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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
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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 ____________________
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 February 28, 1996.
On February 28, 1996, the registrant had outstanding 500 shares of Class A
Voting common stock, $.01 par value and 999,800 shares of Class B Non-Voting
common stock, $.01 par value.
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PART I
ITEM 1. BUSINESS
Fairwood Corporation ("Fairwood"), is a privately-held Delaware corporation
organized in 1988 by investors including Citicorp Venture Capital Limited
("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 to include the manufacture of residential furniture and
carpet, and the rental of residential and office furniture. Consolidated
Furniture sold its carpet and rental operations in 1988.
The principal executive offices of Fairwood are located at One Commerce
Center, 1201 Orange St., Suite 790, Wilmington, Delaware 19801. Fairwood is a
holding company with no independent operations: its primary asset is all of the
common stock of Consolidated Furniture.
On March 10, 1992, Consolidated Furniture entered into two Agreements and
Plans of Merger, which provided for the disposition of two wholly-owned
subsidiaries, Chromcraft Corporation ("Chromcraft") and Peters-Revington
Corporation ("Peters-Revington") to Chromcraft Revington, Inc., an affiliate.
The mergers were consummated on April 23, 1992 and the proceeds of the
disposition were used by Consolidated Furniture to repay long-term debt owed to
Court Square Capital Limited ("CSCL"), an affiliate of CVCL, under Consolidated
Furniture's Credit Agreement with CSCL (the "Credit Agreement").
On July 29, 1994, substantially all of the assets and liabilities of
Super Sagless Corporation ("Super Sagless"), a wholly-owned subsidiary of
Consolidated Furniture, were sold to a third party for $40 million cash. Of
the total sales price, $24.25 million was received in cash upon closing, $15
million was received six months and $.75 million was received one year after
closing. After considering the estimated costs of disposition, Super Sagless
has recognized a gain before income taxes of approximately $21 million. The
net proceeds from the sale were used to repay long-term debt owed to CSCL under
the Credit Agreement.
Fairwood's subsidiary Consolidated Furniture is the parent of Furniture
Comfort Corporation ("Furniture Comfort") whose two operating divisions
manufacture upholstered stationary and motion furniture, such as modular
living room groups, recliners, rockers and sleepers.
Operations
Furniture Comfort, formerly named Mohasco Upholstered Furniture
Corporation, Consolidated Furniture's primary operating subsidiary, serves
selected segments of the highly diversified $19+ billion residential furniture
market. Consolidated Furniture entered the furniture industry through a series
of acquisitions commencing in 1964. Furniture Comfort's current operations
engage in the manufacture and sales of a diversified line of upholstered
furniture under several brand names. While most of its products are
moderately priced and designed to appeal to a wide range of furniture buyers,
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certain products have been successfully targeted to a more selective, higher
priced market. The products are sold nationally to furniture retailers and
department stores mainly through commissioned sales forces.
Furniture Comfort's two divisions operate as separate independent
companies. Each company markets and manufactures one or more specific brands of
furniture. The Stratford Company ("Stratford") makes and sells mid-priced
upholstered stationary and motion furniture under the brand names of Stratford,
Stratolounger, Stratopedic and Avon. The Barcalounger Company ("Barcalounger")
manufactures and sells higher-priced motion furniture and is well known for its
high-quality recliners.
The furniture industry is affected to a substantial degree by style,
value and fashion. Stratford and Barcalounger participate in important
furnishings market showings held during the year in a number of larger cities
to acquaint retailers with the significant number of new products introduced
each year. Each Division frequently reviews their product lines to evaluate
whether minor or major restyling of such lines is warranted. To generate new
product and style ideas based upon consumer and retailer response, the
divisions maintain in-house design staffs and contract with outside designers.
The designers consult with manufacturing management to analyze the economic
feasibility of producing new products based on their designs.
Stratford and Barcalounger operate in a highly competitive segment of the
motion furniture business. Many new competitors and existing stationary
manufacturers have entered this particular market, as well as existing
competitors which have expanded their lines. New entrants at mid price points
have eroded Stratford's market share. In many cases this increased competitive
activity has led to a lowering of selling prices and the extension of liberal
credit terms in order to maintain market share. Despite the inroads of these
competitors over the past five years, Stratford and Barcalounger remain
positioned among the largest manufacturers of upholstered stationary and motion
furniture in the United States. For the years ended December 31, 1995, 1994,
and 1993, net sales, including intercompany sales, by Stratford were $142.6
million, $176.6 million and $178.2 million, respectively, and net sales by
Barcalounger were $36.9 million, $36.5 million and $35.4 million, respectively.
The furniture market is highly competitive and includes a large number of
manufacturers, none of which dominates the market. Certain of these
manufacturers produce a broader range of furniture than Stratford and
Barcalounger, and many of them have greater financial and other resources. In
addition, there are relatively few barriers to entry into the industry.
Competition could require Stratford and Barcalounger to reduce prices, offer
better credit terms, or increase spending on product development, marketing or
sales, which could adversely affect the Company.
Stratford targets a broad market for it mid-priced recliner, motion and
stationary upholstered furniture. Stratford sells mainly to large national
retail furniture and department stores and has significant brand recognition.
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Barcalounger targets a selected market for its high-end recliner chair
and motion upholstered furniture. Barcalounger sells mainly to furniture
stores that carry more expensive products and provide interior design services
directly or indirectly. Barcalounger gives extensive warranties for its
products. The value and fine quality of its furniture is apparent as hardwood
frames are emphasized and only the finest leather and fabric coverings are
offered. Barcalounger has significant brand recognition and has a reputation
of having one of the best product lines in terms of value, quality, design and
service in the higher priced segment of the motion furniture industry.
In November 1995, Stratford entered into a manufacturing agreement
("Agreement") with Simmons Upholstered Furniture Corporation ("Simmons"), an
affiliate of the Company. Under this Agreement, Stratford manufactures product
for and supplies product on behalf of Simmons, provides sales services and
provides new product development services to Simmons. The products are
manufactured using Stratford's equipment and various plant facilities and the
other services are provided using Stratford's personnel. The term on the
Agreement is for one year with automatic one-year renewals, unless terminated
by either party. This agreement resulted in approximately $2.4 million of new
revenues in 1995 and the reimbursement of $343,000 of expenses incurred to
provide the other services in 1995.
Stratford and Barcalounger are well known in the furniture industry which
is characterized by a large number of relatively small manufacturers. The
following are among the Company's larger competitors: Masco Corporation,
Interco Industries, La-Z-Boy, Klausner, Natuzzi, and Bassett, many of which
have greater financial resources than the Company. Competition is intense at
all levels, stressing price, style, fabric and product finish.
Factors Affecting the Home Furnishings Industry
The furniture industry as a whole is affected by demographics, household
formations, the level of personal discretionary income, household mobility and
the rate of new home construction. There exists a substantial replacement
market that is relatively less affected by these factors.
Research and Development
Since the furniture industry is characterized by active competition among
a large number of companies, many of which also have substantial facilities and
resources, Furniture Comfort believes that the maintenance of high product
quality and the development of new products are essential to maintaining its
competitive position. In support of these goals, Furniture Comfort conducts
research and development activities which are decentralized and directed by its
individual operating divisions.
The Stratford and Barcalounger operating divisions expended a total of
$12,260,000 in the past five years for research and development programs of
which $2,149,000, $2,467,000, and $2,623,000 was expended in 1995, 1994 and
1993, respectively.
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Employees
Fairwood and its subsidiaries employed 2,374 persons at December 31,
1995. Fairwood has a long record of generally harmonious relations with
employees.
Backlog
The backlog of orders among Furniture Comfort's furniture operations was
approximately $13,401,000 at December 31, 1995 and approximately $21,306,000 at
December 31, 1994. It is expected that the backlog at December 31, 1995 will
be filled in the current year. Furniture Comfort does not consider backlog to
be a significant indicator of the sales outlook for its products beyond the
period of a few months.
Seasonality, Major Customers and Export Sales
There are seasonal factors which affect Furniture Comfort's business.
Spring and fall are generally considered periods of increased interest by
consumers in interior furnishings since these are periods of increased real
estate activity involving relocation of families. The Christmas holiday season
and other special occasions usually generate increased sales of some of
Furniture Comfort's furniture lines. On the other hand, inclement weather in
mid-winter generally discourages the purchase of interior furnishings.
Similarly, the closedown of a portion of Furniture Comfort's activities for
vacation periods of one or two weeks in July has a limiting effect on
production as well as sales. Furniture Comfort maintains adequate levels of
inventory to meet seasonal demands.
Sears, Roebuck & Co. accounted for approximately nineteen, twenty and
sixteen percent of Furniture Comfort's furniture sales during the years 1995,
1994 and 1993, respectively. Export sales for 1995 and 1994 were approximately
two and one percent of sales, respectively, and were not significant in 1993.
Environmental and Raw Materials
In 1995, there were no significant effects upon the capital expenditures,
earnings and competitive position of Furniture Comfort and its divisions
occasioned by compliance with provisions of federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment.
Raw materials purchased by the Furniture Comfort are all procured in the
open market from a number of suppliers. In general, no major difficulties have
been experienced in obtaining raw materials.
Patents
Patents are not a significant consideration in the manufacture of most of
Furniture Comfort's products. Furniture Comfort does not believe that its
operating income is materially dependent on any one patent or license or group
of related patents or licenses.
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ITEM 2. PROPERTIES
The furniture manufacturing activities of the Company are conducted in
modern facilities of suitable construction. These facilities are in good
operating condition, reasonably maintained and contain reasonably modern
equipment. All of the principal items of machinery and equipment located in
these facilities are owned by the primary operating subsidiary of Consolidated
Furniture.
Furniture Comfort's divisions also lease showroom and warehouse space
throughout the United States for display and storage of products. Until March
1993, Consolidated Furniture owned an office building located in Fairfax,
Virginia. Office space is now leased.
Furniture Comfort believes that its plants and facilities, in the
aggregate, are adequate, suitable and of sufficient capacity for purposes of
conducting its current business.
As of December 31, 1995, Furniture Comfort's divisions have furniture
facilities as follows:
Location Use Square Footage
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Stratford
Leased
New Albany, MS Manufacturing plant 1,060,786
Okolona, MS Manufacturing plant 613,233
Eupora, MS Manufacturing plant 314,693
Ontario, CA Manufacturing plant 185,000
Guntown, MS Warehouse 216,000
High Point, NC Showroom 27,386
San Francisco, CA Showroom 10,390
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2,427,488
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Owned
New Albany, MS Manufacturing plant 32,463
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Barcalounger
Leased
Rocky Mount, NC Manufacturing plant 364,000
High Point, NC Showroom 5,725
San Francisco, CA Showroom 2,945
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372,670
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2,832,621
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Substantially all of the assets of Consolidated Furniture and its
subsidiaries are subject to a lien in favor of CSCL granted in connection with
the Credit Agreement (See Note 5 to the Company's Consolidated Financial
Statements set forth in item 10).
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Furniture Comfort believes that its properties are adequate to serve the
current and anticipated needs of Stratford and Barcalounger without making
capital expenditures materially higher than historical levels.
ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed the audit examination
of the consolidated Federal income tax returns of Fairwood and its
subsidiaries, including Consolidated Furniture (the "Consolidated Group"), for
the years ended July 11, 1988 through December 31, 1991, and has delivered to
the Company a "30-day letter" and Revenue Agent's Report ("RAR") proposing to
adjust Fairwood's taxable income in the years in issue and in prior years to
which net operating losses of the Consolidated Group were carried back. The
cumulative proposed deficiency in Federal income tax arising from the proposed
adjustments is approximately $70 million, before applicable statutory interest.
Fairwood estimates that the aggregate proposed liability would, together with
statutory interest and state income tax through the year ended December 31,
1995, and net of any applicable deduction for such interest and state income
tax, total approximately $106 million. The principal issues addressed in the
RAR are (i) the proposed disallowance of approximately $164 million of interest
expense claimed by the Consolidated Group with respect to debt incurred in
connection with the 1988 acquisition of Consolidated Furniture by Fairwood
under the theory that such debt should be recharacterized as equity for tax
purposes, (ii) the proposed disallowance of approximately $19 million of
investment banking, legal and other fees incurred by the Consolidated Group and
deducted in the years in issue under the theory that such expenses are capital
in nature and related theories, and (iii) the proposed disallowance of
approximately $5 million of compensation expense deducted by the Consolidated
Group under the theory that such expense constitutes non-deductible "golden
parachute" payments. Fairwood believes that the proposed adjustments are in
error and intends to contest vigorously this matter. Under available
administrative procedures, Fairwood has protested the proposed adjustments and
has had several conferences with IRS Appeals division and expects to have
additional conferences with the IRS Appeals division. Depending upon the
outcome of discussions of the issues with the IRS Appeals division, Fairwood
may litigate one or more of the issues.
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, Fairwood does not believe its disposals were toxic as alleged.
The damages sought from Sloane Blabon
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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.
An involuntary Chapter 7 petition, under U.S. Bankruptcy law, was filed
on January 3, 1996 in the United States Bankruptcy Court for the Southern
District of New York against Fairwood Corporation by certain bondholders. On
consent of the parties, Fairwood's time to answer or otherwise move with
respect to the petition has been extended to April 17, 1996. Fairwood intends
to seek to have the petition dismissed. If Fairwood is unsuccessful in
obtaining dismissal of the petition, Fairwood may convert the Chapter 7 case to
a Chapter 11 case or permit a trustee to be appointed as part of a Chapter 7
proceeding.
As of the date hereof, there are certain other legal proceedings pending,
which arise out of the normal course of the Fairwood's 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. At December 31, 1995 and
1994, there were three shareowners of Fairwood's common stock. No dividends
were declared on Fairwood's common stock in 1995 and 1994. 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 monies 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 5 to Fairwood's
Consolidated Financial Statements set forth in Item 8.
Common stock purchase warrants issued by Fairwood in connection with the
1989 Fairwood merger were held by the public. The common stock purchase
warrants became exercisable in September 1994. See Note 5 to Fairwood's
Consolidated Financial Statements set forth in Item 8. The warrant exercise
price was $1 per share (subject to adjustment). In October 1994, Fairwood
notified the holders of the warrants that the warrants may be exercised at any
time before the close of business on September 21, 1995. During the first
fiscal quarter of 1995, the exercise of the Warrants was suspended pursuant to
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the terms of the Warrant Agreement (such period of suspension being the
"suspension period"). On September 19, 1995, the holders of record of Fairwood
Corporation common stock purchase Warrants ("Warrants") were notified in
writing by the Warrant Agent that the suspension had been lifted.
Thereafter, pursuant to the terms of the Warrant Agreement, the
exercisability of the Warrants expired at 5:00 P.M. Pittsburgh, Pennsylvania
time on September 22, 1995.
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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1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales $ 176.8 244.9 261.5 267.0 341.4
Operating income (loss) ( 11.8) ( 8.2) 1.9 ( 18.4) ( 11.9)
Interest expense, net ( 58.6) ( 53.4) ( 46.6) ( 43.6) ( 44.5)
Gain on sale of subsidiary - 20.8 - - -
Loss before extraordinary
items ( 70.7) ( 39.4) ( 46.9) (159.1) ( 49.9)
Extraordinary items - - - 1.9 -
Net loss ( 70.7) ( 39.4) ( 46.9) (157.2) ( 49.9)
Total assets 53.4 95.6 113.6 105.1 277.8
Long-term debt, including
current maturities 420.7 415.4 386.0 330.8 370.8
Redeemable preferred stock .1 .1 .1 .1 .1
Fairwood acquired Consolidated Furniture in a purchase transaction deemed
to be effective as of July 3, 1988. In 1992, the excess of purchase cost over
fair value of assets acquired in the purchase of Consolidated Furniture was
written off due to the determined unrecoverability of these costs. Also in
1992, operations data includes the activities of Chromcraft and
Peters-Revington for the period from January 1 through April 23, 1992. In
1994, operations data includes the activities of Super Sagless for the period
from January 1 through July 29, 1994. Accordingly, the data presented for 1995,
1994 and 1993 is not comparable with one another or prior periods.
For additional information, see the Company's Consolidated Financial
Statements included with this report, including Notes 4 and 13 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
1995 vs 1994 Results of Operations
Consolidated net sales of approximately $176.8 million for 1995 decreased
27.8% from 1994 net sales of approximately $244.9 million, due primarily to the
disposition of Super Sagless in July 1994 and the significant reduction of
sales at Stratford. Excluding Super Sagless, net sales of approximately $176.8
million for 1995 decreased 17.0% from 1994 net sales of approximately $213.6
million.
Net sales (including intercompany sales) for 1995 by Stratford decreased
19.2% to approximately $142.6 million as compared to $176.6 million for 1994.
Total volume in 1995 decreased 22.6%, while average selling prices increased by
approximately 3.9%. Sales in 1995 to Stratford's larger, national retail
customers decreased 30.7%, while sales to smaller retail customers decreased
13.3%. The decrease in sales at Stratford was the result of internal and
external factors. In 1995 Stratford changed its market strategy and
discontinued all styles with insufficient profit margins and all styles with
low sales quantities. This change in market strategy was the primary factor
causing the decrease in sales to the smaller retail customers. Sales to the
larger national retail customers decreased primarily because of an overall
industry wide slow-down in sales combined with (1) customers' organizational
realignment lowering customers' overall inventory levels, (2) the consolidating
of customers' stores and the subsequent delayed opening of the new consolidated
stores, (3) discontinuance of furniture sales by certain customers, and (4)
Stratford's price increases conflicted with the retailers' pricing policies.
Net sales for 1995 by Barcalounger increased 1.2% to approximately $36.9
million as compared to $36.5 million for 1994. This increase in sales reflects
an decrease of 0.4% in the number of pieces sold in 1995 versus 1994, and a
2.0% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994 and 1995, Barcalounger added to their product offerings of
higher-priced recliner and motion upholstered furniture through an emphasis on
more expensive leather and fabric coverings. Concurrent with these new
offerings, Barcalounger discontinued certain lower-priced products. By offering
a finer, more exclusive product, Barcalounger was able to increase sales in
1994 and 1995 with those retail furniture store customers who specialize in
higher-priced, better quality furniture. This change led to a sales mix which
resulted in increases in average prices.
Consolidated cost of sales decreased 25.7% in 1995 to approximately
$161.1 million, or 91.1% of net sales as compared to $216.8 million, or 88.6%
of net sales, in 1994. Excluding Super Sagless, cost of sales were
approximately $161.1 million and $191.1 million for 1995 and 1994,
respectively, or 91.1% and 89.7% of net sales, respectively.
Stratford Company cost of sales increased to 94.0% of net sales in 1995,
as compared to 91.3% in 1994. Barcalounger cost of sales decreased to 80.9% of
net sales in 1995 from 81.4% of net sales in 1994. Stratford cost of sales as
a percentage of sales increased in 1995 mainly because of under absorbing
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overhead resulting from lower sales volume, increases in prices of certain raw
materials that could not be passed on as price increases, and unfavorable
manufacturing variances caused by the need for smaller quantity and shorter
manufacturing time. Barcalounger cost of sales as a percentage of net sales
continued to decrease in 1995 due to the continued impact of the cost reduction
and quality improvement programs implemented during 1994.
Consolidated selling, administrative and general expenses decreased 24.1%
to approximately $27.5 million in 1995 from approximately $36.2 million in
1994. Excluding Super Sagless, selling, administrative and general expenses
were approximately $27.5 million and $30.0 million for 1995 and 1994,
respectively, a decrease of approximately 8.3%, primarily due to the continued
organization-wide downsizing, where appropriate, and continued reduction of
corporate expense through increased controls resulting from the
decentralization and transfers of corporate functions to the operating
companies completed during 1993 and 1994.
Other income (expenses), net, decreased approximately $2.2 million, or
79.7% to approximately $(.3) million in 1995 from approximately $1.9 million in
1994. The $1.9 million recorded in 1994 resulted primarily from a gain of
approximately $1.4 million recognized on the sale of Stratford's Clinton, NC
plant. The other expenses, net, in 1994 reflects certain losses on the sales
of property and costs incurred associated with divested operations.
A gain of approximately $20.8 million was recognized in 1994 as a result
of the sale of substantially all of the assets of Super Sagless.
Interest expense increased 9.5% to $58.9 million from $53.8 million due
primarily to additional borrowings under the Revolving Credit Agreement.
1994 vs 1993 Results of Operations
Consolidated net sales of approximately $244.9 million for 1994 decreased
6.3% from 1993 net sales of approximately $261.4 million, due to the
disposition of Super Sagless in July 1994. Excluding Super Sagless, net sales
for 1994 were essentially flat at $213.1 million as compared to approximately
$213.6 million for 1993.
Net sales (including intercompany sales) for 1994 by the Stratford
Company decreased 0.9% to approximately $176.6 million as compared to $178.2
million for 1993. Total volume was flat in 1994, while average selling prices
increased by approximately 1%. Sales in 1994 to Stratford's larger, national
retail customers increased 19.7%, while sales to smaller retail customers
decreased 13.3%. Stratford's concentration of sales to these national
retailers was expected to result in greater volume of similar products and
styles, reducing Stratford's design and production costs. The increased volume
during 1994 for the products was reflective of Stratford's strategy to increase
its mix towards the national retailers. This strategy assumed no change in
national retailer's policies.
Net sales for 1994 by Barcalounger increased 3.0% to approximately $36.5
million as compared to $35.4 million for 1993. This increase in sales reflects
an increase of 0.8% in the number of pieces sold in 1994 versus 1993, and a
2.5% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994, Barcalounger added to their product offerings of
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higher-priced recliner and motion upholstered furniture through an emphasis on
more expensive leather and fabric coverings. Concurrent with these new
offerings, Barcalounger discontinued certain lower-priced products. By
offering a finer, more exclusive product, Barcalounger was able to increase
sales in 1994 with those retail furniture store customers who specialize in
higher-priced, better quality furniture. This change led to a sales mix which
resulted in both increases in sales and average prices.
Consolidated Cost of sales decreased 2.1% in 1994 to approximately $216.8
million, or 88.6% of net sales, as compared to $221.5 million, or 87.6% of net
sales, in 1993. Excluding Super Sagless, cost of sales were approximately
$191.1 million and $182.7 million for 1994 and 1993, respectively, or 89.7% and
85.6% of net, respectively.
Stratford Company cost of sales increased to 91.3% of net sales in 1994,
as compared to 86.1% in 1993. Barcalounger cost of sales decreased to 81.4% of
net sales in 1994 from 82.7% of net sales in 1993. The Stratford Company's
cost of sales as a percentage of net sales increased as a result of increased
raw materials costs due to design changes which resulted in an upgraded product
content; however, the implementation of most price increases for Stratford's
product lines in 1994 were delayed. Barcalounger cost of sales as a percentage
of net sales continued to decrease in 1994 due to continued impact of the cost
reduction and quality improvement programs implemented during 1993.
Consolidated selling, administrative and general expenses decreased 4.6%
to approximately $36.2 million in 1994 from approximately $38.0 million in
1993. Excluding Super Sagless, selling, administrative and general expenses
were approximately $30.0 million and $31.4 million in 1994 and 1993,
respectively, a decrease of approximately 4.5%, primarily due to the continued
organization-wide downsizing, where appropriate, and the decentralization and
transfer of corporate functions to the operating companies.
Other income (expenses), net, increased approximately $6.2 million,
or 143.3% to approximately $1.9 million in 1994 from approximately $(4.3)
million in 1993. During 1994, The Company recognized a gain of approximately
$1.4 million on the sale of Stratford's Clinton, NC plant. The other expenses,
net, in 1993 reflects certain losses on the sales of property and costs incurred
associated with divested operations.
A gain of approximately $20.8 million was recognized in 1994 as a result
of the sale of substantially all of the assets of Super Sagless.
Provision for Income Taxes
A cumulative effect of change in accounting principle of $2.1 million was
recorded in 1993, which is described in Note 1, Summary of Significant
Accounting Policies, in the Notes to Consolidated Financial Statements. Please
refer to Note 4, Income Taxes, in the Notes to Company's Consolidated Financial
Statements.
- 12 -
13
Liquidity and Capital Resources
Capital requirements for operations during 1995 and 1994 were provided
primarily by financing channels, sale of Super Sagless and operating cash flows
at certain operating divisions.
Fairwood had working capital of approximately $(190.8) million and $43.5
million at December 31, 1995 and 1994, respectively. At December 31, 1995,
Fairwood had long-term debt of approximately $420.7 million of which $169.0
million was current. Long-term debt at December 31, 1994 was approximately
$415.4 million of which $.2 million was current.
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 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 assets of Consolidated Furniture and its
subsidiaries are pledged as security for the amounts due under the Credit
Agreement. Certain instruments related to the Credit Agreement have been
amended at various times through January 1996. In April, 1995, CSCL waived
provisions of the Credit Agreement prohibiting sale by Consolidated Furniture
of certain real property that had been operated as, and related equipment
located on, a saw mill in Pontotoc, Mississippi. In November 1995,
Consolidated Furniture entered into the Twelfth Amendment to the Credit
Agreement which extended the maturity date to January 2, 1997 and waived
compliance of various covenants through December 31, 1995. In January 1996,
Consolidated Furniture entered into the Thirteenth Amendment to the Credit
Agreement which increase the overadvance amount to $200,000,000 for the first
fiscal quarter of 1996 and thereafter. In January 1996, Consolidated Furniture
entered into the Fifth Amendment to the Increasing Rate Senior Subordinated
Debentures due January 2, 1996, which extended the due date to January 2, 1997.
Throughout 1995, 1994 and 1993, Consolidated Furniture funded interest
obligations related to long-term indebtedness through increased borrowings from
CSCL. Borrowings from CSCL during the years ended December 31, 1995, 1994 and
1993 were approximately $32.5 million, $31.2 million and $48.2 million,
respectively. However, during 1995 and 1994 a portion of the proceeds to
Consolidated Furniture from the factoring of Stratford's trade accounts
receivable and the sale of substantially all of the assets of Super Sagless of
approximately $15 million and $40 million, respectively, were used to repay
debt of Consolidated Furniture and its subsidiaries. All outstanding debt at
December 31, 1995, excluding the $62.9 million of outstanding merger debentures
and $0.5 million of capitalized lease obligations, is payable to CSCL, which is
an indirect subsidiary of Citicorp, a bank holding company, and an affiliate of
CVCL. Consolidated Furniture has obtained an extension of the debt payable to
CSCL to January 1997. 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 8.75% at December 31, 1995.
Interest on the senior subordinated debentures of Consolidated Furniture is
payable semi-annually at 18%. Interest on the senior subordinated pay-in-kind
debentures and merger debentures of Fairwood is payable semi-annually at
15-1/2% and 16-7/8%, respectively.
- 13 -
14
In July 1994, a portion of the proceeds to Consolidated Furniture from
the disposition of Super Sagless were used to repay secured, senior debt of
Consolidated Furniture and its subsidiaries in the approximate amount of $24.25
million. The remainder of the total sales consideration of $15 and $.75
million, which was primarily used to repay $13 million of secured, senior debt
of Consolidated Furniture were received in January and July of 1995.
In July 1995, a portion of the proceeds to Consolidated Furniture from
the sale of trade receivables of Stratford to a factor were used to repay
secured, senior debt of Consolidated Furniture. At December 31, 1995, $14.4
million was the amount of the advance due to the Factor.
Interest payments during the years ended December 31, 1995, 1994 and 1993
of approximately $31.9 million, $52.9 million and $43.1 million, respectively
were primarily made through increased borrowings and the issue of additional
pay-in-kind debentures. Principal payments of approximately $27.2 million,
$25.9 million and $13.7 million were made during the years ended December 31,
1995, 1994 and 1993, respectively.
Annual maturities on debt for the years ended December 31, 1996, 1997 and
1998, approximately $169.0 million, $251.5 million and $0.2 million,
respectively. Interest payments expected to be made for the years ended
December 31, 1996, 1997 and 1998 are estimated to be approximately $33.1
million, $36.5 million and $40.3 million.
On April 1 and October 1, 1995, Fairwood failed to make the required
interest payments due on the senior subordinated pay-in-kind debentures and
merger debentures (collectively, the "Fairwood Debentures") and Fairwood does
not expect to make the cash interest payments required under the Fairwood
Debentures on any future semi-annual interest payment dates. Accrued interest
of $33.8 million on the Fairwood Debentures, which includes $20.5 million due
to CSCL, is included in accrued expenses on the accompanying consolidated
balance sheet as of December 31, 1995. See Note 5 to the accompanying
Consolidated Financial Statements.
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995, 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 $105.9 million have been
classified as current liabilities in the accompanying Consolidated Financial
Statements as of December 31, 1995.
Capital additions were approximately $2.4 million, $3.4 million and $4.2
million for the years 1995, 1994 and 1993, respectively. The Company
anticipates making capital expenditures of approximately $2.4 million during
1996, primarily for the purpose of maintaining and upgrading the Company's
manufacturing equipment, machinery and facilities. The Company has no firm
commitments for the purchase of capital equipment or facilities. It is
anticipated that necessary capital expenditures will be funded through cash
flow generated from operations, available credit facilities under the Company's
revolving credit agreement with CSCL, and other financing arrangements. The
Company intends to pursue other sources of financing to the extent available
and cost effective.
- 14 -
15
Consolidated Furniture and the operating companies are 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 1995 to
provide more favorable terms to Consolidated Furniture and, in certain
instances, to avoid defaults thereunder. 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 anticipates that funds provided by operations and
available credit facilities under the Credit Agreement will be adequate in 1996
to support the operations of Stratford and Barcalounger. However, as discussed
above, funds provided by operations and available credit facilities cannot be
expected to be adequate to make cash interest payments due in 1996 on the
Fairwood senior subordinated pay-in-kind debentures and merger debentures.
Consolidated Furniture's obligations under the Credit Agreement are secured by
substantially all of the assets of Consolidated Furniture and its subsidiaries.
On January 3, 1996, certain bondholders filed an involuntary Chapter 7
case against Fairwood in the United States Bankruptcy Court for the Southern
District of New York. Pursuant to agreement of the parties, Fairwood's time to
answer or otherwise move with respect to the petition has been extended to
April 17, 1996. It is Fairwood's present intention to have the petition
dismissed. If Fairwood is unsuccessful in obtaining dismissal of the petition,
Fairwood may convert the Chapter 7 case to a Chapter 11 case or permit a
trustee to be appointed as part of a Chapter 7 proceeding.
- 15 -
16
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, 1995 and 1994
Consolidated Statements of Operations for the Years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareowners' Equity (Deficit) for the Years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
- 16 -
17
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, 1995 and 1994, 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, 1995. We also have audited the financial statement schedule as
listed in the index for Item 14(a)2 on page 49. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fairwood
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. 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.
- 17 -
18
The accompanying consolidated financial statements and financial
statement schedule have been prepared assuming that Fairwood will continue as a
going concern. As discussed in Note 4 to the consolidated financial
statements, the Company has been notified by the Internal Revenue Service of
proposed adjustments to its Federal income tax returns for the years 1988
through 1991. Such adjustments would result in a net tax cost of approximately
$106 million, including interest, through the year ended December 31, 1995.
Fairwood Corporation has indicated that it disagrees with the proposed
adjustments and is vigorously contesting the positions taken by the Internal
Revenue Service. As discussed in Notes 5 and 13 to the consolidated financial
statements, Fairwood has failed to make the required interest payments on its
senior subordinated pay-in-kind and merger debentures when due in 1995 and does
not expect to be able to be able to make such payments in the future. Further,
an involuntary Chapter 7 case was filed against Fairwood by certain
bondholders. These matters, raise substantial doubt about the ability of
Fairwood to continue as a going concern. Management's plans in regard to these
matters are described in Notes 4, 5 and 13. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Notes 1 and 4 to the consolidated financial statements,
Fairwood adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, as of January 1, 1993.
KPMG Peat Marwick, LLP
Washington, D.C.
February 9, 1996
- 18 -
19
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands except share data)
Assets (note 5) 1995 1994
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 4,264 4,615
-------- -------
Accounts and notes receivable:
Trade (note 3) 29,545 38,034
Due from affiliate (note 9) 1,293 -
Escrows receivable from sale of subsidiary (note 2) - 15,750
Other 1,542 1,812
-------- -------
32,380 55,596
Less allowance for discounts and doubtful accounts 1,857 2,756
Less advances from Factor (note 3) 14,443 -
-------- -------
16,080 52,840
-------- -------
Inventories (note 1) 14,394 18,813
Prepaid expenses and other current assets (note 4) 2,524 2,499
-------- -------
Total current assets 37,262 78,767
-------- -------
Property, plant and equipment, at cost:
Land 84 137
Buildings and improvements 12,591 13,034
Machinery and equipment 15,717 14,218
Leasehold improvements 2,334 2,345
Construction in progress 149 540
-------- -------
30,875 30,274
Less accumulated depreciation and amortization 16,841 16,209
-------- -------
14,034 14,065
-------- -------
Other assets 2,125 2,732
-------- -------
$ 53,421 95,564
======== =======
Liabilities and Shareowners' equity (deficit) 1995 1994
- --------------------------------------------- ---- ----
Current liabilities:
Current maturities of long-term debt (notes 5 and 10):
Senior subordinated pay-in-kind debentures $ 105,853 -
Merger debentures 62,928 -
Other 170 160
Accounts payable:
Trade 3,659 6,084
Other (includes claims payable of $1,750 in
1995 and $1,991 in 1994) 2,928 2,537
Accrued expenses (includes interest of $37,388 in
1995 and $10,357 in 1994) 46,820 20,740
Federal and state income taxes 5,719 5,725
------- -------
Total current liabilities 228,077 35,246
------- -------
Long-term debt, less current maturities (notes 5 and 10):
Revolving credit 171,369 165,870
Senior subordinated debentures 80,000 80,000
Senior subordinated pay-in-kind debentures - 105,853
Merger debentures - 62,928
Capitalized lease obligations 370 540
------- -------
251,739 415,191
------- -------
Deferred Federal income taxes (note 4) 1,318 1,359
Other liabilities (note 8) 3,222 4,346
------- -------
4,540 5,705
------- -------
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. 100 100
------- -------
Shareowners' equity (deficit):
Common stock, par value $.01 per share (notes 5 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 55,938 55,938
Minimum pension liability (Note 8) ( 956) ( 1,367)
Accumulated deficit (486,027) (415,259)
------- -------
(431,035) (360,678)
------- -------
Commitments and contingencies (notes 4, 5, 8, 9, 10,
12 and 13)
$ 53,421 95,564
======= =======
See accompanying notes to consolidated financial statements.
- 19 -
20
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31,
------------------------------------
1995 1994 1993
----------- ---------- ----------
(In thousands)
Net sales (note 9) $ 176,834 244,869 261,451
------- ------- -------
Cost of sales (note 9) 161,091 216,834 221,519
Selling, administrative
and general expenses (note 9) 27,508 36,247 37,985
------- ------- -------
188,599 253,081 259,504
------- ------- -------
Operating income (loss) ( 11,765) ( 8,212) 1,947
Interest income 316 498 205
Interest on indebtedness (notes 3 and 5) ( 58,893) ( 53,852) ( 46,846)
Gain on sale of subsidiary (note 2) - 20,847 -
Other income (expenses), net ( 378) 1,859 ( 4,296)
------- ------- -------
Loss before income taxes,
cumulative effect of change
in accounting principle ( 70,720) ( 38,860) ( 48,990)
Provision for income
taxes (note 4) - 532 -
------- ------- -------
Loss before cumulative
effect of change in accounting
principle ( 70,720) ( 39,392) ( 48,990)
Cumulative effect of change in
accounting principle (note 4) - - 2,100
------- ------- -------
Net loss $ ( 70,720) ( 39,392) ( 46,890)
======= ======= =======
See accompanying notes to consolidated financial statements.
- 20 -
21
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareowners' Equity (Deficit)
Years Ended December 31, 1995, 1994 and 1993
(In thousands)
Common Stock Additional Minimum Shareowners'
---------------- Paid-in Pension Accumulated Equity
Class A Class B Capital Liability deficit (Deficit)
------- ------- ------- --------- ----------- ---------
Balance, January 1, 1993 $ - 10 55,938 - (328,904) (272,956)
Net loss ( 46,890) ( 46,890)
Preferred stock dividends ( 33) ( 33)
----- ----- ------ ------ ------- -------
Balance, December 31, 1993 - 10 55,938 - (375,827) (319,879)
Net loss ( 39,392) ( 39,392)
Adjustment to minimum
pension liability (note 8) ( 1,367) ( 1,367)
Preferred stock dividends ( 40) ( 40)
----- ----- ------ ------ ------- -------
Balance, December 31, 1994 - 10 55,938 ( 1,367) (415,259) (360,678)
Net loss ( 70,720) ( 70,720)
Adjustment to minimum
pension liability (note 8) 411 411
Preferred stock dividends ( 48) ( 48)
----- ----- ------ ------ ------- -------
Balance, December 31, 1995 - 10 55,938 ( 956) (486,027) (431,035)
===== ===== ====== ====== ======= =======
See accompanying notes to consolidated financial statements.
- 21 -
22
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
-------------------------------------
1995 1994 1993
----------- ---------- -----------
(In thousands)
Cash flows from operating activities:
Loss before cumulative effect of accounting change $ ( 70,720) ( 39,392) ( 48,990)
Cumulative effect of change in accounting principle - - 2,100
------- ------- -------
Net loss ( 70,720) ( 39,392) ( 46,890)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,075 2,974 3,905
Gain on sale of Super Sagless assets - ( 20,847) -
Loss (gain) on sale of property, plant and equipment ( 58) ( 1,636) 431
Loss, recognized in 1992, on sale of property - - 4,562
Current period conversions of PIK debentures - 18,300 15,686
Changes in assets and liabilities:
Accounts receivable 6,567 3,079 ( 9,490)
Inventories 4,419 5,700 ( 7,217)
Prepaid expenses and other current assets ( 66) 849 ( 3,280)
Accounts payable ( 2,082) ( 1,646) ( 323)
Accrued expenses 26,080 5,119 ( 847)
Federal and state income taxes ( 6) 16 3,789
Other, net ( 106) ( 69) 3,323
------- ------- -------
Cash used - operating activities ( 33,897) ( 27,553) ( 36,351)
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment ( 2,413) ( 3,401) ( 4,206)
Proceeds from disposition of property,
plant and equipment 427 3,929 3,980
Proceeds from sale of Super Sagless assets 15,750 22,379 -
------- ------- -------
Cash provided (used) - investing activities 13,764 22,907 ( 226)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt 32,499 31,193 48,202
Proceeds from sale of receivables to Factor 14,443 - -
Repayment of long-term debt ( 27,160) ( 25,900) ( 13,650)
------- ------- -------
Cash provided (used) - financing activities 19,782 5,293 34,552
------- ------- -------
Increase (decrease) in cash and cash equivalents ( 351) 647 ( 2,025)
Cash and cash equivalents:
Beginning of period 4,615 3,968 5,993
------- ------- -------
End of period $ 4,264 4,615 3,968
======= ======= =======
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $ 31,866 28,835 25,372
Income taxes 6 506 978
Conversion of accrued interest to PIK debentures - 24,091 17,697
Adjustment to minimum pension liability ( 411) 1,367 -
See accompanying notes to consolidated financial statements.
- 22 -
23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
Principles of Consolidation and Description of Business
The consolidated financial statements represent a consolidation of the
financial statements of Fairwood Corporation ("Fairwood" or the "Company"), and
Consolidated Furniture Corporation ("Consolidated Furniture", formerly named
Mohasco Corporation) and all of its subsidiaries. All significant intercompany
balances, transactions and profits have been eliminated in consolidation.
Through its wholly-owned subsidiary, Consolidated Furniture, the Company
manufactures and sells mid- and high-priced upholstered and motion furniture
under the brand names Stratford, Stratolounger, Stratopedic, Avon and
Barcalounger. The products are sold nationally to furniture retailers and
department stores mainly through commissioned sales force.
Inventories
All inventories (materials, labor and overhead) are valued at the lower
of cost or market using the last-in, first-out (LIFO) method. A LIFO
liquidation occurred during 1995 which resulted in a reduction of cost of sales
of approximately $2.3 million.
The components of inventory at December 31, are as follows (in thousands):
1995 1994
-------- ---------
Raw materials $ 12,857 14,696
In process 3,532 4,193
Finished goods 8,063 11,914
------ ------
Inventories at first-in, first-out 24,452 30,803
LIFO reserve 10,058 11,990
------ ------
Inventories at LIFO $ 14,394 18,813
====== ======
Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is
provided principally on a straight-line basis over the estimated useful lives
as follows: buildings and buildings capitalized under long-term leases from 30
to 45 years; machinery and equipment from 3 to 14 years; and leasehold
improvements over the term of the related leases.
Manufacturing and warehousing facilities under long-term leases which
were constructed by various local governmental bodies have been capitalized.
- 23 -
24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Revenue Recognition
Revenue is recognized when title to furniture passes to the customer. The
Company provides a reserve against 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.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, ("Statement 109"). Statement 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method. Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date of the change in tax rates.
Effective January 1, 1993, the Company adopted Statement 109. The
adoption of Statement 109 resulted in a cumulative effect adjustment of
$2,100,000 which reduced the net loss for 1993, and which is reflected in the
1993 statement of operations.
Financial Statement Presentation
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.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform with the 1995 financial statement presentation.
- 24 -
25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Divestiture
On July 29, 1994, substantially all of the assets and liabilities of
Super Sagless Corporation ("Super Sagless"), a wholly-owned subsidiary of
Consolidated Furniture, were sold to a third party for $40 million cash. Of
the total sales price, $24.25 million was received upon closing, $15 million
was received six months after closing and the remaining $0.75 million was
received one year after closing. After considering the estimated costs of
disposition, the Company recognized a gain before income taxes of approximately
$21 million in 1994. The net proceeds from the sale were used to pay existing
debt owed Court Square Capital Limited ("CSCL"), an affiliate of the Company's
principal shareowner.
During the period January 1 through July 29, 1994, Super Sagless
generated operating earnings before income taxes, exclusive of the gain on
sale, of approximately $2,300,000. During 1993, Super Sagless generated
operating earnings before income taxes of approximately $2,400,000.
(3) Trade accounts receivable
On July 25 1995, Stratford Company, an operating division of the
Consolidated Furniture, entered into a factoring agreement to sell certain
trade receivables on a recourse and nonrecourse basis. Receivables sold for
which Stratford has not received written approval from the factor are with
recourse. Only those receivables sold for which Stratford has received written
credit approval from the factor are nonrecourse. Stratford retains credit risk
for all recourse receivables and transfers the credit risk to the factor for
all nonrecourse receivables.
Under the factoring agreement, advances may be made to Stratford for up
to 75% of the aggregate purchase price of outstanding non-recourse receivables
less the factoring commission and other fees. All advances are payable upon
demand and are settled with the factor's collection of the purchased
receivables or the passing of 120 days after the due date of nonrecourse
receivables. Stratford pays interest on the balance of the outstanding
advances. The interest rate is the greater of 9% or the factor's prime rate
plus 1 percent. As of December 31, 1995, receivables sold which remain to be
collected approximated $20,190,000 of which approximately $3,899,000 were sold
with recourse.
- 25 -
26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes
As discussed in note 1, the Company adopted Statement 109 as of January
1, 1993, which resulted in a cumulative effect adjustment of $2,100,000 which
decreased the net loss for the year 1993.
Components of the provision for income taxes are summarized, in
thousands, as follows:
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
Current:
Federal $ - - -
State and local - 532 -
------ ------ -------
Deferred - - -
------ ------ -------
Total provision for income
taxes $ - 532 -
====== ====== =======
The differences between the actual taxes and taxes computed at the U.S.
Federal Income tax rate of 34% are summarized, in thousands, as follows:
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
Expected tax benefit computed
at U.S. rate $ (24,045) (13,393) (16,657)
Increase in valuation
allowance 26,865 15,467 19,320
State taxes, net of
Federal benefit ( 2,820) ( 1,542) ( 1,940)
Other - - ( 723)
------ ------- ------
Total provision for income taxes $ - 532 -
====== ====== ======
- 26 -
27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
The tax effects of temporary differences as of December 31, 1995 and
1994, in thousands, are as follows:
1995 1994
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 59,713 31,978
Accounts receivable 813 1,077
Vacation and holiday pay 421 420
Accrued expenses 4,166 4,983
Interest on merger debentures 4,904 4,735
Valuation allowance (68,699) (41,834)
------ ------
$ 1,318 1,359
====== ======
Deferred tax liabilities:
Property, plant and equipment $ 1,318 1,359
====== ======
The valuation allowance for deferred tax assets as of January 1, 1994 was
$26,367,000. The net changes in the total valuation allowance for the years
ended December 31, 1995 and 1994 were increases of $26,865,000 and $15,467,000,
respectively.
At December 31, 1995, the Company's net operating loss carryforwards of
approximately $157,305,000 expire in various years through 2010.
Net current deferred income tax benefits of $1,318,000 and $1,359,000 at
December 31, 1995 and 1994, respectively, are included in other current assets
in the accompanying consolidated balance sheets.
The Internal Revenue Service ("IRS") has completed the audit examination
of the consolidated Federal income tax returns of Fairwood and its
subsidiaries, including Consolidated Furniture (the "Consolidated Group"), for
the years ended July 11, 1988 through December 31, 1991 and has delivered to
Fairwood a "30-day letter" and Revenue Agent's Report ("RAR") proposing to
adjust Fairwood's taxable income in the years in issue and in prior years to
which net operating losses of the Consolidated Group were carried back. The
cumulative proposed deficiency in Federal income tax arising from the proposed
adjustments is approximately $70 million, before applicable statutory interest.
Fairwood estimates that the aggregate proposed liability would, together with
statutory interest and state income tax through the year ended December 31,
1995, and net of any applicable deduction for such interest and state income
tax, total approximately $106 million. The principal issues addressed in the
RAR are (i) the proposed disallowance of approximately $164 million of interest
expense claimed by the Consolidated Group with respect to
- 27 -
28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
debt incurred in connection with the 1988 acquisition of Consolidated
Furniture by Fairwood under the theory that such debt should be recharacterized
as equity for tax purposes, (ii) the proposed disallowance of approximately $19
million of investment banking, legal and other fees incurred by the
Consolidated Group and deducted in the years in issue under the theory that
such expenses are capital in nature and related theories, and (iii) the
proposed disallowance of approximately $5 million of compensation expense
deducted by the Consolidated Group under the theory that such expense
constitutes non-deductible "golden parachute" payments. Fairwood believes that
the proposed adjustments are in error and is vigorously contending this matter.
Under available administrative procedures, Fairwood has protested the proposed
adjustments and has had several conferences with IRS Appeals division and
expects to have additional conferences with the IRS Appeals division. Depending
upon the outcome of discussions of the issues with the IRS Appeals division,
Fairwood may litigate one or more of the issues. The Company cannot predict
the ultimate outcome nor the impact on its financial statements, if any.
(5) Long-term Debt
In conjunction with the Company's acquisition by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with
loans under a credit agreement with 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,
the Company issued $33.5 million of subordinated pay-in-kind merger debentures
and 918,170 warrants to purchase, in the aggregate, 142,900 shares of
Fairwood's Class A common stock. The exercise period for the warrants issued
with the merger debentures expired on September 22, 1995. The assets of
Consolidated Furniture and its subsidiaries are pledged as security for the
amounts due under the Credit Agreement. Certain instruments related to the
Credit Agreement have been amended at various times through January 1996. In
April 1995, CSCL waived provisions of the Credit Agreement prohibiting sale by
Consolidated Furniture of certain real property that had been operated as, and
related equipment located on, a saw mill in Pontotoc, Mississippi. In November
1995, Consolidated Furniture entered into the Twelfth Amendment to the Credit
Agreement which extended the maturity date to January 2, 1997 and waived
compliance of various covenants through December 31, 1995. In January 1996,
Consolidated Furniture entered into the Thirteenth Amendment to the Credit
Agreement which increased the overadvance amount to $200,000,000 for the first
fiscal quarter of 1996 and thereafter. In January 1996, Consolidated Furniture
entered into the Fifth Amendment to the Increasing Rate Senior Subordinated
Debentures due January 2, 1996, which extended the due date to January 2, 1997.
Proceeds from the disposition of
- 28 -
29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
certain operating companies, including the sale of substantially all the assets
and liabilities of Super Sagless and proceeds from the factoring of Stratford's
trade accounts receivable were used to repay a portion of the debts due under
the Credit Agreement with CSCL.
The outstanding debt at December 31, 1995 and 1994 was as follows (in
thousands):
December 31,
1995
Interest
Debt 1995 1994 Rates
---- -------- -------- ---------
Revolving credit, due 1997 $ 171,369 165,870 10-1/4%
Senior subordinated
debentures, due 1997 80,000 80,000 18%
Senior subordinated pay-
in-kind debentures, due 2001 105,853 105,853 15-1/2%
Merger debentures, due 2004 62,928 62,928 16-7/8%
Other, due 1998 540 700 6%
------- -------
420,690 415,351
Less current maturities 168,951 160
------- -------
$ 251,739 415,191
======= =======
Substantially all of the Company'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. The Company plans to attempt to refinance, or negotiate an extension
of, the debt payable to CSCL when due.
On April 1 and October 1, 1995, Fairwood failed to make the required
interest payments due on the senior subordinated pay-in-kind debentures and
merger debentures (collectively, the "Fairwood Debentures") and Fairwood does
not expect to make the cash interest payments required under the Fairwood
Debentures on any future semi-annual interest payment dates. Accrued interest
of $33.8 million on the Fairwood Debentures, which includes $20.5 million due
to CSCL, is included in accrued expenses on the accompanying consolidated
balance sheet as of December 31, 1995. An involuntary Chapter 7 petition,
under U.S. Bankruptcy law, was filed on January 3, 1996 in the United States
Bankruptcy Court for the Southern District of New York against Fairwood
Corporation by certain bondholders. On consent of the parties, Fairwood's time
to answer or otherwise move with respect to the petition has been extended to
April 17, 1996. Fairwood intends to seek to have the petition dismissed. If
Fairwood is unsuccessful in obtaining dismissal, Fairwood may convert the
Chapter 7 case to a Chapter 11 case or permit a trustee to be appointed as part
of a Chapter 7 proceeding. (Note 13).
- 29 -
30
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995 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 have been classified as current
liabilities in the accompanying Consolidated Balance Sheets as of December 31,
1995.
The fair market value of the debentures and revolving credit debt cannot
be reasonably estimated considering Fairwood's ongoing financial difficulties
(Note 13).
The aggregate maturities of long-term debt (including capitalized lease
obligations) during the next five years and thereafter are as follows:
$168,951,000 in 1996; $251,549,000 in 1997; and $190,000 in 1998.
(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, 1995 and 1994, dividends payable
were approximately $200,000 and $150,000, respectively.
(7) Common Stock
Holders of Class A common stock are entitled to convert their shares to
an equal number of Class B common stock and holders of Class B common stock are
entitled to convert their shares to an equal number of Class A common stock.
(8) Employee Benefit Plans
All salaried employees, excluding certain key executives, and hourly paid
employees of the Company with one year of service were covered by
non-contributory defined benefit retirement plans through May 31, 1993, at
which time further benefit accruals ceased and the plans were "frozen."
Benefits for the plans are determined based on length of service and certain
average annual employee earnings. The cost of the retirement plans is accrued
annually; funding is in accordance with actuarial requirements of the plans,
subject to the Employee Retirement Income Security Act of 1974, as amended.
- 30 -
31
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
Pension expense is summarized, in thousands, as follows:
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- ---------
Current service cost $ - - 1,506
Interest cost 954 892 956
Return on assets ( 808) ( 829) ( 630)
Amortization of prior service cost - - 99
Special curtailment charge due to
cessation of benefit accruals as of
May 31, 1993. - - 927
----- ----- ------
$ 146 63 2,858
===== ===== ======
Information with respect to the retirement plans for 1995 and 1994 has
been determined by consulting actuaries. The following table sets forth the
plans' funded status at December 31, 1995 and 1994, respectively, and
reconciles amounts recognized in the consolidated balance sheets at December
31, 1995 and 1994, respectively (in thousands):
1995 1994
-------- --------
Actuarial present value of obligations:
Vested $ 14,251 12,326
Nonvested 253 689
------ ------
Accumulated and projected benefit obligation 14,504 13,015
Assets at fair value at December 31 11,629 9,079
------ ------
Accumulated and projected benefit obligation
in excess of assets 2,875 3,936
Unrecognized net gain (loss) ( 631) ( 1,367)
------ ------
Accrued pension cost at December 31 2,244 2,569
Adjustment for minimum liability 956 1,367
------ ------
Pension liability at December 31 $ 3,200 3,936
====== ======
Assumptions:
Interest rates for obligations 7.00% 7.25%
Long-term rate of return 9.00% 9.00%
Salary increase rate N/A N/A
- 31 -
32
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies:
Barcalounger Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Barcalounger employees with at least one year of service. Annual
company contributions are based on individual participant's earnings and length
of service. For the years ended December 31, 1995 and 1994 and the period June
1, 1993 to December 31, 1993, company contributions were $133,000, $120,000 and
$115,000, 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 years ended December 31, 1995 and
1994 and the period June 1, 1993 to December 31, 1993, company matching
contributions were $38,000, $36,000 and $21,000, respectively.
Stratford Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Stratford employees with at least one year of service. Annual
company contributions are based on individual participant's earnings and length
of service. For the years ended December 31, 1995 and 1994 and the period June
1, 1993 to December 31, 1993, company contributions were $648,000, $1,039,000
and $630,000, respectively.
Prior to the sale of Super Sagless, $252,500 and $492,000 was incurred
for the year ended December 31, 1994 and the period June 1, 1993 to December
31, 1993, respectively, under the Super Sagless Retirement-Savings Plan, which
covered Super Sagless employees with at least one year of service. No future
contributions to the Super Sagless Plan by the Company are required.
The Company also sponsors an investment plan. The plan previously
covered all employees but, subsequent to the adoption of the Barcalounger and
Super Sagless plans, noted above, this plan covers all employees not covered
by such plans. At the date of adoption of the Barcalounger and Super Sagless
plans, Barcalounger and Super Sagless participants' account balances were
transferred to the Barcalounger and Super Sagless plans. Company contributions
to the Company's investment plan were $2,000 in 1995, $39,000 in 1994 and
$50,000 in 1993.
- 32 -
33
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Related party transactions
In November 1995, Stratford entered into a manufacturing agreement
("Agreement") with Simmons Upholstered Furniture Corporation ("Simmons"), an
affiliate of the Company. Under this Agreement Stratford manufactures
product for and supplies product on behalf of Simmons. The products are
manufactured utilizing Stratford's equipment and various plant facilities. The
term of the Agreement is for one year with automatic annual one-year renewals,
unless terminated by either party.
Under the terms of the agreement, in 1995, Stratford was paid from
Simmons a standard predetermined labor and overhead rate for time and materials
utilized for the benefit of Simmons. In 1996, Stratford will earn a percentage
of the Simmons gross margin on products manufactured in addition to monthly
services charges for new product development and selling activities performed
by Stratford.
As a result of this agreement, Stratford recognized approximately
$2,400,000 of new revenues in 1995 from the manufacture and supply of product
and was reimbursed by Simmons $243,000 for new product development and $100,000
for selling expenses. The new product development and selling expense
reimbursements are recognized as a reduction to selling, administrative and
general expenses in the accompanying 1995 consolidated statement of operations.
The revenues and related cost for the manufacture and supply of product are
included in net sales and cost of sales, respectively, in the accompanying 1995
consolidated statement of operations. At December 31, 1995, approximately
$1,293,000 was due from Simmons under this Agreement.
(10) Rental Commitments
The Company and its subsidiaries lease certain manufacturing and
warehousing facilities (capitalized leases), equipment (primarily
transportation equipment), and warehouse and showroom facilities (operating
leases).
- 33 -
34
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Rental Commitments (continued)
Future minimum lease payments at December 31, 1995, under all
non-cancelable leases are as follows (in thousands):
Period Capital Operating
------ ------- ---------
1996 197 1,041
1997 197 985
1998 196 928
1999 - 724
2000 - 426
----- ------
Total minimum lease payments 590 4,104
======
Less amounts representing interest 50
-----
Total capitalized lease
obligations 540
Less current maturities of
capitalized lease obligations 170
-----
Capitalized lease obligations
net of current maturities $ 370
=====
It is expected that, in the normal course of business, non-cancelable
leases that expire will be renewed or replaced.
Rental expense is summarized, in thousands, as follows:
Years ended December 31,
-------------------------------
1995 1994 1993
-------- -------- ---------
Minimum Rentals
(including cancel-
able leases) $ 1,946 4,314 4,276
Contingent rentals
(principally mileage
charges) - - 362
Sublease rentals ( 203) ( 285) ( 425)
------ ------ ------
$ 1,743 4,029 4,213
====== ====== =======
(11) Significant Customer
The Company is engaged in only one segment of business, the manufacture
of furniture. Sears Roebuck and Co. accounted for approximately nineteen
percent, twenty percent and sixteen percent of the Company's sales in each of
the years 1995, 1994 and 1993, respectively.
- 34 -
35
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Contingencies
Consolidated Furniture was served a complaint by third party plaintiffs
against Consolidated Furniture and a former subsidiary. The original complaint
in the case was filed by the Environmental Protection Agency to recover over
$200 million from 12 defendants (not including Consolidated Furniture), for
costs incurred in connection with the investigation and remediation of a Super
Fund site. On August 28, 1995 Consolidated Furniture joined with 5 other
Potentially Responsible Parties and made an offer of settlement to the EPA.
Consolidated Furniture's share of the offer is approximately $1,900,000. The
EPA has not rejected or accepted the offer.
There were other contingent liabilities at December 31, 1995 consisting
of purchase commitments and legal proceedings arising in the ordinary course of
business including environmental litigation. Fairwood believes that the
financial risk involved in connection with all other contingent liabilities,
except the proposed adjustments delivered by the IRS, see note 4, and the
involuntary bankruptcy petition filed by certain holders of the Fairwood
Debentures, see note 5 and 13, is not material in relation to the consolidated
financial position of the Company.
(13) Liquidity
Consolidated Furniture is expected to service its long-term debt under
the Credit Agreement, relating to the revolving credit facility, and senior
subordinated debentures from its cash flow from operations and available credit
facilities. As discussed in Note 5, interest on Fairwood's senior subordinated
pay-in-kind debentures and merger debentures was not paid on April 1, 1995 an
October 1, 1995 and Fairwood does not expect to make the cash interest payments
required under the Fairwood Debentures on any future semi-annual interest
payment date. Fairwood has substantially no assets other than the common stock
of Consolidated Furniture, and Consolidated Furniture and its primary
operating subsidiary have pledged substantially all of their assets to secure
their obligations under the Credit Agreement. Certain instruments related to
the Credit Agreement have been amended at various times through January 1996.
Throughout portions of 1995, 1994, and 1993, Consolidated Furniture did
not generate sufficient funds from operations to fully meet its interest
obligations related to its long-term indebtedness. Consolidated Furniture
funded these interest obligations through increased borrowings from CSCL under
the Credit Agreement. However, during 1994 and 1995 the proceeds from the
disposition of certain operating companies, including the sale of substantially
all of the assets and liabilities of Super Sagless were used to repay a portion
of the debt due under the Credit Agreement with CSCL. Additionally, during 1995
a substantial portion of the $15 million in proceeds from the factoring of
Stratford's trade account receivables was used to repay debt of Consolidated
Furniture due under the Credit Agreement with CSCL.
- 35 -
36
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Liquidity (continued)
Consolidated Furniture is dependent upon CSCL for funding of its debt
service costs. CSCL has in the past increased its revolving line of credit
line to Consolidated Furniture under the Credit Agreement which has enabled
Consolidated Furniture to meet its debt service obligations. Under the Credit
Agreement, Consolidated Furniture and its subsidiaries are generally restricted
from transferring monies to the Company with the exception of amounts for (a)
specified administrative expenses of Fairwood and (b) payment of income taxes.
Management believes that cash flow from operations and funding from CSCL will
be adequate for Consolidated Furniture's working capital requirements and any
cash payments due on the debt of Consolidated Furniture through December 31,
1996.
However, the Company's cash flow from operations will not be sufficient
to permit the Company to make cash interest payments on Fairwood's senior
subordinated pay-in-kind debentures and merger debentures. Consolidated
Furniture's credit facilities do not permit it to borrow funds to enable
Fairwood to make cash interest payments on the senior subordinated pay-in-kind
debentures and merger debentures. Accordingly, since Fairwood has failed to
make the interest payments required during 1995, see note 5, and will probably
fail to make any future cash interest payments the Fairwood Debentures have
been classified as current. Based on the terms of the Fairwood Debentures,
the failure to make the April 1, 1995 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.
An involuntary Chapter 7 petition, under U.S. Bankruptcy law, was filed on
January 3, 1996, in the United States Bankruptcy Court for the Southern
District of New York against Fairwood Corporation by certain bondholders. On
consent of the parties, Fairwood's time to answer or otherwise move with
respect to the petition has been extended to April 17, 1996. Fairwood intends
to seek to have the petition dismissed. If Fairwood is unsuccessful in
obtaining dismissal, Fairwood may convert the Chapter 7 case to a Chapter 11
case or permit a trustee to be appointed as part of a Chapter 7 proceeding.
Management is assessing its alternatives and plans with respect its
liquidity position based on the status of the bankruptcy proceedings and tax
examination described in Note 4.
- 36 -
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The name, age and position or principal occupation during the past five
years of each member of the Board of Directors and executive officer of the
Company are set forth below. Directors serve for a term of one year and until
their successors are elected and qualified. Officers are elected annually by
the Board of Directors to serve for the ensuing year and until their respective
successors are elected.
Director Position and Principal Occupation or
Name Age Since Employment Held During Last 5 Years
---- --- -------- ------------------------------------
John B. Sganga 64 1992 Chief Financial Officer, Executive Vice President, Secretary and Treasurer since
March 1990. Mr. Sganga is also, inter alia, Chief Financial Officer, Executive Vice
President, Secretary and Treasurer of Consolidated Furniture and Vice President,
Treasurer and Secretary of each of Consolidated Furniture's subsidiaries. From
December 1988 to March 1990, Mr. Sganga served the Company and its subsidiaries in
various officer positions. Mr. Sganga is also a director of Consolidated Furniture.
M. Saleem Muqaddam 48 1992 Vice President, CVCL, an affiliate of the Company, since 1989. Mr. Mugaddam is
also vice president of CSCL, an affiliate of CVCL. Previously, Mr. Muqaddam spent 15
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., Pamida Holdings, Inc., Plantronics, Inc., Furnishings International
Inc. and Simmons Upholstered Furniture Corporation.
- 37 -
38
Fairwood's senior executive officer holds the title of Chief Financial
Officer, Executive Vice President, Secretary and Treasurer. No executive
officer holds the title of President or Chief Executive Officer, but the
functions customarily performed by the person holding such titles are performed
by Fairwood's Chief Financial Officer, Executive Vice President, Secretary and
Treasurer. There are no arrangements or understandings between any director
and any other person naming such person pursuant to which such director was
selected as a director.
The following were subsidiary presidents and may be deemed to be
executive officers of the Company as of December 31, 1995:
Date Assumed
Name Age Position Position
---- --- -------- --------
Stephen R. Lake 49 President February 1995
Stratford Division of
Furniture Comfort
Corporation.
Wayne T. Stephens 45 President and Chief October 1992
Executive Officer
Barcalounger Division of
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 each of the subsidiary presidents:
Effective February 1, 1995 Mr. Lake was appointed to the position of
President of Stratford, a Division of Furniture Comfort Corporation. From
August 1994 to February 1995 he was the Chief Operating Officer of Stratford.
From September 1991 to July 1994 he was the President and Chief Executive
Officer of Super Sagless Corporation. From 1989 to February 1991 he was Vice
President and General Manager of Clark Components N.A.
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; he was president from September 1989 to January 1990
of Southwest Elevator Corporation, from January 1990 to January 1991 of
Munford, Inc., from January 1991 to October 1991 of Specialty Paperboard, Inc.,
from January 1992 to October 1992 of Docktor Pet, Inc. and from October 1992 to
April 1993 as President and Chief Executive Officer of the Barcalounger
Division of Furniture Comfort Corporation. While continuing in his role as
President and Chief Executive Officer of the Barcalounger division, in April
1993, Mr. Stephens became a direct consultant to the Company and in January
1994 an employee of Furniture Comfort Corporation. Prior to joining The Finley
Group in September 1989, Mr. Stephens was a partner with Deloitte & Touche, a
public accounting firm.
- 38 -
39
ITEM 11. EXECUTIVE COMPENSATION
Executive Officers' Compensation
Information concerning the compensation earned by the above named
executive officers is set forth in the Summary Compensation Table.
Summary Compensation Table
Name and Annual Compensation
Principal ------------------- All Other
Position Year Salary Bonus Compensation
- --------- ---- ------ ----- ------------
John B. Sganga 1995 $150,000 $ 25,000 $ 9,803 (1)
Executive VP 1994 150,000 - 7,766 (1)
and CFO 1993 190,729 - 1,907 (1)
Stephen R. Lake 1995 250,000 100,000 552 (4)
President 1994 213,686 (2) 1,147,721 (3) 51,849 (4)
Stratford 1993 170,000 172,975 15,809 (4)
Wayne T. Stephens 1995 160,000 76,800 2,788 (5)
President & CEO 1994 160,000 - 2,150 (5)
Barcalounger 1993 300,000 (6) - -
(1) 1995 amount represents company contributions to the investment plan of
$1,500 and $8,303 for the value of the use of a company vehicle. 1994
amount represents company contributions to the investment plan of $1,500
and $6,266 for the value of the use of a company vehicle. 1993 amount
represents company contributions to the Investment Plan.
(2) 1994 includes Super Sagless base salary of $107,917.
(3) 1994 amount includes Super Sagless of $1,047,721.
(4) 1995 amount represents the value for the use of a company car. 1994
amount represents distribution from Super Sagless Retirement Plan of
$51,849. 1993 includes $12,916 distribution under the Executive
Retirement Plan, $1,518 company contribution to the Super Sagless
Retirement-Savings Plan, and $1,375 company contribution to Investment
Plan. 1992 amount represents the company contribution to the Investment
Plan.
(5) 1995 amounts represent company contributions to the investment plan of
$1,776 and $1,012 for the value of the use of a company vehicle. 1994
amounts represent company contributions to the investment plan of $800
and $1,350 for the value of the use of a company vehicle.
(6) 1993 amounts represent $200,000 paid to Mr. Stephens as a consultant and
$100,000 paid to The Finley Group for services it rendered through Mr.
Stephens. 1992 amounts represent $55,682 paid to The Finley Group for
services it rendered through Mr. Stephens.
- 39 -
40
Employment Agreements
Consolidated Furniture entered into an employment agreement with Mr.
Sganga, who is named in the summary compensation table, effective December 15,
1993, which provided for an annual salary, plus such bonuses as may be awarded
in the discretion of the Board of Directors. This agreement ended on December
31, 1995, and Mr. Sganga continues to be employed under similar terms.
Consolidated Furniture entered into an employment agreement with Mr.
Stephen R. Lake, who is named in the summary compensation table, effective June
16, 1994, which provides for an annual salary beginning at $250,000, plus
bonuses based on preestablished goals for each year. Mr. Lake was guaranteed a
$100,000 bonus for 1994. If employment is terminated without cause before the
third anniversary date of the agreement, Mr. Lake will be entitled to receive a
severance payment equal to his annual base salary then in effect.
Retirement Plan
Messrs. Sganga, Lake and Stephens, who are named in the summary
Compensation Table, are not participants in the Salaried and Sales employees
Retirement Plan of Consolidated Furniture, which ceased further benefit
accruals as of May 31, 1993.
Salaried Investment Plan
Officers of Consolidated Furniture are eligible to participate in its
Tax-qualified Investment Plan for Salaried and Sales 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 1995 and 1994, such contributions for Mr. Sganga were $1,500. In
June 1993, the following defined contribution plans were adopted: Barcalounger
Retirement Plan, Barcalounger Savings Plan, Stratford Retirement Plan, and
Super Sagless Retirement-Savings Plan. Please refer to note 8, Employee
Benefit Plans, in the Notes to Consolidated Financial Statements. The company
contribution for Mr. Lake in the Super Sagless Retirement-Savings Plan was
$1,518. The company contribution for Mr. Stephens was $1,776 in 1995.
- 40 -
41
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
for 1994 were based on earnings and cash flow. Awards are made to profit
center participants based upon the extent to which their respective profit
centers attain their goals. Total awards made for the 1995 Plan Year were
$399,372, including awards of $76,800 for Mr. Stephens and $100,000 for Mr.
Lake. Total awards made for the 1994 Plan Year were $519,000, including awards
of $267,721 for Mr. Lake.
During 1994, Mr. Lake also received a $780,000 bonus associated with the
sale of substantially all of the assets and liabilities of Super Sagless and a
guaranteed bonus of $100,000 from Stratford.
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 1995.
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.
- 41 -
42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The Company's common stock consists of both voting stock and non-voting
stock. The table below sets forth, as of February 28, 1996, 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. To the Company's knowledge, no
director or executive officer holds any warrants and no person owns of record
or beneficially 5% or more of the outstanding warrants.
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%
Anthony C. Howkins 100 0.01% 20%
John B. Sganga - 0.00% 0%
========= ====== ===
M. Saleem Muqaddam** 1,000,100 99.98% 60%
========= ====== ===
- ---------------------------
* Owns 999,800 shares of the Company's Class B Non-Voting Common
Stock and 300 shares of the Company's Class A Voting Common Stock. Under
the Company's Certificate of Incorporation, the Class B Non-Voting Common
Stock is convertible into Class A Voting Common Stock, so long as the holder
of the Class B Stock would be permitted to hold the resulting Class A Stock
under applicable law. On December 31, 1990, CVCL and Fairwood entered into
an Agreement and Plan to Relinquish Control pursuant to which CVCL converted
200 shares of Class B Stock into 200 shares of Class A Stock and increased
its ownership of the outstanding Class A Stock from 33-1/3% to 60%. Under
this Agreement, CVCL is required to convert a sufficient number of shares of
Class A Stock into Class B Stock to reduce CVCL's ownership of Class A Stock
such that 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 Agreement has been accepted by the Small Business
Administration. CVCL is a subsidiary of Citibank, N.A., a national bank
which is owned by Citicorp a publicly owned bank holding company, and is an
affiliate of CSCL.
** Mr. Muqaddam disclaims beneficial ownership of these shares owned of record
by CVCL which are attributed to him by reason of his status as an officer
of CVCL.
- 42 -
43
Ownership by Directors and Officers
As of February 28, 1996, 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, 1995 is payable
to CSCL, an affiliate of CVCL, the Company's majority shareowner. M. Saleem
Muqaddam, a director of the Company, is a vice president of CVCL and CSCL.
During 1995 and at February 28, 1996, the largest aggregate amount of
indebtedness outstanding that was payable to CSCL was approximately $357.2
million. See Note 5, Long-term Debt, in the Notes to Consolidated Financial
Statements set forth in Item 8. During 1995 the Company borrowed approximately
$32.5 million from CSCL and made payments to CSCL of approximately $27.1
million. During 1996 it is anticipated that approximately $34.6 million will
be borrowed from CSCL and that no repayments to CSCL will be made. It is also
anticipated that interest due to CSCL on the senior subordinated pay-in-kind
debentures, which interest approximates $20.5 million, will not be paid.
399 Venture Partners, Inc. ("VPI"), an affiliate of CVCL owns a majority
of Furnishings International Inc. (formerly known as Simmons Holding
Corporation)("Furnishings"), the parent of Simmons Upholstered Furniture
Corporation ("Simmons"). M. Saleem Muqaddam is a vice president of CVCL and a
director of Furnishings, Simmons and the Company. Stephen R. Lake is the
President of Stratford and a director of Furnishings and Simmons. Stratford
and Simmons are parties to a Manufacturing Agreement dated as of November 29,
1995 (the "Agreement"). Under this Agreement, Stratford has agreed to
manufacture product for and supply product on behalf of Simmons for a term of
one year, subject to automatic annual renewals, unless terminated by either
party. (See Note 9 to the Company's Consolidated Financial Statements set
forth in Item 10).
VPI owns approximately 49% of Chromcraft Revington, Inc. Mr Muqaddam is
a director of Chromcraft Revington, Inc.
- 43 -
44
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................................... 17-18
Consolidated Balance Sheets at December 31, 1995 and 1994...... 19
Consolidated Statements of Operations for the Years ended
December 31, 1995, 1994 and 1993 ............................ 20
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 1995, 1994 and 1993 ........ 21
Consolidated Statements of Cash Flows for the Years ended
December 31, 1995, 1994 and 1993 ............................. 22
Notes to Consolidated Financial Statements .................... 23-36
2. Financial Statement Schedule
For the three years ended December 31, 1995:
Schedule II--Valuation and Qualifying Accounts
and Reserves................................... 49
Other schedules are omitted because of the absence of conditions
under which they are required.
- 44 -
45
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 by
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) Warrant Agreement, dated as of August 15, 1989, between the
Company and Pittsburgh National Bank, as Warrant Agent,
(incorporated by reference to Exhibit 4.4 of the 1989 Third
Quarter 10-Q).
(4.5) Form of Warrants, included as Exhibit A to Exhibit 4.4,
(incorporated by reference to Exhibit 4.5 of the 1989 Third
Quarter 10-Q).
(4.6) 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).
(4.7) 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).
(4.8) 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")).
- 45 -
46
(4.9) Amendment, dated December 15, 1989, to the Credit Agreement,
(incorporated by reference to Exhibit 4.9 of the 1989 Form
10-K).
(4.10) Amendment, dated March 13, 1990, to the Credit Agreement,
(incorporated by reference to Exhibit 4.10 of the 1989 Form
10-K).
(4.11) 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")).
(4.12) 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).
(4.13) Agreement and Waiver, dated August 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.13 of the
1990 Form 10-K).
(4.14) Agreement and Waiver, dated September 5, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.14 of the
1990 Form 10-K).
(4.15) Agreement and Waiver, dated September 15, 1990, to the
Credit Agreement, (incorporated by reference to Exhibit 4.16
of the 1990 Form 10-K).
(4.16) 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).
(4.17) 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).
(4.18) 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).
(4.19) 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).
(4.20) Amendment, dated March 30, 1990, to the Senior Subordinated
Debentures, (incorporated by reference to Exhibit 4.14 of
the 1989 Form 10-K).
(4.21) 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).
(4.22) 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).
(4.23) 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")).
- 46 -
47
(4.24) Waiver, dated as of October 31, 1991, to the Credit
Agreement, (incorporated by reference to Exhibit 4.24 of the
1991 Form 10-K).
(4.25) Letter Agreement, dated as of October 31, 1991, between the
Company and Manufacturers Hanover, as Warrant Agent and
letter from Pittsburgh National Bank, dated October 28,
1991, related thereto, (incorporated by reference to Exhibit
4.25 of the 1991 Form 10-K).
(4.26) 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).
(4.27) 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).
(4.28) 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).
(4.29) 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")).
(4.30) 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).
(4.31) 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")).
(4.32) 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).
(4.33) Tenth Amendment, dated as of March 22, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.33 of the
1992 Form 10-K).
(4.34) 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")).
(4.35) Eleventh Amendment, dated as of March 25, 1994, to Credit
Agreement, (incorporated by reference to Exhibit 4.35 of the
1993 Form 10-K).
(4.36) 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).
(4.37) Factoring Agreement, dated as of July 25, 1995, between
Capital Factors, Inc. and Stratford Company, a division of
Furniture Comfort Corporation.
(4.38) Debt Subordination Agreement, dated as of July, 1995,
between Capital Factors, Inc. and Consolidated Furniture
Corporation, formerly Mohasco Corporation.
- 47 -
48
(4.39) Lien Subordination Agreement, dated as of July 25, 1995,
between Capital Factors, Inc. and Court Square Capital
Limited.
(4.40) Twelfth Amendment, dated as of November 30, 1995, to Credit
Agreement.
(10.1) Employment Agreement, between Mohasco and Robert W. Hatch,
dated September 21, 1989, (incorporated by reference to
Exhibit 10.1 of the 1989 Form 10-K).
(10.2) Supplemental Executive Retirement Agreement, between Mohasco
and Robert W. Hatch, dated September 27, 1990, (incorporated
by reference to Exhibit 10.2 of the 1990 Form 10-K).
(10.3) Mohasco Executive Retirement Plan, (incorporated by
reference to Exhibit 10.5 of the 1990 Form 10-K).
(10.4) Mohasco Corporation Executive Incentive Plan, (incorporated
by reference to Exhibit 10.6 of the 1990 Form 10-K).
(10.5) Amendment, dated December 31, 1991, to the Mohasco Executive
Retirement Plan, (incorporated by reference to Exhibit 10.6
of the 1991 Form 10-K).
(10.6) Merger Agreement dated March 10, 1992 among Chromcraft
Revington, Inc., Chromcraft Merger Subsidiary, Inc., Mohasco
Corporation, Chromcraft Corporation and the Company,
(incorporated by reference to Exhibit 10.1 of the March 17,
1992 Form 8-K).
(10.7) Merger Agreement dated March 10, 1992 among Chromcraft
Revington, Inc., PR Merger Subsidiary, Inc., Mohasco
Corporation, Peters-Revington Corporation and the Company,
(incorporated by reference to Exhibit 10.2 of the March 17,
1992 Form 8-K).
(10.8) Employment Agreement, between Mohasco and John B. Sganga,
dated December 15, 1993, (incorporated by reference to
Exhibit 10.8 of the 1993 Form 10-K).
(10.9) Agreement for Purchase and Sale of Assets among Super
Sagless Corporation, Mohasco Corporation, Leggett & Platt
Furniture Hardware Company and Leggett & Platt,
Incorporated, dated July 14, 1994, (incorporated by
reference to Exhibit 2.1 of the 1994 Second Quarter 10-Q).
(10.10) Employment Agreement, between Furniture Comfort Corporation
and Stephen R. Lake, dated June 16, 1994 (incorporated by
reference to Exhibit 10.10 of the 1994 Form 10-K).
(22.1) 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
No reports were filed on Form 8-K for the twelve months ended
December 31, 1995.
- 48 -
49
Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1995, 1994 and 1993
(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:
1995
----
Allowance for discounts $ 324 1,251 1,329 246
Allowance for doubtful
accounts 2,432 781 1,602 1,611
Allowance for estimated
loss on claims - - - -
------ ------ ------ -----
$ 2,756 2,032 2,931 1,857
====== ====== ====== ======
1994
----
Allowance for discounts $ 259 1,420 1,355 324
Allowance for doubtful
accounts 2,753 934 1,255 2,432
Allowance for estimated
loss on claims 1,050 - 1,050 -
------ ------ ------ -----
$ 4,062 2,354 3,660 2,756
====== ====== ====== ======
1993
----
Allowance for discounts $ 185 1,705 1,631 259
Allowance for doubtful
accounts 2,454 1,433 1,134 2,753
Allowance for estimated
loss on claims 518 1,192 660 1,050
------ ------ ------ ------
$ 3,157 4,330 3,425 4,062
====== ====== ====== ======
- 49 -
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FAIRWOOD CORPORATION
By: /s/ John B. Sganga
--------------------------
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
Date: March 26, 1996
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
Title
-----
/s/ John B. Sganga
- --------------------------- Director and Chief
John B. Sganga Financial Officer,
Executive Vice President,
Secretary and Treasurer
(principal executive,
financial and accounting
officer)
- 50 -
51
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1996 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ M. Saleem Muqaddam Director
- --------------------------------
M. Saleem Muqaddam
- 51 -