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
- ----- EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 2001
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-18446
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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
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 January 31, 2002.
On January 31, 2002, 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.
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 and sold
its furniture operations at various times through October 9, 2001.
The principal executive offices of Fairwood are located at One Commerce
Center, 1201 N. Orange St., Suite 790, Wilmington, Delaware 19801. Fairwood is a
holding company with no independent operations: it owns all of the common stock
of Consolidated Furniture.
On February 7, 2002, Consolidated Furniture filed a Certificate of
Dissolution with the New York Department of State pursuant to the Plan of
Corporate Liquidation and Voluntary Dissolution that was approved by its sole
shareholder on February 6, 2002. From that date, Consolidated Furniture was
completely dissolved, but will continue to exist under New York law for the
purpose of winding up its affairs. The Plan of Corporate Liquidation and
Voluntary Dissolution provides that the assets of Consolidated Furniture shall
be distributed, pro rata among creditors of each class of security in
satisfaction of its liabilities. There will not be sufficient assets for any
distributions to be made to Consolidated Furniture's sole shareholder.
On March 8, 2002, Fairwood filed a Certificate of Dissolution with the
Delaware Department of State pursuant to the Plan of Corporate Liquidation and
Voluntary Dissolution that was approved by the stockholders of Fairwood on
February 6, 2002. From that date, Fairwood was completely dissolved, but will
continue to exist under Delaware law for the purpose of winding up its affairs.
The Plan of Corporate Liquidation and Voluntary Dissolution provides that the
assets of Fairwood shall be distributed, pro rata among creditors of each class
of security in satisfaction of its liabilities. There will not be sufficient
assets remaining after distribution to creditors for any distributions to be
made to Fairwood's stockholders.
On November 8, 2001, certain holders of the Fairwood public debentures
(the "Bondholders") filed a complaint against Fairwood and other parties for
breach of fiduciary duty, abetting breach of fiduciary duty, fraudulent
conveyance and abetting fraudulent conveyance. The Bondholders allege that
Consolidated Furniture sold to affiliated companies its subsidiaries Chromcraft
and Peters Revington, in 1992, and Furniture Comfort Corporation ("Furniture
Comfort" formerly Futurian Furnishings, Inc.) in 2001, for less than their fair
value, thereby assuring that there would never be sufficient operating income to
be upstreamed to Fairwood to pay the Bondholders their interest and principal
upon maturity. The Bondholders seek damages, recission of the Chromcraft, Peters
Revington and Furniture Comfort sales, and the imposition of a constructive
trust. The Bondholders seek relief for the benefit of, rather than from,
Fairwood from which they would request the court to compensate them.
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On October 9, 2001, Consolidated Furniture Corporation entered into an
Exchange Agreement with Court Square Capital Limited ("CSCL"). Under this
agreement, all of the issued and outstanding stock of Furniture Comfort was
transferred to CSCL as payment in full of $24,000,000 of the principal amount
outstanding under the Revolving Credit Note due to CSCL by Consolidated
Furniture. Immediately prior to the transfer, Consolidated Furniture contributed
to the capital of Furniture Comfort all of the outstanding indebtedness of
Furniture Comfort then owed to Consolidated Furniture. Contemporaneously with
the transfer, CSCL unconditionally released Furniture Comfort from any and all
obligations as a borrower or obligor under the Consolidated Furniture Credit
Agreement, and released all of the liens on any collateral of Furniture Comfort
that secured such obligations.
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 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, was the parent of
Furniture Comfort whose sole operating division, Barcalounger Division
manufactured 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 included in loss
from discontinued operations.
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. Through May 9, 2001,
Fairwood continued to operate as a debtor in possession under Section 1108 of
the Bankruptcy Code. The Chapter 11 case pertained only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation and Furniture Comfort were 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
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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 Second Circuit Court of Appeals affirmed the District Court's
decision by summary order filed January 4, 2001.
By order dated May 9, 2001 the Bankruptcy Court dismissed Fairwood's
Chapter 11 case and that order has become final. Under the terms of the
dismissal, no liabilities were compromised nor was a formal plan of
reorganization approved.
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.
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 tax of $0.1 million and interest of $4.1 million remains
at December 31, 2001. The Company has not reached final settlement with all
taxing authorities, therefore the amount of the accruals are subject to change.
See Item 3. LEGAL PROCEEDINGS.
Operations
Fairwood and its subsidiaries had no operations at December 31, 2001.
After October 9, 2001, Fairwood and its subsidiaries' primary activities have
consisted of managing the legal proceedings against them, general administrative
matters and the preparation for liquidation.
Employees
Fairwood and its subsidiaries had one employee at December 31, 2001.
ITEM 2. PROPERTIES
As of December 31, 2001, neither Fairwood nor its subsidiaries owned nor
used any property.
ITEM 3. LEGAL PROCEEDINGS
On November 8, 2001, the Bondholders filed a complaint against Fairwood
and other parties for breach of fiduciary duty, abetting breach of fiduciary
duty, fraudulent conveyance and abetting fraudulent conveyance. The Bondholders
allege that Consolidated Furniture sold to affiliated companies its subsidiaries
Chromcraft and Peters Revington, in 1992, and Furniture Comfort Corporation in
2001, for less than their fair value, thereby assuring that there would never be
sufficient operating income to be upstreamed to Fairwood to pay the Bondholders
their interest and principal upon maturity. The Bondholders seek damages,
recission of the Chromcraft, Peters Revington and Furniture Comfort sales, and
the imposition of a constructive trust. The Bondholders seek relief for the
benefit of, rather than from, Fairwood from which they would request the court
to compensate them. The Company is unable to predict the outcome of this
matter.
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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.
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.
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 $4.1 million and taxes of
$0.1 million, as of December 31, 2001 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, 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. Through May 9, 2001,
Fairwood continued to operate as a debtor in possession under Section 1108 of
the Bankruptcy Code. The Chapter 11 case pertained only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation and Furniture Comfort Corporation, as well as Furniture
Comfort's operating divisions, were 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
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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 Second Circuit Court of Appeals affirmed the District Court's
decision by summary order filed January 4, 2001.
By order dated May 9, 2001 the Bankruptcy Court dismissed Fairwood's
Chapter 11 case and that order has become final. Under the terms of the
dismissal, no liabilities were compromised nor was a formal plan of
reorganization approved.
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, 2001 and 2000, there were three
shareowners of Fairwood's common stock. No dividends were declared on Fairwood's
common stock in 2001 and 2000. 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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2001 2000 1999 1998 1997
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Net sales $ -- -- -- -- --
Operating loss from
continued operations (4.5) (1.3) (2.7) (1.7) (1.9)
Interest expense, net (79.0) (86.0) (75.0) (68.8) (63.5)
Income (loss) from
discontinued operations 1.1 4.0 (10.5) (15.0) (20.6)
Net loss (82.4) (83.3) (88.3) (85.5) (86.1)
Total assets .8 24.5 23.3 56.2 56.8
Long-term debt, including
current maturities * 706.3 678.6 621.5 556.7 505.8
Redeemable preferred stock .1 .1 .1 .1 .1
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* - Does not include accrued interest for 2001, 2000, 1999, 1998 and 1997
of $203.7, $176.4 million, $147.5 million, $118.5 million and $91.4
million, respectively.
The 2001 and previous years' income (loss) from discontinued operations
includes the operating results of Furniture Comfort, which was transferred to
CSCL. Income (loss) from discontinued operations includes the activities of the
Barcalounger Division for the period from January 1 through October 9, 2001
(date of transfer). In 1999, and previous years' income (loss) from
discontinued operations includes the activities of the Stratford Division for
the period from January 1 through June 3, 1999 (date of sale).
For additional information, see the Company's Consolidated Financial
Statements included with this report, including Notes 3 and 10 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.
2001 vs. 2000 Results of Continuing Operations
All sales, costs of sales and selling expenses during the years ended
December 31, 2001 and 2000 resulted from discontinued operations.
On October 9, 2001, pursuant to an Exchange Agreement, Consolidated
Furniture transferred all of the outstanding capital stock of its wholly-owned
direct subsidiary Furniture Comfort Corporation (Fairwood's only remaining
operating subsidiary) to Court Square Capital Limited, an affiliated Company, as
payment in full of $24 million of the principal amount outstanding under the
Credit Agreement dated September 22, 1989 (the "Credit Agreement") among
Consolidated Furniture (then Mohasco Corporation) and certain of its affiliates,
as borrowers, and to CSCL (then known as Citicorp Capital Investors Limited), as
lender. Accordingly, Furniture Comfort is reflected as a discontinued
operation in the statements of operations for all periods presented herein.
Consolidated administrative and general expenses increased 249.7% to
approximately $4.5 million in 2001 from approximately $1.3 million in 2000. The
increase was largely a result of increases in pension expenses and other
expenses relative to the transfer of Furniture Comfort and the dissolution of
Consolidated Furniture.
Consolidated interest expense decreased 8.1% to $79.0 million from $86.1
million due primarily to decreases in the prime lending rate during the year,
partially offset by additional borrowings under the Credit Agreement, as
discussed in Liquidity and Capital Resources.
2001 vs. 2000 Results of Discontinued Operations
Income from discontinued operations, net of income taxes, decreased
71.7% to approximately $1.1 million from approximately $4.0 million. The
decrease was the result of a lease impairment charge taken and a partial year of
operations in 2001 prior to the transfer of Furniture Comfort to CSCL on October
9, 2001.
The difference between the carrying value of Consolidated Furniture's
outstanding stock of Furniture Comfort and the fair value transferred to CSCL,
an affiliated company, was approximately $9.4 million. This amount was recorded
as an increase to additional paid-in capital since CSCL and Fairwood are
considered to be entities under common control.
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2000 vs. 1999 Results of Continuing Operations
Consolidated administrative and general expenses decreased 52.3% to
approximately $1.3 million in 2000 from approximately $2.7 million in 1999. The
decrease is largely due to significant professional fees incurred in 1999
related to the sale of Stratford.
Consolidated interest expense increased 14.7% to approximately $86.1
million in 2000 from approximately $75.0 million in 1999 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.
2000 vs. 1999 Results of Discontinued Operations
Income (loss) from discontinued operations increased 137.7% to
approximately $4.0 million in 2000 from a loss of approximately $10.5 million in
1999. This increase is partly the result of the discontinuance of less
profitable product lines during 2000. In addition, the 1999 results include the
losses recognized as a result of the sale of Stratford and flood damage.
Liquidity and Capital Resources
Capital requirements for operations during 2001 and 2000 were provided
primarily by borrowings under the revolving credit facility and operating cash
flows at Barcalounger.
Fairwood had a working capital deficit of approximately $(910.5) million
and $(332.8) million at December 31, 2001 and 2000, respectively. At December
31, 2001, Fairwood had long-term debt of approximately $706.3 million all of
which was current. Long-term debt at December 31, 2000 was approximately $678.6
million of which $168.8 million was current. Accrued interest on long-term debt
was $203.7 million at December 31, 2001 and $176.4 million at December 31, 2000.
Accrued interest is classified as a current liability.
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 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 2001.
Throughout 2001, 2000 and 1999, 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, 2001, 2000 and 1999 were approximately $51.8
million, $57.0 million and $70.9 million, respectively. All outstanding debt and
accrued interest at December 31, 2001, excluding the $62.9 million of
outstanding merger debentures plus $77.0 million accrued interest thereon and
the $4.1 million accrued interest to the IRS is payable to CSCL, which is an
indirect subsidiary of Citigroup and an affiliate of CVCL. Consolidated
Furniture obtained extensions of the debt payable to CSCL through January 2002,
but is currently in default under these instruments and is past due. 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 4.75% at December 31, 2001.
Interest on the senior subordinated debentures, which is currently past
due, 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, 2001, 2000 and
1999 of approximately $51.8 million, $57.2 million and $52.5 million,
respectively were primarily made through increased borrowings under the
revolving credit agreement. On October 9, 2001, pursuant to an Exchange
Agreement, Consolidated Furniture transferred all of the outstanding capital
stock of its wholly-owned direct subsidiary Furniture Comfort Corporation
(Fairwood's only remaining operating subsidiary) to Court Square Capital Limited
as payment in full of $24 million of the principal amount outstanding under the
Credit Agreement dated
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September 22, 1989 (the "Credit Agreement") among Consolidated Furniture (then
Mohasco Corporation) and certain of its affiliates, as borrowers, and to CSCL
(then known as Citicorp Capital Investors Limited), as lender. No principal
payments were made in the years ended December 31, 2001 and 2000.
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 have the ability to make the cash
interest payments required under the Fairwood Debentures on any future
semi-annual interest payment dates. Accrued interest of $195.9 million on the
Fairwood Debentures, which includes $118.9 million due to CSCL, is included in
accrued interest on the consolidated balance sheet as of December 31, 2001. 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, 2001.
Capital additions were approximately $0.2 million, $0.2 million and $0.5
million for the years 2001, 2000 and 1999, respectively.
Consolidated Furniture is 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 2001 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) 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 does not anticipate that funds will be available
under the Credit Agreement for the payment of interest or to support its
operations. Furthermore, as discussed above, no funds will be provided by
available credit facilities to make transfers to Fairwood for cash interest
payments due 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 matured on January 2, 2002 and, accordingly, have been classified as
noncurrent liabilities in the accompanying consolidated balance sheets as of
December 31, 2001. Consolidated Furniture is currently in default under these
instruments.
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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. The Chapter 11 case
pertained only to Fairwood Corporation. Fairwood Corporation's direct and
indirect subsidiaries, including Consolidated Furniture Corporation and
Furniture Comfort Corporation, as well as Furniture Comfort's operating
divisions, were 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 Second
Circuit Court of Appeals affirmed the District Court's decision by summary order
filed January 4, 2001.
By order dated May 9, 2001 the Bankruptcy Court dismissed Fairwood's
Chapter 11 case and that order has become final. Under the terms of the
dismissal, no liabilities were compromised nor was a formal plan of
reorganization approved.
On November 8, 2001, the Bondholders filed a complaint against Fairwood
and other parties for breach of fiduciary duty, abetting breach of fiduciary
duty, fraudulent conveyance and abetting fraudulent conveyance. The Bondholders
allege that Consolidated Furniture sold to affiliated companies its subsidiaries
Chromcraft and Peters Revington, in 1992, and Furniture Comfort Corporation in
2001, for less than their fair value, thereby assuring that there would never be
sufficient operating income to be upstreamed to Fairwood to pay the Bondholders
their interest and principal upon maturity. The Bondholders seek damages,
recission of the Chromcraft, Peters Revington and Furniture Comfort sales, and
the imposition of a constructive trust. The Bondholders seek relief for the
benefit of, rather than from, Fairwood from which they would request the court
to compensate them.
On February 7, 2002, Consolidated Furniture filed a Certificate of
Dissolution with the New York Department of State pursuant to the Plan of
Corporate Liquidation and Voluntary Dissolution that was approved by its sole
shareholder on February 6, 2002. From that date, Consolidated Furniture was
completely dissolved, but will continue to exist under New York law for the
purpose of winding up its affairs. The Plan of Corporate Liquidation and
Voluntary Dissolution provides that the assets of Consolidated Furniture shall
be distributed, pro rata among creditors of each class of security in
satisfaction of its liabilities. There will not be sufficient assets for any
distributions to be made to Consolidated Furniture's sole shareholder.
On March 8, 2002, Fairwood filed a Certificate of Dissolution with the
Delaware Department of State pursuant to the Plan of Corporate Liquidation and
Voluntary Dissolution that was approved by the stockholders of Fairwood on
February 6, 2002. From that date, Fairwood was completely dissolved, but will
continue to exist under Delaware law for the purpose of winding up its affairs.
The Plan of Corporate Liquidation and Voluntary Dissolution provides that the
assets of Fairwood shall be distributed, pro rata among creditors of each class
of security in satisfaction of its liabilities. There will not be sufficient
assets remaining after distribution to creditors for any distributions to be
made to Fairwood's stockholders.
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.
- 11 -
Assuming the amount outstanding under the Credit Agreement remains at
$457.5 million, the balance at December 31, 2001, each one percentage point
increase in the prime interest rate would result in an increase in interest
expense for the coming year of approximately $4.6 million. The fixed rate debt
includes the following (in thousands):
Interest rate
Amount At December 31, 2001
Senior subordinated debentures, due 2003 $ 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 is estimated to be substantially
worthless considering Fairwood's disposal of its only operating subsidiary on
October 9, 2001.
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, 2001 and 2000
Consolidated Statements of Operations for the Years ended December 31, 2001,
2000 and 1999
Consolidated Statements of Shareowners' Equity (Deficit) for the Years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
- 12 -
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, 2001 and 2000, 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,
2001. We also have audited the related financial statement schedule as listed in
the accompanying index for Item 14(a)2 on page 40. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, 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 have the ability to make such payments in the future.
These matters gave rise to substantial doubt about the ability of Fairwood
Corporation to continue as a going concern. As discussed in Notes 1 and 11 to
the financial statements, the stockholders of Fairwood Corporation approved the
Plan of Corporate Liquidation and Volunatary Dissolution on February 6, 2002,
and Fairwood dissolved as of March 8, 2002. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from Fairwood's dissolution.
/s/ KPMG LLP
Washington, DC
March 8, 2002
- 13 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2001 and 2000
(In thousands except share and per share data)
Assets (notes 1 and 4) 2001 2000
------- -------
Current assets:
Cash and cash equivalents $ 337 4,580
------- -------
Trade accounts receivable -- 9,501
Less allowance for discounts and doubtful accounts -- 228
------- -------
Net trade accounts receivable -- 9,273
------- -------
Inventories (note 1) -- 7,605
Prepaid expenses and other current assets 71 206
------- -------
Total current assets 408 21,664
------- -------
Property, plant and equipment, at cost:
Land -- 31
Buildings and improvements -- 4,925
Machinery and equipment -- 2,375
Leasehold improvements -- 937
Construction in progress -- 59
------- -------
-- 8,327
Less accumulated depreciation and amortization -- 5,512
------- -------
-- 2,815
------- -------
Other assets 429 40
------- -------
$ 837 24,519
======= =======
Liabilities and Shareowners' equity (deficit) 2001 2000
- --------------------------------------------- ------- -------
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
Revolving credit 457,533 --
Senior subordinated debentures 80,000 --
Accrued interest (notes 3 and 4) 203,681 176,408
Accounts payable:
Trade -- 945
Other 925 1,027
Accrued expenses -- 3,224
Due to affiliate -- 3,976
Federal and state income taxes 133 133
--------- ---------
Total current liabilities 911,053 354,494
--------- ---------
Long-term debt, less current maturities
(notes 4 and 11):
Revolving credit -- 429,772
Senior subordinated debentures -- 80,000
--------- ---------
-- 509,772
--------- ---------
Other liabilities (note 8) 21 3,403
--------- ---------
Redeemable preferred stock (note 6):
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 7):
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 69,315 55,938
Accumulated other comprehensive
income (loss)--
minimum pension liability (note 8) -- (2,102)
Accumulated deficit (979,662) (897,096)
--------- ---------
(910,337) (843,250)
--------- ---------
Commitments and contingencies
(notes 1, 3, 4, 8,
9, 10 and 11)
$ 837 24,519
========= =========
See accompanying notes to consolidated financial statements.
- 14 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31,
--------------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Net sales (note 2) $ -- -- --
-------- -------- --------
Administrative and
general expenses (note 2) 4,511 1,290 2,707
-------- -------- --------
Operating loss (4,511) (1,290) (2,707)
Interest income 16 59 50
Interest on indebtedness (notes 4 and 11) (79,036) (86,085) (75,035)
Other income (expense), net (14) 16 (119)
-------- -------- --------
Loss from continuing operations
before income taxes (83,545) (87,300) (77,811)
Provision for income
taxes (note 3) -- -- --
-------- -------- --------
Loss from continuing operations (83,545) (87,300) (77,811)
Income (loss) from discontinued operations,
net of tax provision of $257 for 2001
and $0 for both 2000 and 1999 1,119 3,954 (10,489)
-------- -------- --------
Net loss $(82,426) (83,346) (88,300)
======== ======== ========
See accompanying notes to consolidated financial statements.
- 15 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareowners' Deficit
Years Ended December 31, 2001, 2000 and 1999
(In thousands)
Accumulated
Other
Common stock Additional Comprehensive Comprehensive
------------ Paid-in Income Accumulated Income Shareowners'
Class A Class B Capital (Loss) deficit (Loss) Deficit
------- ------- ------- --------- --------- ---------- ---------
Balance, January 1, 1999 $ - 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 8) (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 8) (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)
Comprehensive loss
Net loss (82,426) (82,426) (82,426)
Debt forgiveness from affiliate 3,963 3,963
Contribution from affiliated
company related to transfer
of subsidiary to an affiliated
company (note 2) 9,414 9,414
Other comprehensive loss, net of tax
Adjustment to minimum
pension liability (note 8) 2,102 2,102 2,102
-------
Comprehensive loss (80,324)
=======
Preferred stock dividends (140) (140)
------- ------- ------- -------- ------- ---------
Balance, December 31, 2001 $ - 10 69,315 (979,662) - (910,337)
======= ======= ====== ======== ======= ========
See accompanying notes to consolidated financial statements.
- 16 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31,
------------------------------------
2001 2000 1999
-------- -------- -----------
(In thousands)
Cash flows from operating activities:
Net loss $(82,426) (83,346) (88,300)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 252 374 1,171
Loss on sale of subsidiary -- -- 2,013
Changes in assets and liabilities:
Accounts receivable 1,191 (1,143) 4,907
Inventories (875) (764) (1,043)
Prepaid expenses and other current assets (568) (40) 398
Accounts payable 533 (1,159) 4,234
Accrued interest and expenses 27,162 28,531 28,356
Federal and state income taxes -- -- (4,894)
Other, net (1,280) 259 1,215
-------- -------- --------
Cash used in operating activities (56,011) (57,288) (51,943)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of Stratford Division -- -- 13,690
Repayment by (advance to) affiliate -- -- 500
Change in other non-current assets 40 -- --
Purchases of property and equipment (33) (247) (480)
-------- -------- --------
Cash provided by (used in) investing activities 7 (247) 13,710
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 51,761 57,011 66,881
Proceeds (repayments) - note payable, net -- -- (27,480)
Overdraft -- -- (2,212)
Advances from (repayments to) affiliate -- (31) 4,032
Repayment of long-term debt -- -- (18)
-------- -------- --------
Cash provided by financing activities 51,761 56,980 41,203
-------- -------- --------
Increase (decrease) in cash and cash equivalents (4,243) (555) 2,970
Cash and cash equivalents:
Beginning of period 4,580 5,135 2,165
-------- -------- --------
End of period $ 337 4,580 5,135
======== ======== ========
Supplemental schedule of
cash flow information
Cash paid during year for:
Interest $ 51,761 57,194 52,495
Income taxes 22 37 350
Non-cash activity:
Adjustment to minimum pension liability (2,102) 458 1,617
Accrual of preferred stock dividends 140 116 98
Long-term debt repaid with subsidiary stock 24,000 -- --
Net assets transferred to affiliale (14,586) -- --
Debt forgiveness from affiliate 3,963 -- --
See accompanying notes to consolidated financial statements.
- 17 -
FAIRWOOD CORPORATION AND SUBSIDIARY
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
manufactured and sold higher-priced upholstered motion furniture mainly to
furniture and department stores that carry more expensive products. The products
were sold nationally under the brand name Barcalounger, mainly through a
commissioned sales force.
On October 9, 2001, pursuant to an Exchange Agreement, Consolidated
Furniture transferred all of the outstanding capital stock of its wholly-owned
subsidiary Furniture Comfort (Fairwood's only remaining operating subsidiary) to
Court Square Capital Limited as payment in full of $24 million of the principal
amount outstanding under the Credit Agreement dated September 22, 1989 (the
"Credit Agreement") among Consolidated Furniture (then Mohasco Corporation) and
certain of its affiliates, as borrowers, and to CSCL (then known as Citicorp
Capital Investors Limited), as lender.
On February 7, 2002, Consolidated Furniture filed a Certificate of
Dissolution with the New York Department of State pursuant to the Plan of
Corporate Liquidation and Voluntary Dissolution that was approved by its sole
shareholder on February 6, 2002. From that date, Consolidated Furniture was
completely dissolved, but will continue to exist under New York law for the
purpose of winding up its affairs. The Plan of Corporate Liquidation and
Voluntary Dissolution provides that the assets of Consolidated Furniture shall
be distributed, pro rata among creditors of each class of security in
satisfaction of its liabilities. There will not be sufficient assets remaining
after distributions to creditors for any distributions to be made to
Consolidated Furniture's sole shareholder.
On March 8, 2002, Fairwood filed a Certificate of Dissolution with
the Delaware Department of State pursuant to the Plan of Corporate Liquidation
and Voluntary Dissolution that was approved by the stockholders of Fairwood on
February 6, 2002. From that date, Fairwood was completely dissolved, but will
continue to exist under Delaware law for the purpose of winding up its affairs.
The Plan of Corporate Liquidation and Voluntary Dissolution provides that the
assets of Fairwood shall be distributed, pro rata among creditors of each class
of security in satisfaction of its liabilities. There will not be sufficient
assets remaining after distribution to creditors for any distributions to be
made to Fairwood's stockholders.
- 18 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of
Business (continued)
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):
2001 2000
------ ------
Raw materials $ - 4,334
In process - 1,838
Finished goods - 2,770
------ ------
Inventories at first-in, first-out - 8,942
LIFO reserve - 1,337
------ ------
Inventories at LIFO $ - 7,605
====== ======
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.
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.
- 19 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of
Business (continued)
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.
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 relevant factors 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.
- 20 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of
Business (continued)
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) Discontinued Operations
On October 9, 2001, pursuant to an Exchange Agreement, Consolidated
Furniture transferred all of the outstanding capital stock of its wholly-owned
direct subsidiary Furniture Comfort (Fairwood's only remaining operating
subsidiary) to Court Square Capital Limited, an affiliated company. The transfer
was for payment of $24 million of the principal amount outstanding under the
Credit Agreement dated September 22, 1989 (the "Credit Agreement") among
Consolidated Furniture (then Mohasco Corporation) and certain of its affiliates,
as borrowers, and to CSCL (then known as Citicorp Capital Investors Limited), as
lender. Contemporaneously with the transfer, CSCL unconditionally released
Furniture Comfort from any and all obligations as a borrower or obligor under
the Consolidated Furniture Credit Agreement, and released all of the liens on
any collateral of Furniture Confort that secured such obligations.
Furniture Comfort was Fairwood's only remaining operating subsidiary;
as such, Fairwood has effectively discontinued its furniture and manufacturing
and marketing operations. The statements of operations for all periods presented
herein have been reclassified to reflect Furniture Comfort as a discontinued
operation.
The income (loss) from the discontinued furniture operation totaled
$1.1 million, $4.0 million and $(10.5) million for the years ended December 31,
2001, 2000 and 1999, respectively. The difference between the fair value of
Consolidated Furniture's shares of Furniture Comfort stock and the book basis
was $9.4. This amount was recorded as an increase to additional paid-in-capital,
since Fairwood and CSCL are considered to be entities under common control.
(3) Income Taxes
Total income taxes are allocated as follows:
Years ended December 31
---------------------------
2001 2000 1999
------ ----- -----
Loss from continuing operations $ - - -
Discontinued operations 257 - -
------ ----- -----
$ 257 - -
====== ===== =====
No income taxes have been provided for loss from continuing
operations in the accompanying statements of operations because the Company is
in a net operating loss carryforward position. Tax expense for 2001 represents
state income taxes from discontinued operations.
- 21 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
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 $4.1 million and taxes of $0.1
million remains at December 31, 2001. 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 to continuing operations, in thousands, is summarized below:
Years ended December 31,
------------------------------
2001 2000 1999
-------- -------- --------
Expected tax (benefit) computed
at U.S. rate $(28,405) (29,682) (26,456)
Increase in valuation
allowance 18,598 29,095 24,912
State taxes, net of
Federal benefit (1,930) (2,966) (2,591)
Nondeductible interest 3,666 4,214 4,213
Dividend income, net of dividend
received deduction 8,160 - -
Other (89) (661) (78)
------ ------ ------
Total provision for income taxes $ - - -
====== ====== ======
- 22 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
The tax effects of temporary differences as of December 31, in
thousands, are as follows:
2001 2000
------- -------
Deferred tax assets:
Net operating loss carryforwards $157,689 166,235
AMT credit carryforward 1,480 1,480
Accounts receivable - 87
Vacation and holiday pay - 71
Accrued expenses 1,610 2,797
Interest on merger debentures 1,505 1,587
Valuation allowance (162,284) (171,925)
------- -------
$ - 332
======= =======
Deferred tax liabilities:
Property, plant and equipment $ - 332
======= =======
Net deferred $ - -
======= =======
The valuation allowance for deferred tax assets as of January 1, 2001
and 2000 was $171,925,000 and $144,333,000, respectively. The net changes in the
total valuation allowance for the years ended December 31, 2001 and 2000 were a
decrease of $9,641,000 and an increase of $27,592,000, respectively. The
decrease in the valuation allowance in 2001 is primarily due to the reduction of
deferred tax assets as a result of the exchange of Furniture Comfort.
At December 31, 2001, the Company's net operating loss carryforwards
of approximately $415,408,000 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 were amended and
certain covenants therein were waived at various times through December 2000.
The borrowers are currently in default under these instruments.
- 23 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
The outstanding debt at December 31, was as follows (in thousands):
December 31,
2001
Interest
Debt 2001 2000 Rates
---- -------- -------- ---------
Revolving credit $457,533 429,772 6-1/4%
Senior subordinated debentures 80,000 80,000 18%
Senior subordinated pay-
in-kind debentures 105,853 105,853 15-1/2%
Merger debentures 62,928 62,928 16-7/8%
------- -------
706,314 678,553
Less current maturities 706,314 168,781
------- -------
- 509,772
======== =======
All outstanding debt and accrued interest at December 31, 2001,
excluding the $62.9 million of outstanding merger debentures plus $77.0 million
accrued interest thereon and $4.1 million accrued interest to IRS, 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 have the ability to make the
cash interest payments required under the Fairwood Debentures on any future
semi-annual interest payment dates (see Note 11). Accrued interest of $195.9
million on the Fairwood Debentures, which includes $118.9 million due to CSCL,
is included in accrued interest in the accompanying consolidated balance sheet
as of December 31, 2001.
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 values of the debentures and revolving credit debt
are estimated to be substantially worthless considering Fairwood's disposal of
its only operating subsidiary on October 9, 2001. (Note 2).
- 24 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
All of the long-term debt, which totals $706,134,000, is reflected as
current since Fairwood is either in default or in violation of various debt
covenants for each instrument.
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, on which date Consolidated Furniture's obligations under the
Credit Agreement became due. Accordingly, the Senior Subordinated Debentures
have been classified as a current liability in the accompanying consolidated
balance sheets.
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, on which date
Consolidated Furniture's obligations under the Credit Agreement became due. The
interest rate under the Credit Agreement is prime plus 1.5 percent, which
averaged approximately 8.5 percent for 2001.
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 continued to recognize interest expense related to the
Merger Debentures and Senior Subordinated Debentures during the Chapter 11
bankruptcy proceedings (see Note 11) as it was not expected that this interest
would be compromised. 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, 2001, 2000 and 1999.
(5) Discharge of Amount Due to Affiliate
The amount of due to affiliate as of December 31, 2000 is related to
Furniture Comfort's acquisition of a receivable stemming from the sale of
Stratford in 1999 to 399 Venture Partners, Inc. ("399"), an affiliated company.
On October 4, 2001, 399 released Furniture Comfort and its successors from
approximately $4.0 million of obligations. This release was recorded as an
increase to additional paid-in capital, since Furniture Comfort and 399 are
considered to be entities under common control.
- 25 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) 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, 2001 and 2000, dividends payable were
approximately $761,000 and $621,000, respectively, and were included in accounts
payable in the accompanying consolidated balance sheets.
(7) 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.
(8) 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 were determined based on length of service and certain average annual
employee earnings. The cost of the retirement plans was accrued annually;
funding was in accordance with actuarial requirements of the plans, subject to
the Employee Retirement Income Security Act of 1974, as amended.
As of December 31, 2001, substantially all of the participant
liabilities had been satisfied with lump sum distributions or the purchase of
annuities. The plan is expected to terminate in 2002.
Information with respect to the retirement plans for 2001 and 2000 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):
- 26 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
2001 2000
---- ----
Change in benefit obligations:
Benefit obligation at beginning of year $ 3,945 3,159
Interest cost 212 223
Actuarial gain (loss) (397) 595
Monthly benefits paid -- (32)
Lump sum distributions (3,760) --
------- ------
Benefit obligation at end of year -- 3,945
------- ------
Change in plan assets:
Fair value of plan assets at beginning of year 564 410
Actual return on plan assets 41 367
Employer contributions 3,571 76
Benefits paid, distributions and annuity purchase (3,760) (32)
Expenses (416) (257)
------- ------
Fair value of plan assets at end of year -- 564
------- ------
Funded status -- (3,381)
Unrecognized actuarial (gain) loss -- 2,102
------- ------
Net amount recognized $ -- (1,279)
======= ======
Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit liability -- (3,381)
Accumulated other comprehensive income -- 2,102
------- ------
Net amount recognized $ -- (1,279)
======= ======
Pension expense is summarized, in thousands, as follows:
Years ended December 31,
------------------------------
2001 2000 1999
---- ---- ----
Components of net periodic benefit cost
Interest cost 212 223 379
Expected return on assets -- (37) (450)
Amortization of deferred gain (loss) -- 64 14
------ ------ ------
Net periodic benefit cost (gain) 212 250 (57)
Income (loss) recognized due
to plan settlement 2,102 -- (1,236)
------ ------ ------
Net pension expense $2,314 250 1,179
====== ====== ======
- 27 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
Years ended December 31,
---------------------------
2001 2000 1999
---- ---- ----
Assumptions:
Discount rate N/A 6.00% 8.00%
Expected long-term rate of return on assets N/A 9.00% 9.00%
Pay increase N/A N/A N/A
Cost of living N/A 3.00% 3.00%
During 2001 and 2000 Fairwood directed the plan to pay lump sum
distributions to settle a portion of Fairwood's obligation under the plans.
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies and related costs are included
within income (loss) from discontinued operations in the consolidated statement
of operations.
Barcalounger Retirement Plan
This non-contributory plan was 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 period January 1, 2001
through October 9, 2001 and the years ended December 31, 2000 and 1999,
Barcalounger contributions were $126,000, $144,000 and $154,000, respectively.
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 period January 1, 2001 through October
9, 2001 and the years ended December 31, 2000 and 1999, Barcalounger matching
contributions were $45,000, $58,000 and $56,000, 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 shall be determined at the sole discretion of the Board
of Directors of Barcalounger. For the period January 1, 2001 through October 9,
2001 and the years ended December 31, 2000 and 1999, Barcalounger designated
contributions of $60,000, $100,000 and $80,000, respectively, to the plan.
- 28 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
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.
Consolidated Furniture also sponsored 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 each of the years ended December 31, 2001, 2000 and 1999,
Consolidated Furniture contributions were $2,000.
(9) Rental Commitments
The Company and its subsidiaries had leased certain manufacturing,
showroom and warehousing facilities under various operating leases. The Company
currently has a lease for office space for three years, which has been prepaid.
There are no future minimum lease payments at December 31, 2001 under
any non-cancelable operating leases.
(10) Contingencies
On November 8, 2001, the Bondholders filed a complaint against Fairwood
and other parties for breach of fiduciary duty, abetting breach of fiduciary
duty, fraudulent conveyance and abetting fraudulent conveyance. The Bondholders
allege that Consolidated Furniture sold to affiliated companies its subsidiaries
Chromcraft and Peters Revington, in 1992, and Furniture Comfort Corporation in
2001, for less than their fair value, thereby assuring that there would never be
sufficient operating income to be upstreamed to Fairwood to pay the Bondholders
their interest and principal upon maturity. The Bondholders seek damages,
recission of the Chromcraft, Peters Revington and Furniture Comfort sales, and
the imposition of a constructive trust. The Bondholders seek relief for the
benefit of, rather than from, Fairwood from which they would request the court
to compensate them. The Company is unable to predict the ultimate outcome of
this matter.
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.
- 29 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) Contingencies (continued)
There are other contingent liabilities at December 31, 2001 consisting
of legal proceedings arising in the ordinary course of business including
environmental litigation. The Company is unable to predict the outcome of these
uncertainties.
(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.
Furthermore, the ability of Consolidated Furniture to transfer moneys to
Fairwood (including without limitation by dividend or distribution) is
restricted by instruments relating to Consolidated Furniture's debt with the
exception of amounts for specified administrative expenses of the company and
payment of income taxes.
Throughout portions of 2001, 2000, and 1999, 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. There
will be no further borrowings from CSCL since Consolidated Furniture was
dissolved on February 7, 2002. There will also be no further interest or
principal payments made to CSCL on the revolver or the senior subordinated
pay-in-kind debentures because of the dissolution.
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 2001 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 were
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 was 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.
- 30 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
Consolidated Furniture transferred all of the outstanding stock of
Furniture Comfort to CSCL on October 9, 2001; As discussed in note 1,
Consolidated Furniture was dissolved on February 7, 2002 and Fairwood was
dissolved on March 8, 2002. Fairwood and Consolidated Furniture now exist solely
for the purpose of winding up their respective affairs. Therefore, the Company
will not have any cash flow 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 does
not have the ability 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.
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. Through May 9, 2001,
Fairwood continued to operate as a debtor in possession under Section 1108 of
the Bankruptcy Code. The Chapter 11 case pertained only to Fairwood Corporation.
Fairwood Corporation's direct and indirect subsidiaries, including Consolidated
Furniture Corporation and Furniture Comfort Corporation, as well as Furniture
Comfort's operating divisions, were 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 Second Circuit Court of Appeals affirmed the District Court's
decision by summary order filed January 4, 2001.
By order dated May 9, 2001, the Bankruptcy Court dismissed Fairwood's
Chapter 11 case and that order has become final. Under the terms of the
dismissal, no liabilities were compromised nor was a formal plan of
reorganization approved.
- 31 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
On November 8, 2001, the Bondholders filed a complaint against Fairwood
and other parties for breach of fiduciary duty, abetting breach of fiduciary
duty, fraudulent conveyance and abetting fraudulent conveyance. The Bondholders
allege that Consolidated Furniture sold to affiliated companies its subsidiaries
Chromcraft and Peters Revington, in 1992, and Furniture Comfort Corporation in
2001, for less than their fair value, thereby assuring that there would never be
sufficient operating income to be upstreamed to Fairwood to pay the Bondholders
their interest and principal upon maturity. The Bondholders seek damages,
recission of the Chromcraft, Peters Revington and Furniture Comfort sales, and
the imposition of a constructive trust. The Bondholders seek relief for the
benefit of, rather than from, Fairwood from which they would request the court
to compensate them.
(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 reflected in loss from discontinued operations on the statement of
operations.
(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.
The Company's only remaining operating company through October 9, 2001
is reflected as discontinued operations in the statement of operations for the
years ended December 31, 2001, 2000 and 1999.
- 32 -
FAIRWOOD CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(14) Selected Quarterly Financial Data (Unaudited)
Quarter Ended
March 31, June 30, September 29, December 31,
2001 2001 2001 2001
---- ---- ---- ----
Net sales $ -- -- -- --
Operating income (loss) (658) (853) 78 (3,078)
Interest on indebtedness 21,060 20,292 19,580 18,104
Income (loss) from
discontinued operations 989 461 (214) (117)
Net loss (20,438) (20,523) (20,618) (20,847)
Quarter Ended
April 1, July 1, September 30, December 31,
2000 2000 2000 2000
---- ---- ---- ----
Net sales $ -- -- -- --
Operating income (loss) (658) (645) (336) 349
Interest on indebtedness 20,021 21,555 21,304 23,232
Income from
discontinued operations 1,065 1,007 1,385 497
Net loss (19,568) (21,176) (20,211) (22,391)
As discussed in Note 2, the statements of operations for all periods
presented herein have been reclassified to reflect Furniture Comfort as a
discontinued operation. During the fourth quarter of 2000, Barcalounger recorded
an additional liability of approximately $0.6 million due to former Stratford
employees, which was included in income from discontinued operations for the
quarter ending December 31, 2000.
- 33 -
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 70 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 since
September 1989. Mr. Sganga has been a
director of Consolidated Furniture
since February 1990.
M. Saleem Muqaddam 55 1992 Vice President, CVCL, an affiliate of
the Company, from 1989 until January
2002. Mr. Muqaddam was 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, Chromcraft Revington,
Inc., and Plantronics, Inc.
- 34 -
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 was the president of Furniture Comfort Corporation and may
have been deemed to be an executive officer of the Company up until October 9,
2001:
Date Assumed
Name Age Position Position
---- --- -------- --------
Wayne T. Stephens 51 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.
- 35 -
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
Principal Annual Compensation All Other
Position Year Salary Bonus Compensation
- -------- ---- ------ ----- ------------
John B. Sganga 2001 $150,000 $ 50,000 $ 7,560(1)
Executive VP 2000 $150,000 $ -- $ 7,560(1)
and CFO 1999 150,000 -- 7,500(1)
Wayne T. Stephens(3) 2001 156,000 -- 25,603(2)
President & CEO 2000 197,000 218,375 24,249(2)
Furniture Comfort 1999 194,418 169,519 24,703(2)
Corporation
Lawrence Adelman(4) 1999 45,833 -- --
Stratford
(1) 2001, 2000 and 1999 amounts represent Consolidated Furniture
contributions to the investment plan of $1,560, $1,560 and $1,500,
respectively, and automobile allowance of $6,000 for each year.
(2) 2001 amount represents company contributions to the investment plan of
$2,430, $727 contributed to retirement plan and $1,154 for the value of
the use of a company vehicle. 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.
(3) On October 9, 2001, pursuant to an Exchange Agreement, Consolidated
Furniture transferred all of the outstanding capital stock of Furniture
Comfort Corporation to Court Square Capital Limited. Consolidated
Furniture compensated Mr. Stevens through October 9, 2001 (included in
income (loss) from discontinued operations for 2001, 2000, and 1999).
(4) Effective February 25, 1999, Mr. Adelman resigned as President and Chief
Executive Officer at Furniture Comfort Corporation.
- 36 -
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 continued to be employed under similar terms until
December 31, 2001. On January 1, 2002 Mr. Sganga was retained as a consultant.
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 2001, 2000 and 1999, such contributions for Mr. Sganga were
$1,560, $1,560 and $1,500, respectively. The Company contribution for Mr.
Stephens was $ 3,158, $2,749 and $3,203 in 2001, 2000 and 1999, 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. No
awards were made for the 2001 Plan Year. 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.
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 2001, 2000 and 1999 were $80,000, $100,000 and $80,000,
respectively, including $20,000, $20,000 and $20,000, respectively, for Mr.
Stephens.
- 37 -
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 1999, 2000 or 2001.
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 January 31, 2002, 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 N. Orange Street
Wilmington, Delaware 19801
Anthony C. Howkins 100 0.01% 20%
C/O Fairwood Corporation
1201 N. Orange Street
Wilmington, Delaware 19801
John B. Sganga -- 0.00% 0%
C/O Fairwood Corporation
1201 N. Orange Street
Wilmington, Delaware 19801
M. Saleem Muqaddam -- 0.00% 0%
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
- 38 -
** 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
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.
Ownership by Directors and Officers
As of January 31, 2002, 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, 2001 is payable
to CSCL, was an affiliate of CVCL, the Company's majority shareowner. M. Saleem
Muqaddam, was a director of the Company and vice president of CVCL and CSCL
until January 2, 2002. During 2001 and at December 31, 2001, the largest
aggregate amount of indebtedness outstanding that was payable to CSCL was
approximately $722.7 million. See Note 4, Long-term Debt, in the Notes to
Consolidated Financial Statements set forth in Item 8. During 2001 the Company
borrowed approximately $51.8 million from CSCL and repaid $24 million to CSCL
through the exchange of all of the outstanding capital stock of Furniture
Comfort Corporation. During 2002 no borrowings will be made from CSCL and that
no repayments to CSCL will be made, since Consolidated Furniture was dissolved
on February 7, 2002. Also no interest due to CSCL on the senior subordinated
pay-in-kind debentures, which interest approximates $16.4 million, will 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 was a vice president of VPI and a
director of Furnishings, Simmons and the Company until January 2, 2002.
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. The Agreement was terminated in 1999.
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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.................................. 13
Consolidated Balance Sheets at December 31, 2001 and 2000..... 14
Consolidated Statements of Operations for the Years ended
December 31, 2001, 2000 and 1999............................ 15
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 2001, 2000 and 1999........ 16
Consolidated Statements of Cash Flows for the Years ended
December 31, 2001, 2000 and 1999............................ 17
Notes to Consolidated Financial Statements ................... 18-33
2. Financial Statement Schedule
For the three years ended December 31, 2001:
Schedule II--Valuation and Qualifying Accounts
and Reserves................................. 47
Other schedules are omitted because of the absence of conditions
under which they are required.
- 40 -
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")).
- 41 -
(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).
- 42 -
(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")).
- 43 -
(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).
- 44 -
(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 (incorporated by reference to Exhibit 4.63 of
the 2000 Form 10-K).
(4.64) Tenth Amendment, dated as of December 29, 2000, to the Senior
Subordinated Debentures (incorporated by reference to Exhibit
4.64 of the 2000 Form 10-K).
(10.1) Mohasco Executive Retirement Plan, (incorporated by reference
to Exhibit 10.1 of the 1990 Form 10-K).
(10.2) Mohasco Corporation Executive Incentive Plan, (incorporated by
reference to Exhibit 10.2 of the 1990 Form 10-K).
(10.3) Amendment, dated December 31, 1991, to the Mohasco Executive
Retirement Plan, (incorporated by reference to Exhibit 10.3 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).
(10.7) Exchange Agreement dated October 9, 2001 among Consolidated
Furniture Corporation and Court Square Capital Limited,
(incorporated by reference to Exhibit 2.1 of the October 24,
2001 Form 8-K.
- 45 -
(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
Filed October 24, 2001 regarding transfer of all of the stock of
Furniture Comfort Corporation in settlement of $24 million under the
existing Credit Agreement.
- 46 -
Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2001, 2000 and 1999
(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:
2001
Allowance for discounts $ 24 -- (24) --
Allowance for doubtful
accounts 204 -- (204) --
------ ------ ------ ------
$ 228 -- (228) --
====== ====== ====== ======
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
====== ====== ====== ======
(1) - Primarily the result of the sale of the Stratford Division's net assets.
- 47 -
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, 2002
-----------------------------
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 Director and Chief
- ------------------ Financial Officer,
John B. Sganga Executive Vice President,
Secretary and Treasurer
(principal executive,
financial and accounting
officer)
- 48 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 2002 by the following person on behalf
of the Registrant and in the capacity indicated.
Title
/s/ M. Saleem Muqaddam Director
- ----------------------
M. Saleem Muqaddam
- 49 -