrued interest would be due and payable. Accordingly, the
Fairwood Debentures totaling $168.8 million have been classified as current
liabilities in the accompanying Consolidated Financial Statements as of December
31, 2000.
Capital additions were approximately $0.2 million, $0.5 million and $1.4
million for the years 2000, 1999 and 1998, respectively. Barcalounger
anticipates making capital expenditures of approximately $.75 million during
2001, primarily for the purpose of maintaining and upgrading their manufacturing
equipment, machinery and facilities. Barcalounger has no firm commitments for
the purchase of capital equipment or facilities. It is anticipated that
necessary capital expenditures will be funded through cash flow generated from
operations of Barcalounger or available credit facilities under the Consolidated
Furniture's Credit Agreement with CSCL. Consolidated Furniture and Furniture
Comfort intend to pursue other sources of financing to the extent available and
cost effective.
Consolidated Furniture, Furniture Comfort and the operating divisions are
dependent upon CSCL for funding of their debt service costs. Instruments
relating to the Credit Agreement and senior subordinated debentures have been
amended and certain provisions thereof waived at various times through December
2000 to provide more favorable terms to Consolidated Furniture and, in certain
instances, to avoid defaults hereunder. Under the Credit Agreement, Consolidated
Furniture and its subsidiaries are generally restricted from transferring moneys
to Fairwood (including without limitation by dividend or distribution) with the
exception of amounts for (a) specified administrative expenses of the Company
and (b) payment of income taxes. Furthermore, Consolidated Furniture is subject
to additional restrictions on transferring moneys to Fairwood (including without
limitation by dividend or distribution)
- 13 -
14
under the indenture for its senior subordinated debentures, which generally
requires the satisfaction of certain financial conditions for such transfers.
Fairwood is subject to additional restrictions on payment or transfer of moneys
(including without limitation by dividend or distribution) under the indentures
for its senior subordinated pay-in-kind debentures and merger debentures, which
generally require the satisfaction of certain financial conditions for such
transfers.
Consolidated Furniture anticipates that funds provided by Barcalounger and
available credit facilities under the Credit Agreement will be available in 2001
to support the operations of Barcalounger. However, as discussed above, funds
provided by available credit facilities will not be adequate or available to
make transfers to Fairwood for cash interest payments due in 2001 or thereafter
on the Fairwood senior subordinated pay-in-kind debentures and merger
debentures. Consolidated Furniture's obligations under the Credit Agreement are
collateralized by substantially all of the assets of Consolidated Furniture and
its subsidiaries.
Consolidated Furniture's revolving credit and senior subordinated
debentures mature on January 2, 2002 and, accordingly, have been classified as
noncurrent liabilities in the accompanying consolidated balance sheets as of
December 31, 2000. Consolidated Furniture intends to negotiate an extension of
these maturity dates with CSCL or refinance such indebtedness prior to January
2, 2002. However, there can be no assurance that Consolidated Furniture will be
able to negotiate such an extension, or that the terms of such extension or
refinancing will not be on terms less favorable than those currently in place.
On January 3, 1996, certain holders of the Fairwood public debentures (the
"Bondholders") filed an involuntary Chapter 7 petition against Fairwood in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court.") Fairwood, Consolidated Furniture and certain Citicorp
affiliates filed a motion in response to the involuntary filing seeking to
dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court
denied the motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert
the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood
continues to operate as a debtor in possession under Section 1108 of the
Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as its operating
division, Barcalounger, are not parties to the bankruptcy. In April 1997, the
Bondholders' filed a Motion with the Bankruptcy Court seeking to convert
Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the
appointment of a Chapter 11 trustee. By order dated March 2, 1999, the
Bondholders' motion to convert the case or, alternatively, for the appointment
of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the
District Court entered an Order affirming the Bankruptcy Court's decision in all
respects. The Bondholders appealed to the Second Circuit Court of Appeals, which
on January 4, 2001 entered an order affirming the judgment of the District
Court. It is not yet known what further action, if any, the Bondholders will
take or what the ultimate outcome of the Chapter 11 case will be. However,
Consolidated Furniture and subsidiaries in the meantime continue to operate in
the normal course of business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Fairwood is exposed to risks related to fluctuations in interest rates on
the revolving credit facility and term loan agreement and the Credit Agreement.
Fairwood does not utilize interest rate swaps, forwards or option contracts on
foreign currencies or commodities, or other types of derivative instruments.
Fairwood has other borrowing facilities, however these have fixed interest
rates.
For fixed rate debt, changes in interest rates generally affect the fair
value of the underlying indebtedness, but not earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact fair value, but do affect future earnings and cash flows.
- 14 -
15
Assuming the amount outstanding under the Credit Agreement remains at
$429.8 million, the balance at December 31, 2000, each one percentage point
increase in the prime interest rate would result in an increase in interest
expense for the coming year of approximately $4.3 million. The fixed rate debt
includes the following (in thousands):
Interest rate
Amount At December 31, 2000
------ --------------------
Senior subordinated debentures, due 2002 $ 80,000 18%
Senior subordinated pay-in-kind
debentures, due 2001 105,853 15-1/2%
Merger debentures, due 2004 62,928 16-7/8%
-------
$248,781
========
The fair value of the fixed rate debt, and changes in fair value due to
fluctuations in market rates cannot be reasonably estimated considering
Fairwood's ongoing financial difficulties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a
part of this report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations for the Years ended December 31, 2000,
1999 and 1998
Consolidated Statements of Shareowner's Equity (Deficit) for the
Years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
- 15 -
16
Independent Auditors' Report
The Shareowners and Board of Directors
Fairwood Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Fairwood
Corporation and subsidiaries ("Fairwood") as of December 31, 2000 and 1999, and
the related consolidated statements of operations, shareowners' equity (deficit)
and cash flows for each of the years in the three-year period ended December 31,
2000. We also have audited the related financial statement schedule as listed in
the accompanying index for Item 14(a)2 on page 43. 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 Fairwood Corporation
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, 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, presents fairly, in all
material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Fairwood will continue as a going concern. As discussed in Notes 4 and 11
to the consolidated financial statements, Fairwood failed to make the required
interest payments on its senior subordinated pay-in-kind and merger debentures
when due in 1995, and all semi-annual interest payments due thereafter and does
not expect to be able to make such payments in the future. Also, as described in
notes 1 and 11, Fairwood continues to operate as a debtor in possession under
Section 1108 of the U.S. Bankruptcy Code. These matters raise substantial doubt
about the ability of Fairwood Corporation to continue as a going concern.
Management's plans in regard to these matters are described in Notes 1 and 11.
The consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Washington, DC
March 15, 2001
- 16 -
17
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(In thousands except share and per share data)
Assets (note 4) 2000 1999
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 4,580 5,135
-------- -------
Accounts and notes receivable
Trade 9,501 8,455
Less allowance for discounts and doubtful
accounts 228 325
-------- -------
9,273 8,130
-------- -------
Inventories (note 1) 7,605 6,841
Prepaid expenses and other current assets 206 166
-------- -------
Total current assets 21,664 20,272
-------- -------
Property, plant and equipment, at cost:
Land 31 31
Buildings and improvements 4,925 4,925
Machinery and equipment 2,375 2,132
Leasehold improvements 937 972
Construction in progress 59 67
-------- -------
8,327 8,127
Less accumulated depreciation and amortization 5,512 5,185
-------- -------
2,815 2,942
-------- -------
Other assets 40 125
-------- -------
$ 24,519 23,339
======== =======
Liabilities and Shareowners' equity (deficit) 2000 1999
- --------------------------------------------- ---- ----
Current liabilities:
Current maturities of long-term debt (notes 4 and 11):
Senior subordinated pay-in-kind debentures $105,853 105,853
Merger debentures 62,928 62,928
Accrued interest (notes 3 and 4) 176,408 147,490
Accounts payable:
Trade 945 1,884
Other 1,027 1,131
Accrued expenses 3,224 3,611
Due to affiliate 3,976 4,007
Federal and state income taxes 133 133
-------- -------
Total current liabilities 354,494 327,037
-------- -------
Long-term debt, less current maturities (notes 4 and 11):
Revolving credit 429,772 372,761
Senior subordinated debentures 80,000 80,000
-------- -------
509,772 452,761
-------- -------
Other liabilities (note 7) 3,403 2,771
-------- -------
Redeemable preferred stock (note 5):
Par value $.01 per share, authorized 100,000 shares:
Junior preferred, cumulative, issued and outstanding
1,000 shares. Liquidation value $100 per share,
before accrued dividends. 100 100
-------- -------
Shareowners' equity (deficit):
Common stock, par value $.01 per share (notes 4 and 6):
Class A voting, authorized 3,000,000 shares;
issued and outstanding 500 shares. -- --
Class B non-voting, authorized 3,000,000 shares;
issued and outstanding 999,800 shares. 10 10
Additional paid-in capital 55,938 55,938
Accumulated other comprehensive income (loss)
minimum pension liability (note 7) ( 2,102) ( 1,644)
Accumulated deficit (897,096) (813,634)
-------- -------
(843,250) (759,330)
-------- -------
Commitments and contingencies (notes 1, 3, 4, 7,
9, 10 and 11) $ 24,519 23,339
======== =======
See accompanying notes to consolidated financial statements.
- 17 -
18
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31,
----------------------------
2000 1999 1998
-------- -------- ------
(In thousands)
Net sales (notes 2 and 8) $ 58,670 100,072 154,174
---------- ------- -------
Cost of sales (notes 2 and 8) 46,979 91,420 143,885
Selling, administrative and
general expenses (notes 2 and 8) 9,125 18,224 24,110
---------- ------- -------
56,104 109,644 167,995
---------- ------- -------
Operating income (loss) 2,566 ( 9,572) ( 13,821)
Interest income 185 295 150
Interest on indebtedness (notes 4 and 11) ( 86,112) ( 76,591) ( 71,863)
Loss on sale of Stratford Division (note 2) - ( 2,013) -
Loss due to flood damage (note 12) - ( 461) -
Other income (expenses), net 15 42 29
---------- ------- -------
Loss before income taxes ( 83,346) ( 88,300) ( 85,505)
Provision for income
taxes (note 3) - - -
---------- ------- -------
Net loss $( 83,346) ( 88,300) ( 85,505)
========== ======= =======
See accompanying notes to consolidated financial statements.
- 18 -
19
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareowners' Deficit
Years Ended December 31, 2000, 1999 and 1998
(In thousands)
Accumulated
Other
Common stock Additional Comprehensive Comprehensive Shareowners'
---------------- Paid-in Income Accumulated Income Equity
Class A Class B Capital (Loss) deficit (Loss) Deficit
------- ------- ------- --------- --------- ---------- ---------
Balance, January 1, 1998 $ - 10 55,938 (553,457) ( 539) (498,048)
Comprehensive loss
Net loss ( 85,505) ( 85,505) ( 85,505)
Other comprehensive income, net of tax
Adjustment to minimum
pension liability (note 7) 326 326 326
-------
Comprehensive income ( 85,179)
=======
Preferred stock dividends ( 81) ( 81)
-------- ------- ------- ------- ------- -------
Balance, December 31, 1998 $ - 10 55,938 (725,236) ( 27) (669,315)
Comprehensive loss
Net loss ( 88,300) ( 88,300) ( 88,300)
Other comprehensive loss, net of tax
Adjustment to minimum
pension liability (note 7) ( 1,617) ( 1,617) ( 1,617)
-------
Comprehensive loss ( 89,917)
=======
Preferred stock dividends ( 98) ( 98)
-------- ------- ------- ------- ------- -------
Balance, December 31, 1999 $ - 10 55,938 (813,634) ( 1,644) (759,330)
Comprehensive loss
Net loss ( 83,346) ( 83,346) ( 83,346)
Other comprehensive loss, net of tax
Adjustment to minimum
pension liability (note 7) ( 458) ( 458) ( 458)
-------
Comprehensive loss ( 83,804)
=======
Preferred stock dividends ( 116) ( 116)
-------- ------- ------- ------- ------- -------
Balance, December 31, 2000 $ - 10 55,938 (897,096) ( 2,102) (843,250)
======== ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
- 19 -
20
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
---------------------------------------------
2000 1999 1998
------- ------- -------
(In thousands)
Cash flows from operating activities:
Net loss (83,346) (88,300) (85,505)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 374 1,171 1,870
Loss (gain) on sale of property and equipment - - ( 13)
Loss on sale of Stratford Division - 2,013 -
Changes in assets and liabilities:
Accounts receivable ( 1,143) 4,907 ( 63)
Inventories ( 764) ( 1,043) ( 716)
Prepaid expenses and other current assets ( 40) 398 115
Accounts payable ( 1,159) 4,234 ( 4,045)
Accrued interest and expenses 28,531 28,356 26,380
Federal and state income taxes - ( 4,894) -
Other, net 259 1,215 ( 158)
------- ------- -------
Cash used in operating activities (57,288) (51,943) (62,135)
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of Stratford Division - 13,690 -
Repayment by (advance to) affiliate - 500 -
Proceeds from disposition of property,
plant and equipment - - 21
Purchases of property and equipment ( 247) ( 480) ( 1,371)
------- -------- --------
Cash provided by (used in) investing activities ( 247) 13,710 ( 1,350)
------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 57,011 66,881 51,141
Proceeds (repayments) - note payable, net - (27,480) 27,480
Overdraft - ( 2,212) 2,212
Advances from (repayments to) affiliate ( 31) 4,032 -
Proceeds (repayments) from sale of receivables
to (from) Factor, net - - (15,554)
Repayment of long-term debt - ( 18) ( 234)
-------- ------- -------
Cash provided by financing activities 56,980 41,203 65,045
-------- ------- -------
Increase (decrease) in cash and cash equivalents ( 555) 2,970 1,560
Cash and cash equivalents:
Beginning of period 5,135 2,165 605
-------- ------- -------
End of period $ 4,580 5,135 2,165
======== ======= =======
Supplemental schedule of cash flow information
Cash paid during year for:
Interest $ 57,194 52,495 44,837
Income taxes 37 350 -
Non-cash activity:
Accrual of preferred stock dividends 116 98 81
Adjustment to minimum pension liability 458 1,617 ( 326)
See accompanying notes to consolidated financial statements.
- 20 -
21
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
Principles of Consolidation and Description of Business
The consolidated financial statements represent a consolidation of the
financial statements of Fairwood Corporation ("Fairwood" or the "Company"), and
Consolidated Furniture Corporation ("Consolidated Furniture") and all of its
subsidiaries. All significant intercompany balances, transactions and profits
have been eliminated in consolidation.
Through its wholly owned subsidiary, Consolidated Furniture and Consolidated
Furniture's wholly-owned subsidiary Furniture Comfort Corporation ("Furniture
Comfort" formerly Futorian Furnishings, Inc.), the Company manufactures and
sells higher-priced upholstered motion furniture mainly to furniture and
department stores that carry more expensive products. The products are sold
nationally under the brand name Barcalounger, mainly through a commissioned
sales force.
As further described in note 11, Fairwood is currently operating as debtor
in possession under Section 1108 of the United States Bankruptcy Code. The
Chapter 11 case pertains only to Fairwood Corporation.
Inventories
All inventories (comprised of materials, labor and overhead costs) are
valued at the lower of cost or market using the last-in, first-out (LIFO)
method. In 2000 the Company had a LIFO liquidation of $64,000.
The components of inventory are as follows (in thousands):
2000 1999
------- ------
Raw materials $ 4,334 4,486
In process 1,838 2,144
Finished goods 2,770 1,612
------ ------
Inventories at first-in, first-out 8,942 8,242
LIFO reserve 1,337 1,401
------ ------
Inventories at LIFO $ 7,605 6,841
======= ======
Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is provided
on a straight-line basis over the estimated useful lives as follows: buildings
45 years; machinery and equipment 7 to 10 years; and leasehold improvements over
the shorter of the term of related leases or 10 years.
Revenue Recognition
Revenue is recognized when title to furniture passes to the customer. The
Company provides an allowance for estimated future customer returns under the
warranty terms of sale.
- 21 -
22
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
(continued)
Statements of Cash Flows
Cash and cash equivalents include cash in banks and highly liquid
short-term investments having a maturity of three months or less on the date of
purchase.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting amounts
of existing assets and liabilities and their respective tax bases at each
year-end. Deferred tax assets and liabilities are measured using enacted tax
rates and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce the deferred tax asset to the amount which the Company
believes will be more likely than not to be realized. Income tax expense is the
amount payable for the year and the change during the period in deferred tax
assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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
reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
The Company reviews all long-lived assets to be held and used in the
business for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or a group of assets may not be
recoverable. The Company considers a history of operating losses to be its
primary indicator of potential impairment. Assets are grouped and evaluated for
impairment at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets.
- 22 -
23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
(continued)
Impairment of Long-Lived Assets (continued)
The Company deems an asset to be impaired if a forecast of undiscounted
future operating cash flows directly related to the asset, including disposal
value, if any, is less than its carrying amount. If an asset is determined to be
impaired, the loss is measured as the amount by which the carrying amount of the
asset exceeds its fair value. Fair value is based on quoted market prices in
active markets, if available. If quoted market prices are not available, an
estimate of fair value is based on the best information available, including
prices for similar assets or the results of valuation techniques such as
discounting estimated future cash flows as if the decision to continue to use
the impaired asset was a new investment decision. The Company generally measures
fair value using industry knowledge, price quotes, when attainable, and other
factors relevant to determine recoverability. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less cost to sell.
Considerable management judgment is necessary to estimate the fair value.
Accordingly, actual results could vary significantly from such estimates.
Comprehensive Income
Comprehensive income of Fairwood consists of an additional pension
liability and net loss. The Statement requires only additional disclosures in
the consolidated financial statements; it does not affect the Company's
financial position or results of operations.
(2) Divestiture
On June 3, 1999, Furniture Comfort, Consolidated Furniture's operating
subsidiary, sold substantially all of the assets of the Stratford Division for
approximately $14 million in cash plus the assumption of certain liabilities.
The proceeds from the sale were used to pay-down the revolving credit and term
loan. The sale included substantially all of the business and assets of the
Stratford Division, including its office and showroom in Bannockburn, Illinois
and the assignment of leases for certain other manufacturing and showroom
facilities. The final sales price for the net assets of Stratford Division was
subject to certain post-closing adjustments. As a result of this sale, Furniture
Comfort recognized a loss of approximately $2 million in 1999, which includes $1
million for claims submitted by the purchaser of Stratford regarding
post-closing adjustments.
- 23 -
24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes
No income taxes have been provided in the accompanying statements of
operations because the Company is in a net operating loss carryforward position.
In October 1998, the United States Bankruptcy Court (the "Bankruptcy
Court") approved the settlement of issues arising out of an Internal Revenue
Service ("IRS") audit examination of the consolidated Federal income tax returns
of Fairwood and its subsidiaries for the periods ended July 11, 1988 through
December 31, 1991. In the second quarter of 1999, payment of the Fairwood
Group's estimated Federal tax liability was made to the IRS. The tax payment,
including estimated interest, was approximately $4.5 million and was provided
for in the financial statements in previous years.
As approved by the Bankruptcy Court, the settlement was funded by
additional borrowings under Consolidated Furniture's existing revolving credit
agreement, with any refund obtained returned to the lender under that facility.
The settlement significantly reduced Fairwood's available net operating loss
carryforwards.
Fairwood is obligated to the extent of any adjustment by the IRS to the
interest component of the settlement and the state tax effect of this
settlement. An accrual for additional interest of $0.1 million and taxes of $3.9
million remains at December 31, 2000. These accruals for interest and taxes are
included in accrued interest and Federal and state income taxes, respectively on
the accompanying consolidated balance sheet. The Company has not reached final
settlement with all taxing authorities, therefore the amount of the accruals are
subject to change.
A reconciliation of the provision for income taxes included in the
statements of operations and the amount computed by applying the U.S. Federal
income tax rate, in thousands, is summarized below:
Years ended December 31,
------------------------------
2000 1999 1998
-------- ------- -------
Expected tax benefit computed
at U.S. rate $(28,337) (30,022) (29,072)
Increase in valuation
allowance 27,592 28,882 27,847
State taxes, net of
Federal benefit ( 2,809) ( 3,005) ( 3,370)
Nondeductible interest 4,214 4,213 4,213
Other ( 660) ( 68) 382
-------- ------- -------
Total provision for income taxes $ - - -
======== ======= =======
- 24 -
25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
The tax effects of temporary differences as of December 31, in thousands,
are as follows:
2000 1999
-------- -------
Deferred tax assets:
Net operating loss carryforwards $ 166,235 139,355
AMT credit carryforward 1,480 1,480
Accounts receivable 87 123
Vacation and holiday pay 71 87
Accrued expenses 2,797 910
Interest on merger debentures 1,587 2,688
Valuation allowance (171,925) (144,333)
--------- --------
$ 332 310
========= ========
Deferred tax liabilities:
Property, plant and equipment $ 332 310
========= ========
The valuation allowance for deferred tax assets as of January 1, 2000 and
1999 was $144,333,000 and $115,451,000, respectively. The net changes in the
total valuation allowance for the years ended December 31, 2000 and 1999 were
increases of $27,592,000 and $28,882,000, respectively.
At December 31, 2000, the Company's net operating loss carryforwards of
approximately $437,922,000 expire in various years through 2021.
Due to certain changes in the ownership structure of Fairwood's
shareholders', Fairwood's net operating losses and other tax attributes may be
further limited by the Internal Revenue Code (Code) Sections 382 and 383.
(4) Long-term Debt
In conjunction with Fairwood's acquisition by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with loans
under a credit agreement with Court Square Capital Limited ("CSCL"), an
affiliated company, (the "Credit Agreement") and senior subordinated
pay-in-kind debentures due to CSCL. The assets of Consolidated Furniture and
its subsidiaries are pledged as security for the amounts due under the Credit
Agreement. Certain instruments related to the Credit Agreement have been
amended and certain covenants therein have been waived at various times through
December 2000.
- 25 -
26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
The outstanding debt at December 31, was as follows (in thousands):
December 31,
2000
Interest
Debt 2000 1999 Rates
---- -------- -------- ------------
Revolving credit, due 2002 $429,772 372,736 10-1/2%
Senior subordinated debentures, due 2002 80,000 80,000 18%
Senior subordinated pay-
in-kind debentures, due 2001 105,853 105,853 15-1/2%
Merger debentures, due 2004 62,928 62,928 16-7/8%
-------- -------
678,553 621,517
Less current maturities 168,781 168,781
-------- -------
$509,772 452,736
======== =======
All outstanding debt and accrued interest at December 31, 2000, excluding
the $62.9 million of outstanding merger debentures plus $66.4 million accrued
interest thereon, is payable to CSCL.
On April 1, 1995 and each semi-annual interest payment date thereafter,
Fairwood failed to make the required interest payments due on the senior
subordinated pay-in-kind debentures and merger debentures (collectively, the
"Fairwood Debentures") and Fairwood does not expect to make the cash interest
payments required under the Fairwood Debentures on any future semi-annual
interest payment dates. Accrued interest of $168.9 million on the Fairwood
Debentures, which includes $102.5 million due to CSCL, is included in accrued
interest in the accompanying consolidated balance sheet as of December 31, 2000.
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995 and subsequent period interest payments constitute an event of
default, which permits the acceleration of the Fairwood Debentures by the demand
of the holders of the requisite aggregate principal amount of the debentures.
Upon acceleration, the Fairwood Debentures and all accrued interest would be due
and payable. Accordingly, the Fairwood Debentures have been classified as
current liabilities in the accompanying consolidated balance sheets.
The fair market value of the debentures and revolving credit debt cannot be
reasonably estimated considering Fairwood's ongoing financial difficulties
(Note 11).
- 26 -
27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
Annual maturities of long-term debt are as follows:
Years ending December 31, Amount
------------------------- --------
2001 $168,781
2002 509,772
--------
678,553
Less current portion 168,781
--------
$509,772
========
In January 1999, Consolidated Furniture entered into the Eighth Amendment to
the Senior Subordinated Debentures due January 4, 1999, which extended the due
date to January 3, 2000. In December 1999, Consolidated Furniture entered into
the Ninth Amendment to the Senior Subordinated Debentures due January 3, 2000,
which extended the due date to January 2, 2001. In December 2000, Consolidated
Furniture entered into the Tenth Amendment to the Senior Subordinated Debentures
due January 2, 2001, which extended the due date to January 2, 2002.
In April 1999, Consolidated Furniture entered into the Twenty-fourth
Amendment to the Credit Agreement, which changed various covenants and increased
the amount of the Revolving Credit Commitment to $366,000,000. In September
1999, Consolidated Furniture entered into the Twenty-fifth Amendment to the
Credit Agreement, which changed various covenants and increased the amount of
the Revolving Credit Commitment to $380,000,000. In December 1999, Consolidated
Furniture entered into the Twenty-sixth Amendment to the Credit Agreement, which
changed various covenants and increased the amount of the Revolving Credit
Commitment to $435,000,000. In December 2000, Consolidated Furniture entered
into the Twenty-seventh Amendment to the Credit Agreement, which changed various
covenants and increased the amount of the Revolving Credit Commitment to
$500,000,000 and extended the due date to January 2, 2002. The interest rate
under the Credit Agreement is prime plus 1.5 percent, which averaged
approximately 10.7 percent for 2000.
Substantially all of Fairwood's debt instruments restrict the payment of
dividends, and the Credit Agreement with CSCL relating to Consolidated
Furniture's revolving credit facility, contains certain financial covenant
tests. Fairwood plans to attempt to refinance, or negotiate an extension of, the
debt payable to CSCL when due.
Fairwood continues to recognize interest expense related to the Merger
Debentures and Senior Subordinated Debentures although the interest on these
notes may not be ultimately payable upon the final confirmation of the Chapter
11 bankruptcy proceedings (See Note 11). Interest expense of $27 million was
recorded related to these notes on the Consolidated Statements of Operations in
each of the years ending December 31, 2000, 1999 and 1998.
(5) Redeemable Preferred Stock
The Company issued 1,000 shares of junior preferred stock, par value $.01
per share, for $100,000, which shares are held by CSCL. Dividends accrue at $18
per share annually. As of December 31, 2000 and 1999, dividends payable were
approximately $621,000 and $505,000, respectively, and were included in accounts
payable in the accompanying consolidated balance sheets.
- 27 -
28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Common Stock
Holders of Class A common stock are entitled to convert their shares to an
equal number of shares of Class B common stock and holders of Class B common
stock are entitled to convert their shares to an equal number of shares of Class
A common stock.
(7) Employee Benefit Plans
All salaried employees, excluding certain key executives, and hourly paid
employees of Fairwood with one year of service were covered by non-contributory
defined benefit retirement plans through May 31, 1993, at which time further
benefit accruals ceased and the plans were "frozen." Benefits for the plans are
determined based on length of service and certain average annual employee
earnings. The cost of the retirement plans is accrued annually; funding is in
accordance with actuarial requirements of the plans, subject to the Employee
Retirement Income Security Act of 1974, as amended.
Information with respect to the retirement plans for 2000 and 1999 has been
determined by consulting actuaries. The following table sets forth the plans'
funded status at December 31, and reconciles amounts recognized in the
consolidated balance sheets at December 31, (in thousands):
2000 1999
-------- ------
Change in benefit obligations:
Benefit obligation at beginning of year $ 3,159 4,846
Interest cost 223 379
Actuarial gain 595 ( 196)
Monthly benefits paid ( 32) ( 102)
Lump sum distributions - ( 3,504)
Annuity purchase - -
Loss recognized due to plan settlement - 1,736
-------- -------
Benefit obligation at end of year 3,945 3,159
-------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 410 5,004
Actual return on plan assets 367 ( 276)
Employer contributions 76 92
Benefits paid, distributions and annuity purchase ( 32) ( 3,606)
Expenses ( 257) ( 804)
-------- -------
Fair value of plan assets at end of year 564 410
-------- -------
Funded status ( 3,381) ( 2,749)
Unrecognized actuarial (gain) loss 2,102 1,644
-------- -------
Net amount recognized $( 1,279) ( 1,105)
======== ======
Amounts recognized in the consolidated balance sheet
consist of:
Accrued benefit liability ( 3,381) ( 2,749)
Accumulated other comprehensive income 2,102 1,644
------- ------
Net amount recognized $( 1,279) ( 1,105)
======== =======
- 28 -
29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
Pension expense is summarized, in thousands, as follows:
Years ended December 31,
----------------------------
2000 1999 1998
------- ------- -------
Components of net periodic benefit cost
Current service cost $ - - -
Interest cost 223 379 1,131
Expected return on assets ( 37) ( 450) (2,739)
Amortization of deferred gain (loss) 64 14 1,455
------- ------- -------
Net periodic benefit cost (gain) 250 ( 57) ( 153)
Income (loss) recognized due
to plan settlement - (1,236) 294
------- ------- -------
Net pension (income) expense $ 250 1,179 ( 447)
======= ======= =======
Assumptions:
Discount rate 6.00% 8.00% 6.85%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
Pay increase N/A N/A N/A
Cost of living 3.00% 3.00% 3.00%
During 2000 and 1999 Fairwood directed the plan to pay lump sum
distributions to settle a portion of Fairwood's obligation under the plans. As a
result of the settlements, Fairwood recognized a loss of $0 and $1,736,000,
respectively. Furthermore, on December 29, 1998 Fairwood purchased an annuity
contract settling an additional $7,892,000 of the accumulated pension benefit
obligation. The discount rate for 1998 was reduced to reflect the actual price
of this purchased annuity contract.
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies:
Barcalounger Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Barcalounger employees with at least one year of service. Annual
company contributions are discretionary and are allocated based on individual
participant's earnings and length of service. For the years ended December 31,
2000, 1999 and 1998, Barcalounger contributions were $144,000, $154,000 and
$144,000, respectively.
- 29 -
30
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
Barcalounger Savings Plan
This plan is designed to provide a savings vehicle for Barcalounger
employees with at least one year of service who may elect to participate by
saving on a before-tax and/or after-tax basis in one or more of four investment
funds. Annual company contributions match 25% of participants' contributions of
up to four percent of earnings. For the years ended December 31, 2000, 1999 and
1998, Barcalounger matching contributions were $58,000, $56,000 and $54,000,
respectively.
Barcalounger Executive Deferred Compensation Plan
An Executive Deferred Compensation Plan effective August 1, 1999, was
established by Barcalounger, to provide certain of its designated executives
with an additional method of planning for their retirement. In addition, the
Plan serves as an incentive for them to promote the success of the Company and
to encourage them to maintain their employment relationships with the Company.
Amounts of contributions are determined at the sole discretion of the Board of
Directors of Furniture Comfort. For the years ended December 31, 2000 and 1999,
Barcalounger designated contributions of $100,000 and $80,000, respectively, to
the plan.
Stratford Retirement Plan
This non-contributory plan was designed to provide income at retirement and
covers all Stratford employees with at least one year of service. Annual company
contributions were based on individual participant's earnings and length of
service. This plan was terminated when the Stratford Division was sold. For the
years ended December 31, 2000, 1999 and 1998 Stratford contributions were $0, $0
and $600,000, respectively.
Consolidated Furniture also sponsors an investment plan. This investment
plan is a defined contribution plan covering all employees of Consolidated
Furniture and its subsidiaries, who have a minimum of one year of service. For
the years ended December 31, 2000, 1999 and 1998, Consolidated Furniture
contributions were $2,000, $2,000 and $2,000, respectively.
- 30 -
31
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Related party transactions
Through June 3, 1999, (see note 2) Stratford provided new product
development and selling activities to Simmons Upholstered Furniture
Corporation, an affiliate. As a result of this Agreement, Stratford recognized
approximately $14 million and $7 million of revenue in 1999 and 1998,
respectively, from the manufacture and supply of product and was reimbursed by
Simmons approximately $250,000 and $600,000 for new product development and
approximately $1.2 million and $2.7 million, respectively, for selling
expenses. The new product development and selling expense reimbursements are
recognized as a reduction to selling, administrative and general expenses in
the accompanying consolidated statements of operations. Also, in 1999 and 1998,
Stratford recognized as a reduction in general and administrative expenses,
approximately $1.4 million and $2.2 million of reimbursements for general and
administrative expenses. The revenues and related cost for the manufacture and
supply of product are included in net sales and cost of sales, respectively, in
the accompanying consolidated statements of operations. At December 31, 1998,
approximately $4,089,000 was due from Simmons under this Agreement, which was
repaid in 1999. Under a separate agreement, Simmons owed Stratford $500,000 at
December 31, 1998, which was repaid in 1999.
(9) Rental Commitments
The Company and its subsidiaries lease certain manufacturing, showroom and
warehousing facilities under various operating leases.
Future minimum lease payments at December 31, 2000 under all non-cancelable
operating leases are as follows (In thousands):
Years ending December 31, Amount
------------------------- ------
2001 $260
2002 142
2003 142
2004 119
----
$663
====
It is expected that, in the normal course of business, non-cancelable leases
that expire will be renewed or replaced.
- 31 -
32
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Rental Commitments (continued)
Rental expense is summarized, in thousands, as follows:
Years ended December 31,
-----------------------------
2000 1999 1998
---- ---- ----
Minimum Rentals
(including cancelable leases) $310 991 1,998
Sublease rentals - (109) ( 262)
---- ---- ------
$310 882 1,736
==== ==== ======
(10) Contingencies
Consolidated Furniture was served a complaint by third party plaintiffs
against Consolidated Furniture and a former subsidiary. The original complaint
in the case was filed by the Environmental Protection Agency to recover over
$200 million from 12 defendants (not including Consolidated Furniture), for
costs incurred in connection with the investigation and remediation of a Super
Fund site. On August 28, 1995, Consolidated Furniture joined with 5 other
Potentially Responsible Parties and made an offer of settlement to the EPA.
Consolidated Furniture's share of the offer is approximately $190,000. The EPA
has not rejected or accepted the offer.
There are other contingent liabilities at December 31, 2000 consisting of
purchase commitments and legal proceedings arising in the ordinary course of
business including environmental litigation. Fairwood believes that the
financial risk involved in connection with all other contingent liabilities,
except as otherwise disclosed in these consolidated financial statements, is not
material in relation to the consolidated financial position of the Company.
(11) Liquidity
As discussed in Note 4, interest on Fairwood's senior subordinated
pay-in-kind debentures and merger debentures was not paid on April 1, 1995 and
each semi-annual interest payment date thereafter and Fairwood does not expect
to make the cash interest payments required under the Fairwood Debentures on any
future semi-annual interest payment date. Fairwood has substantially no assets
other than the common stock of Consolidated Furniture, and Consolidated
Furniture and its primary operating subsidiary have pledged substantially all of
their assets to collateralize their obligations under the Credit Agreement.
Furthermore, the ability of Consolidated Furniture and its subsidiaries to
transfer moneys to Fairwood (including without limitation by dividend or
distribution) is restricted by instruments relating to Consolidated Furniture's
and its subsidiaries' debt, including the Credit Agreement.
- 32 -
33
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
Throughout portions of 2000, 1999, and 1998, Consolidated Furniture did not
generate sufficient funds from operations to fully meet its interest obligations
related to its long-term indebtedness. During this period, Consolidated
Furniture funded its interest obligations under the Credit Agreement through
increased borrowings from CSCL under such Agreement.
Consolidated Furniture is dependent upon CSCL for funding of its debt
service costs. Instruments relating to the revolving credit facility and
senior subordinated debentures have been amended and certain provisions thereof
waived at various times through December 2000 to provide more favorable terms
to Consolidated Furniture and, in certain instances, to avoid defaults there
under. Under the Credit Agreement, Consolidated Furniture and its subsidiaries
are generally restricted from transferring moneys to Fairwood (including
without limitation by dividend or distribution) with the exception of amounts
for (a) specified administrative expenses of the Company and (b) payment of
income taxes. Furthermore, Consolidated Furniture is subject to additional
restrictions on transferring moneys to Fairwood (including without limitation
by dividend or distribution) under the indenture for its senior subordinated
debentures, which generally requires the satisfaction of certain financial
conditions for such transfers. Fairwood is subject to additional restrictions
on payment or transfer of moneys (including without limitation by dividend or
distribution) under the indentures for its senior subordinated pay-in-kind
debentures and merger debentures, which generally require the satisfaction of
certain financial conditions for such transfers.
Cash flows from Barcalounger and its parent companies, Furniture Comfort
and Consolidated Furniture, will not be sufficient to permit the Company to make
cash interest payments on Fairwood's senior subordinated pay-in-kind debentures
and merger debentures. Consolidated Furniture's credit facilities do not permit
it to borrow funds to enable Fairwood to make cash interest payments on the
senior subordinated pay-in-kind debentures and merger debentures. Accordingly,
since Fairwood has failed to make the interest payments required since 1995, see
note 4, and is expected to fail to make any future cash interest payments, the
Fairwood Debentures have been classified as current. Based on the terms of the
Fairwood Debentures, the failure to make the April 1, 1995 and subsequent period
interest payment constitutes an event of default which permits the acceleration
of the Fairwood Debentures by the demand of the holders of the requisite
aggregate principal amount of the debentures. Upon acceleration, the Fairwood
Debentures and all accrued interest would be due and payable.
- 33 -
34
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
On January 3, 1996, certain holders of the Fairwood public debentures (the
"Bondholders") filed an involuntary Chapter 7 petition against Fairwood in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court.") Fairwood, Consolidated Furniture and certain Citicorp
affiliates filed a motion in response to the involuntary filing seeking to
dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court
denied the motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert
the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood
continues to operate as a debtor in possession under Section 1108 of the
Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as its operating
division, Barcalounger, are not parties to the bankruptcy. In April 1997, the
Bondholders' filed a Motion with the Bankruptcy Court seeking to convert
Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the
appointment of a Chapter 11 trustee. By order dated March 2, 1999, the
Bondholders' motion to convert the case or, alternatively, for the appointment
of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the
District Court entered an Order affirming the Bankruptcy Court's decision in all
respects. The Bondholders appealed to the Second Circuit Court of Appeals, which
on January 4, 2001 entered an order affirming the judgment of the District
Court. It is not yet known what further action, if any, the Bondholders will
take or what the ultimate outcome of the Chapter 11 case will be. However,
Consolidated Furniture and subsidiaries in the meantime continue to operate in
the normal course of business.
As discussed in Note 4, based on uncertainties involved with respect to
the ultimate resolution of the matters described above, Fairwood continues to
accrue interest on the Fairwood Debentures. The total amount of interest expense
recorded on the Fairwood Debentures was $27 million in each of the years ended
December 31, 2000, 1999 and 1998. The following liabilities are subject to
compromise: Senior subordinated pay-in-kind debentures of $105,853,000; Merger
debentures of $62,928,000; and accrued interest of $168,914,000 and $141,888,000
and accrued preferred stock dividends of $621,000 and $505,000 as of December
31, 2000 and 1999 respectively.
(12) Flood damage
In September 1999, Barcalounger Division, the only remaining operating
division of Furniture Comfort, incurred substantial damage due to floods caused
by the heavy rains of Hurricane Floyd. The damage to inventory was approximately
$5.8 million. This amount includes the destruction of all finished inventory,
approximately 95% of work in process and approximately 50% of raw materials.
Barcalounger lost sales as a result of its Rocky Mount, North Carolina plant
being closed for approximately three weeks. Losses experienced by the Company
were largely offset by insurance proceeds. The net effect was a $0.5 million
loss.
- 34 -
35
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Segment Reporting
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131 requires
Fairwood to present certain information about each identified segment that
exceeds certain quantitative thresholds for revenue, profit or loss, and assets.
Prior to the sale of Stratford, Fairwood's reportable segments were
strategic business units that offerred different products. They were managed
separately because each business had distinctly different markets and they had
separate marketing and manufacturing facilities.
Stratford Division:
On June 3, 1999, Furniture Comfort sold substantially all of the assets of
the Stratford Division for approximately $14 million in cash plus the assumption
of certain liabilities (see note 2). Stratford had targeted a broad market for
it mid-priced recliner, motion and stationary upholstered furniture. Stratford
sold mainly to large national retail furniture and department stores.
Barcalounger Division:
Barcalounger targets a selected market for its high-end recliner chair and
motion upholstered furniture. Barcalounger sells mainly to furniture stores and
department stores that carry more expensive products and provide interior design
services directly or indirectly. Barcalounger gives extensive warranties for its
products.
The required segment financial information, in thousands, for the years
ending December 31, are as follows:
2000 Stratford Barcalounger Corporate Eliminations Totals
---- --------- ------------ --------- ------------ --------
Revenues from external
customers $ - $ 58,670 $ - $ - $ 58,670
Interest income - 126 59 - 185
Interest expense - 26 86,086 - 86,112
Depreciation and
amortization - 321 53 - 374
Segment profit (loss) - 5,168 ( 88,514) - ( 83,346)
Segment assets - 22,889 1,630 - 24,519
Expenditures for
segment assets - 247 - - 247
- 35 -
36
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Segment Reporting (continued)
1999 Stratford Barcalounger Corporate Eliminations Totals
---- --------- ------------ --------- ------------ --------
Revenues from external
customers $ 49,971 $ 50,101 $ - $ - $ 100,072
Intersegment income 650 - - ( 650) -
Interest income 75 169 51 - 295
Interest expense 1,530 26 75,035 - 76,591
Depreciation and
amortization 847 324 - - 1,171
Segment profit (loss) ( 14,198) 3,721* ( 77,823) - ( 88,300)
Segment assets 1,066 20,633 1,640 - 23,339
Expenditures for
segment assets 218 262 - - 480
* - includes loss from flood of $461.
1998 Stratford Barcalounger Corporate Eliminations Totals
---- --------- ------------ --------- ------------ --------
Revenues from external
customers $ 99,436 $ 54,738 $ - $ - $ 154,174
Intersegment income 2,184 - - ( 2,184) -
Interest income 98 - 52 - 150
Interest expense 2,968 22 68,873 - 71,863
Depreciation and
amortization 1,570 300 - - 1,870
Segment profit (loss) ( 19,346) 4,353 ( 70,512) - ( 85,505)
Segment assets 35,816 19,281 3,066 - 58,163
Expenditures for
segment assets 1,124 247 - - 1,371
Geographical information
Revenues
2000 1999 1998
-------- -------- --------
United States $ 56,814 98,319 151,017
Canada 1,836 972 1,301
Other 20 781 1,856
-------- ------- -------
$ 58,670 100,072 154,174
======== ======= =======
Long-lived
Assets - United States $ 2,815 2,942 12,494
======== ======= =======
(14) Selected Quarterly Financial Data (Unaudited)
Quarter Ended
April 1, July 1, September 30, December 31,
2000 2000 2000 2000
-------- ------- ------------- ------------
Net sales $ 13,463 15,047 14,894 15,266
Operating income 407 362 1,049 748
Interest on indebtedness 20,021 21,555 21,304 23,232
Net loss (19,568) (21,176) (20,211) (22,391)
Quarter Ended
April 3, July 3, October 2, December 31,
1999 1999 1999 1999
-------- ------- ------------- ------------
Net sales $ 44,851 33,106 9,771 12,344
Operating income (loss) ( 2,891) ( 3,514) ( 3,457) 290
Interest on indebtedness 18,267 18,715 20,224 19,385
Loss on sale of Stratford
Division -- ( 967) ( 97) ( 949)
Loss from flood -- -- ( 707) 246
Net loss (21,137) (23,089) (24,486) (19,588)
On June 3, 1999, Furniture Comfort sold substantially all of the assets of
the Stratford Division for approximately $14 million in cash plus the
assumption of certain liabilities. The proceeds from the sale were used to
pay-down the revolving credit and term loan. As a result of this sale,
Furniture Comfort recognized a loss of approximately $2 million, which includes
$1 million for claims submitted by the purchaser of Stratford regarding
post-closing adjustments. During the fourth quarter of 2000, Furniture Comfort
recorded an additional liability of approximately $0.6 million due to former
Stratford employees, which is included in operating income for the quarter ended
December 31, 2000.
In September 1999, Barcalounger Division, the only remaining operating
division of Furniture Comfort, incurred substantial damage due to floods caused
by the heavy rains of Hurricane Floyd. The damage to inventory was approximately
$5.8 million. Barcalounger also lost sales as a result of its Rocky Mount,
North Carolina plant being closed for approximately three weeks.
- 36 -
37
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
Directors and Executive Officers
The name, age and position or principal occupation during the past five
years of each member of the Board of Directors and executive officer of the
Company are set forth below. Directors serve for a term of one year and until
their successors are elected and qualified. Officers are elected annually by the
Board of Directors to serve for the ensuing year and until their respective
successors are elected.
Director Position and Principal Occupation or
Name Age Since Employment Held During Last 5 Years
---- --- -------- ------------------------------------
John B. Sganga 69 1990 Chief Financial Officer, Executive
Vice President and Treasurer since September 1989. Mr. Sganga has also
been, inter alia, Chief Financial Officer, Executive Vice President,
Controller and Treasurer of Consolidated Furniture and Vice President
and Treasurer of each of Consolidated Furniture's subsidiaries since
September 1989. Mr. Sganga has been a director of Consolidated Furniture
and Furniture Comfort Corporation since February 1990.
M. Saleem Muqaddam 54 1992 Vice President, CVCL, an affiliate
of the Company, since 1989. Mr. Mugaddam is also vice president of
CSCL, an affiliate of CVCL. Previously, Mr. Muqaddam spent 16 years with
Citibank, N.A., an affiliate of the Company, in senior managerial
positions. Mr. Muqaddam is also a director of Consolidated Furniture,
Furniture Comfort, Chromcraft Revington, Inc., Pamida Holdings, Inc.,
and Plantronics, Inc.
- 37 -
38
Fairwood's senior executive officer holds the title of Chief Financial
Officer, Executive Vice President, Secretary and Treasurer. No executive officer
holds the title of President or Chief Executive Officer, but the functions
customarily performed by the person holding such titles are performed by
Fairwood's Chief Financial Officer, Executive Vice President, Secretary and
Treasurer. There are no arrangements or understandings between any director and
any other person naming such person pursuant to which such director was selected
as a director.
The following is the president of Furniture Comfort Corporation and may be
deemed to be an executive officer of the Company as of December 31, 2000:
Date Assumed
Name Age Position Position
----- ----- ---------- --------------
Wayne T. Stephens 50 President and Chief February 1999
Executive Officer
Furniture Comfort Corporation
There are no family relationships among any of the Company's directors or
officers.
The following is a brief account of the business experience during the past
five years of Mr. Stephens:
In connection with services provided by The Finley Group, a management
consulting firm, Mr. Stephens, a principal of that firm, has acted as president
of a number of companies. In October 1992, Mr. Stephens became acting president
of Barcalounger. In February 1999, Mr. Stephens was named President and Chief
Executive Officer of Furniture Comfort Corporation.
- 38 -
39
ITEM 11. EXECUTIVE COMPENSATION
Executive Officers' Compensation
Information concerning the compensation earned by the above named executive
officers is set forth in the Summary Compensation Table.
Summary Compensation Table
Name and Annual Compensation
Principal ------------------- All Other
Position Year Salary Bonus Compensation
- --------- ---- ------ ----- ------------
John B. Sganga 2000 $150,000 $ - $ 7,560 (1)
Executive VP 1999 150,000 - 7,500 (1)
and CFO 1998 150,000 - 7,500 (1)
Wayne T. Stephens 2000 197,000 218,375 24,249 (2)
President & CEO 1999 194,418 169,519 24,703 (2)
Furniture Comfort 1998 185,000 232,712 4,211 (2)
Corporation
Lawrence Adelman (3) 1999 45,833 - -
Stratford 1998 275,000 - -
(1) 2000, 1999 and 1998 amounts represent Consolidated Furniture contributions
to the investment plan of $1,560, $1,500 and $1,500, respectively, and
automobile allowance of $6,000 for each year.
(2) 2000 amount represents company contributions to the investment plan of
$2,749, $20,000 contributed to a deferred compensation plan and $1,500 for
the value of the use of a company vehicle. 1999 amount represents company
contributions to the investment plan of $3,203, $20,000 set aside in an
unfunded deferred compensation plan and $1,500 for the value of the use of
a company vehicle. 1998 amount represents company contributions to the
investment plan of $3,018 and $1,193 for the value of the use of a company
vehicle.
(3) Effective February 25, 1999, Mr. Adelman resigned as President and Chief
Executive Officer at Furniture Comfort Corporation.
- 39 -
40
Employment Agreements
Consolidated Furniture entered into an employment agreement with Mr.
Sganga, who is named in the summary compensation table, effective December 15,
1993, which provided for an annual salary, plus such bonuses as may be awarded
in the discretion of the Board of Directors. This agreement ended on December
31, 1995, and Mr. Sganga continues to be employed under similar terms.
Salaried Investment Plan
Officers of Consolidated Furniture are eligible to participate in its
Tax-qualified Investment Plan for Salaried and Hourly Employees. Directors who
are not officers are not eligible. Consolidated Furniture may, but is not
obligated to, contribute up to 100% of any savings of a participant not
exceeding 4% of salary.
The full value of a participant's investment in the plan becomes payable
upon retirement, disability or death. Upon termination of employment for other
reasons, a participant is entitled to the accumulated value of his or her
savings, and to varying amounts of Consolidated Furniture's contributions
depending on years of membership in the plan, with 100% thereof payable if years
of membership are 5 or more.
During 2000, 1999 and 1998, such contributions for Mr. Sganga were $1,560,
$1,500 and $1,500, respectively. The Company contribution for Mr. Stephens was
$2,749, $3,203 and $3,018 in 2000, 1999 and 1998, respectively.
Incentive Plan
Consolidated Furniture maintains an executive incentive (bonus) plan
implemented to provide individual awards for attainment of specified business
objectives. Under the executive incentive plan, each of Consolidated Furniture's
profit centers is assigned certain business goals annually, which are based on
earnings and cash flow. Awards are made to profit center participants based upon
the extent to which their respective profit centers attain their goals. Total
awards made for the 2000 Plan Year were $488,385, including awards of $218,375
for Mr. Stephens. Total awards made for the 1999 Plan Year were $388,079,
including awards of $169,519 for Mr. Stephens. Total awards made for the 1998
Plan Year were $588,563 including awards of $232,712 for Mr. Stephens. Executive
Deferred Compensation Plan
An Executive Deferred Compensation Plan effective August 1, 1999, was
established by The Barcalounger Company, a division of Furniture Comfort
Corporation, to provide certain of its designated executives with an additional
method of planning for their retirement. In addition, the Plan serves as an
incentive for them to promote the success of the Company and to encourage them
to maintain their employment relationships with the Company. Total amounts
contributed for 2000 and 1999 were $100,000 and $80,000, respectively, including
$20,000 and $20,000, respectively, for Mr. Stephens.
Directors' Compensation
As of the date of this Annual Report on Form 10-K, the Company has not
determined what compensation directors who are not officers of the Company will
receive for their service as director. No compensation was paid to directors for
their services as directors in 1998, 1999 or 2000.
- 40 -
41
Compensation Committee Interlocks and Insider Participation
The Company's board of directors does not have a separate compensation
committee. Accordingly, the entire board of directors considers executive
compensation matters, except that any executive officer who is a director does
not take part in executive compensation matters regarding that executive
officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
Fairwood's common stock consists of both voting stock and non-voting stock.
The table below sets forth, as of February 28, 2001, certain information
regarding the directors and executive officers and each person who owns of
record or beneficially 5% or more of the outstanding shares of common stock.
Such beneficial owners own their shares directly and have sole voting and
investment power with respect to their shares.
Percentage of
Number of Outstanding Shares Percentage
Name and Address Shares of Company's of Company's of
of Beneficial Owner Common Stock Common Stock Voting Power
- ------------------- ------------------- ------------------ ------------
Citicorp Venture Capital 1,000,100 99.98% 60%
Ltd. *
399 Park Avenue
New York, NY 10043
Thomas F. Creamer 100 0.01% 20%
C/O Fairwood Corporation
1201 Orange Street
Wilmington, Delaware 19801
Anthony C. Howkins 100 0.01% 20%
C/O Fairwood Corporation
1201 Orange Street
Wilmington, Delaware 19801
John B. Sganga - 0.00% 0%
C/O Fairwood Corporation
1201 Orange Street
Wilmington, Delaware 19801
M. Saleem Muqaddam** 1,000,100 99.98% 60%
C/O Citicorp Venture
Capital Ltd.
399 Park Avenue
New York, NY 10043
* Owns 999,800 shares of the Company's Class B Non-Voting Common Stock and
300 shares of the Company's Class A Voting Common Stock. Under the Company's
Certificate of Incorporation, the Class B Non-Voting Common Stock is
convertible into Class A Voting Common Stock, so long as the holder of the
Class B Stock would be permitted to hold the resulting Class A Stock under
applicable law. On December 31, 1990, CVCL and Fairwood entered into an
Agreement and Plan to Relinquish Control pursuant to which CVCL converted
200 shares of Class B Stock into 200 shares of Class A Stock and increased
its ownership of the outstanding Class A Stock from 33-1/3% to 60%. Under this
Agreement, CVCL is required to convert a sufficient number of shares of
Class A Stock into Class B Stock to reduce CVCL's ownership of Class A Stock
such that
- 41 -
42
CVCL will no longer be presumed to have control of Fairwood under the
regulations of the Small Business Administration upon the earlier of (i) the
date on which the Company's ratio of earnings before interest, taxes and
depreciation to interest expense on a consolidated basis has been 1.5 to 1 for
three consecutive fiscal quarters or (ii) December 31, 1997 (or such later date
as may be consented to by the Small Business Administration). The Small Business
Administration has extended the December 31, 1997 conversion date to December
31, 2002. The Agreement has been accepted by the Small Business Administration.
CVCL is a subsidiary of Citibank, N.A., a national bank which is owned by
Citigroup and is an affiliate of CSCL.
** Mr. Muqaddam disclaims beneficial ownership of these shares owned of record
by CVCL which are attributed to him by reason of his status as an officer
of CVCL.
Ownership by Directors and Officers
As of February 28, 2001, no shares of the Company's common stock were
beneficially held by any director or officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As further described in the Company's financial statements in Item 8, a
large majority of the Company's long-term debt at December 31, 2000 is payable
to CSCL, an affiliate of CVCL, the Company's majority shareowner. M. Saleem
Muqaddam, a director of the Company, is a vice president of CVCL and CSCL.
During 2000 and at December 31, 2000, the largest aggregate amount of
indebtedness outstanding that was payable to CSCL was approximately $615.6
million. See Note 4, Long-term Debt, in the Notes to Consolidated Financial
Statements set forth in Item 8. During 2000 the Company borrowed approximately
$57.0 million from CSCL and made no payments to CSCL. During 2001 it is
anticipated that approximately $63.3 million will be borrowed from CSCL and that
no repayments to CSCL will be made. It is also anticipated that interest due to
CSCL on the senior subordinated pay-in-kind debentures, which interest
approximates $16.4 million, will not be paid.
399 Venture Partners, Inc. ("VPI"), an affiliate of CVCL owns a majority of
Furnishings International Inc. (formerly Simmons Holding Corporation)
("Furnishings"), the parent of Simmons Upholstered Furniture Corporation
("Simmons"). M. Saleem Muqaddam is a vice president of VPI and a director of
Furnishings, Simmons and the Company. Stratford and Simmons were parties to a
Manufacturing Agreement dated as of November 29, 1995 (the "Agreement"). Under
this Agreement, Stratford had agreed to manufacture product for and supply
product on behalf of Simmons for a term of one year, subject to automatic annual
renewals, unless terminated by either party. (See Note 8 to the Company's
Consolidated Financial Statements set forth in Item 8). The Agreement was
terminated in 1999.
- 42 -
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page
----
The following financial statements and supplementary data are
included in Part II, Item 8:
Independent Auditors' Report................................... 16
Consolidated Balance Sheets at December 31, 2000 and 1999...... 17
Consolidated Statements of Operations for the Years ended
December 31, 2000, 1999 and 1998............................. 18
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 2000, 1999 and 1998......... 19
Consolidated Statements of Cash Flows for the Years ended
December 31, 2000, 1999 and 1998.............................. 20
Notes to Consolidated Financial Statements .................... 21-36
2. Financial Statement Schedule
For the three years ended December 31, 2000:
Schedule II--Valuation and Qualifying Accounts
and Reserves.................................................. 49
Other schedules are omitted because of the absence of conditions under
which they are required.
- 43 -
44
3. Exhibits
--------
Exhibits are listed by numbers corresponding to the Exhibit Table of
Item 601 in Regulation S-K
(3.1) Certificate of Incorporation of the Registrant, as amended
incorporated by reference to Exhibit 3.3 of the Registrant's
Registration Statement on Form S-4 (the "Form S-4")).
(3.2) By-Laws of the Registrant (incorporated by reference to
exhibit 3.4 of the Form S-4).
(3.3) Certificate of Amendment of Certificate of Incorporation,
dated March 22, 1993 (incorporated by reference to Exhibit
3.3 of the Registrant's annual report on Form 10-K for the
year ended December 31, 1992 (the "1992 Form 10-K")).
(4.1) Indenture, dated as of August 15, 1989, between Fairwood
Corporation, formerly MHS Holdings Corporation the
"Company") and Bankers Trust Company, as Trustee, relating
to the 16-7/8% Subordinated Pay-In-Kind Debentures due 2004
(the "Merger Debentures"), (incorporated reference to
Exhibit 4.1 of the Registrant's third quarter report on Form
10-Q for the quarter ended September 30, 1989 (the "1989
Third Quarter 10-Q")).
(4.2) Form of Merger Debentures, included as Exhibit A to Exhibit
4.1, (incorporated by reference to Exhibit 4.2 of the 1989
Third Quarter 10-Q).
(4.3) Pledge and Security Agreement, dated as of August 15, 1989,
made by the Company to Bankers Trust Company, as Trustee,
(incorporated by reference to Exhibit 4.3 of the 1989 Third
Quarter 10-Q).
(4.4) 15-1/2% Senior Subordinated Pay-In-Kind Debentures of the
Company, dated as of September 22, 1989, issued to Citicorp
Capital Investors Ltd. (incorporated by reference to Exhibit
4.6 of the 1989 Third Quarter 10-Q).
(4.5) Pledge and Security Agreement, dated September 22, 1989,
made by the Company to Citicorp Capital Investors Ltd., as
Agent, (incorporated by reference to Exhibit 4.7 of the 1989
Third Quarter 10-Q).
(4.6) Credit Agreement dated as of September 22, 1989 among
Mohasco Corporation ("Mohasco"), Mohasco Upholstered
Furniture Corporation, Chromcraft Corporation, Super Sagless
Corporation, Choice Seats Corporation and Peters Revington
Corporation and Citicorp Capital Investors Ltd. (the "Credit
Agreement"), (incorporated by reference to Exhibit 4.8 of
the Registrant's annual report on Form 10-K for the year
ended December 31, 1989 (the "1989 Form 10-K")).
(4.7) Amendment, dated December 15, 1989, to the Credit Agreement,
(incorporated by reference to Exhibit 4.9 of the 1989 Form
10-K).
(4.8) Amendment, dated March 13, 1990, to the Credit Agreement,
(incorporated by reference to Exhibit 4.10 of the 1989 Form
10-K).
(4.9) Notice of Election and Waiver, dated March 13, 1990, to the
Credit Agreement, (incorporated by reference to Exhibit 4.11
of the Registrant's annual report on Form 10-K for the year
ended December 31, 1990 (the "1990 Form 10-K")).
- 44 -
45
(4.10) Term Note B, dated March 13, 1990, issued to Court Square
Capital Limited, (incorporated by reference to Exhibit 4.12
of the 1989 Form 10-K).
(4.11) Agreement and Waiver, dated August 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.13 of the
1990 Form 10-K).
(4.12) Agreement and Waiver, dated September 5, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.14 of the
1990 Form 10-K).
(4.13) Agreement and Waiver, dated September 15, 1990, to the
Credit Agreement, (incorporated by reference to Exhibit 4.16
of the 1990 Form 10-K).
(4.14) Waiver and Amendment, dated September 15, 1990, to the
Credit Agreement and letter, dated September 15, 1990,
related thereto, (incorporated by reference to Exhibit 4.16
of the 1990 Form 10-K).
(4.15) Waiver and Fourth Amendment, dated as of December 31, 1990,
to the Credit Agreement, (incorporated by reference to
Exhibit 4.17 of the 1990 Form 10-K).
(4.16) Revolving Credit Note, dated September 22, 1989, amended and
restated as of September 15, 1990, issued to Court Square
Capital Limited, and Endorsement No. 1 thereto, dated as of
December 31, 1990, (incorporated by reference to Exhibit
4.18 of the 1990 Form 10-K).
(4.17) Increasing Rate Senior Subordinated Debentures of Mohasco
Corporation dated as of September 22, 1989 issued to
Citicorp Capital Investors Ltd. (the "Senior Subordinated
Debentures"), (incorporated by reference to Exhibit 4.13 of
the 1989 Form 10-K).
(4.18) Amendment, dated March 30, 1990, to the Senior Subordinated
Debentures, (incorporated by reference to Exhibit 4.14 of
the 1989 Form 10-K).
(4.19) Second Amendment, dated as of December 31, 1990, to the
Senior Subordinated Debentures, (incorporated by reference
to Exhibit 4.21 of the 1990 Form 10-K).
(4.20) Endorsement No. 1, dated as of December 31, 1990, to the
Senior Subordinated Debentures, (incorporated by reference
to Exhibit 4.22 of the 1990 Form 10-K).
(4.21) Waiver, dated as of June 29, 1991, to the Credit Agreement,
(incorporated by reference to Exhibit 4.23 of the
Registrant's annual report on Form 10-K for the year ended
December 31,1991 the "1991 Form 10-K")).
(4.22) Waiver, dated as of October 31, 1991, to the Credit
Agreement, (incorporated by reference to Exhibit 4.24 of the
1991 Form 10-K).
(4.23) Waiver and Fifth Amendment, dated as of March 27, 1992, to
Credit Agreement, (incorporated by reference to Exhibit 4.26
of the 1991 Form 10-K).
(4.24) Third Amendment, dated as of March 27, 1992, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.27 of the 1991 Form 10-K).
(4.25) Endorsement No. 2, dated as of March 27, 1992, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.28 of the 1991 Form 10-K).
- 45 -
46
(4.26) Sixth Amendment, dated as of April 23, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's second quarter report on Form 10-Q for the
quarter ended June 27, 1992 (the "1992 Second Quarter
10-Q")).
(4.27) Seventh Amendment, dated as of April 23, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.2 of the
1992 Second Quarter 10-Q).
(4.28) Eighth Amendment, dated as of September 26, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's third quarter report on Form 10-Q for the
quarter ended September 26,1992 (the "1992 Third Quarter
10-Q")).
(4.29) Waiver and Ninth Amendment, dated as of February 4, 1993, to
Credit Agreement, (incorporated by reference to Exhibit 4.32
of the 1992 Form 10-K).
(4.30) Tenth Amendment, dated as of March 22, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.33 of the
1992 Form 10-K).
(4.31) Recision of Waiver, dated as of April 30, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's first quarter report on Form 10-Q for the
quarter ended April 3, 1993 (the "1993 First Quarter
10-Q")).
(4.32) Eleventh Amendment, dated as of March 25, 1994, to Credit
Agreement, (incorporated by reference to Exhibit 4.35 of the
1993 Form 10-K).
(4.33) Fourth Amendment, dated as of January 3, 1994, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.36 of the 1993 Form 10-K).
(4.34) Factoring Agreement, dated as of July 25, 1995, between
Capital Factors, Inc. and Stratford Company, a division of
Furniture Comfort Corporation, (incorporated by reference to
Exhibit 4.37 of the 1995 Form 10-K).
(4.35) Debt Subordination Agreement, dated as of July, 1995,
between Capital Factors, Inc. and Consolidated Furniture
Corporation, formerly Mohasco Corporation, (incorporated by
reference to Exhibit 4.38 of the 1995 Form 10-K).
(4.36) Lien Subordination Agreement, dated as of July 25, 1995,
between Capital Factors, Inc. and Court Square Capital
Limited, (incorporated by reference to Exhibit 4.39 of the
1995 Form 10-K).
(4.37) Twelfth Amendment, dated as of November 30, 1995, to Credit
Agreement, (incorporated by reference to Exhibit 4.40 of the
1995 Form 10-K).
(4.38) Fifth Amendment, dated as of January 2, 1996, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.41 of the Registrant's first quarter report on
Form 10-Q for the quarter ended March 30, 1996 (the "1996
First Quarter 10-Q")).
(4.39) Thirteenth Amendment, dated as of January 13, 1996, to
Credit Agreement, (incorporated by reference to Exhibit 4.42
of the Registrant's first quarter report on Form 10-Q for
the quarter ended March 30, 1996 (the "1996 First Quarter
10-Q")).
- 46 -
47
(4.40) Fourteenth Amendment, dated as of March 25, 1996, to Credit
Agreement, (incorporated by reference to Exhibit 4.43 of the
Registrant's first quarter report on Form 10-Q for the
quarter ended March 30, 1996 (the "1996 First Quarter
10-Q")).
(4.41) Fifteenth Amendment, dated as of September 30, 1996, to
Credit Agreement, (incorporated by reference to Exhibit 4.36
of the 1993 Form 10-K).
(4.42) Sixteenth Amendment, dated as of December 31, 1996, to
Credit Agreement, (incorporated by reference to Exhibit 4.36
of the 1993 Form 10-K).
(4.43) Sixth Amendment, dated as of January 2, 1997, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.43 of the 1996 Form 10-K).
(4.44) Factoring Agreement, dated as of December 10, 1996, between
Capital Factors, Inc. and Barcalounger Company, a division
of Furniture Comfort Corporation, (incorporated by reference
to Exhibit 4.44 of the 1996 Form 10-K).
(4.45) Debt Subordination Agreement, dated as of December 10, 1996,
between Capital Factors, Inc. and Consolidated Furniture
Corporation, formerly Mohasco Corporation, (incorporated by
reference to Exhibit 4.45 of the 1996 Form 10-K).
(4.46) Lien Subordination Agreement, dated as of December 10, 1996,
between Capital Factors, Inc. and Court Square Capital
Limited, (incorporated by reference to Exhibit 4.46 of the
1996 Form 10-K).
(4.47) Seventeenth Amendment, dated as of May 23, 1997, to Credit
Agreement, (incorporated by reference to Exhibit 4.47 of the
1997 Form 10-K).
(4.48) Eighteenth Amendment, dated as of July 1, 1997, to Credit
Agreement, (incorporated by reference to Exhibit 4.48 of the
1997 Form 10-K).
(4.49) Mortgage, Security Agreement, Assignment of Rents and
Financing Statement, dated November 12, 1997, by Futorian
Furnishings, Inc. in favor of Banco Popular, (incorporated
by reference to Exhibit 4.49 of the 1997 Form 10-K).
(4.50) Mortgage Note, dated November 12, 1997, by Futorian
Furnishings, Inc. and Banco Popular, (incorporated by
reference to Exhibit 4.50 of the 1997 Form 10-K).
(4.51) Nineteenth Amendment, dated as of January 30, 1998, to
Credit Agreement, (incorporated by reference to Exhibit 4.51
of the 1997 Form 10-K).
(4.52) Twentieth Amendment, dated as of January 31, 1998, to Credit
Agreement, (incorporated by reference to Exhibit 4.52 of the
1997 Form 10-K).
(4.54) Seventh Amendment, dated as of January 2, 1998, to the
Senior Subordinated Debentures, (incorporated by reference
to Exhibit 4.54 of the 1997 Form 10-K).
(4.55) Twenty-first Amendment, dated as of February 1, 1998, to
Credit Agreement, (incorporated by reference to Exhibit 4.55
of the 1998 Form 10-K).
(4.56) Twenty-second Amendment, dated as of September 30, 1998, to
Credit Agreement, (incorporated by reference to Exhibit 4.56
of the 1998 Form 10-K).
- 47 -
48
(4.57) Twenty-third Amendment, dated as of December 15, 1998, to
Credit Agreement, (incorporated by reference to Exhibit 4.57
of the 1998 Form 10-K).
(4.58) Eighth Amendment, dated as of January 4, 1999, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.58 of the 1998 Form 10-K).
(4.59) Twenty-fourth Amendment, dated as of April 2, 1999, to
Credit Agreement (incorporated by reference to Exhibit 4.59
of the 1999 Form 10-K).
(4.60) Twenty-fifth Amendment, dated as of September 30, 1999, to
Credit Agreement (incorporated by reference to Exhibit 4.60
of the 1999 Form 10-K).
(4.61) Twenty-sixth Amendment, dated as of December 29, 1999, to
Credit Agreement (incorporated by reference to Exhibit 4.61
of the 1999 Form 10-K).
(4.62) Ninth Amendment, dated as of December 29, 1999, to the
Senior Subordinated Debentures (incorporated by reference to
Exhibit 4.62 of the 1999 Form 10-K).
(4.63) Twenty-seventh Amendment, dated as of December 29, 2000, to
Credit Agreement.
(4.64) Tenth Amendment, dated as of December 29, 2000, to the
Senior Subordinated Debentures.
(10.1) Mohasco Executive Retirement Plan, (incorporated by
reference to Exhibit 10.5 of the 1990 Form 10-K).
(10.2) Mohasco Corporation Executive Incentive Plan, (incorporated
by reference to Exhibit 10.6 of the 1990 Form 10-K).
(10.3) Amendment, dated December 31, 1991, to the Mohasco Executive
Retirement Plan, (incorporated by reference to Exhibit 10.6
of the 1991 Form 10-K).
(10.5) Real Estate Purchase Agreement, dated September 15, 1997,
between Furniture Comfort Corporation and American National
Bank and Trust Company, not personally, but solely as
Trustee under Trust Agreement dated July 17, 1978, and known
as Trust No. 43449 (incorporated by reference to Exhibit
10.5 of the 1998 Form 10-K).
(10.6) Agreement for Purchase and Sale of Assets among Furniture
Comfort Corporation, Consolidated Furniture Corporation,
Vanguard, L.L.C., Heath Furnishings, L.L.C., Stratford
Upholstery, L.L.C., Simmons Upholstery, L.L.C., Western
Upholstery Company, L.L.C., and Vanguard Properties II,
L.L.C. dated June 3, 1999, (incorporated by reference to
Exhibit 1.1 of the June 3, 1999 Form 8-K).
(21.1) List of Subsidiaries of the Registrant.
The Company agrees to furnish the Securities and Exchange Commission, upon
request, a copy of any instrument defining the rights of holders of long term
debt of the Company and its consolidated subsidiaries.
(b) Reports on Form 8-K
None
- 48 -
49
Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2000, 1999 and 1998
(In Thousands)
Balance at Additions Deductions Balance
beginning charged to from at close
Description of period earnings reserves of period
----------- ---------- ----------- ---------- ---------
Valuation and qualifying
accounts and reserves
deducted from accounts
and notes receivable:
2000
----
Allowance for discounts $ 25 120 121 24
Allowance for doubtful
accounts 300 ( 18) 78 204
-------- ------ ------ -----
$ 325 102 199 228
======== ====== ====== ======
1999
----
Allowance for discounts $ 71 123 169 25
Allowance for doubtful
accounts 1,246 197 1,143 300
-------- ------ ------ -----
$ 1,317 320 1,312 (1) 325
======== ====== ====== ======
1998
----
Allowance for discounts $ 51 398 378 71
Allowance for doubtful
accounts 4,165 ( 544) 2,373 1,246
-------- ------ ------ ------
$ 4,216 ( 146) 2,751 1,317
======== ====== ====== ======
(1) - Primarily the result of the sale of the Stratford Division's
net assets.
- 49 -
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FAIRWOOD CORPORATION
By: /s/ John B. Sganga
----------------------------
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
Date: March 31, 2001
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 2001 by the following persons on
behalf of the Registrant and in the capacities indicated.
Title
-----
/s/ John B. Sganga
- ---------------------------
John B. Sganga Director and Chief
Financial Officer,
Executive Vice President,
Secretary and Treasurer
(principal executive,
financial and accounting
officer)
- 50 -
51
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 2001 by the following person on behalf
of the Registrant and in the capacity indicated.
Title
-----
/s/ M. Saleem Muqaddam Director
- --------------------------------
M. Saleem Muqaddam
- 51 -