LADD
Furniture, Inc.
1997 ANNUAL REPORT
LADD'S PRODUCTS
We at LADD are proud of the wide variety of furniture we produce and market. We
invite you to visit our Internet website at www.laddfurniture.com for a sampling
of these products, along with information on locating nearby dealers.
(Furniture Company logos appear here, with photos of furniture)
LADD'S MANUFACTURING FACILITIES
RESIDENTIAL CASEGOODS
ALABAMA
Selma
NORTH CAROLINA
North Wilkesboro
Waynesville
OHIO
Swanton
PENNSYLVANIA
Lewisburg
White Deer
SOUTH CAROLINA
Nichols
TENNESSEE
Morristown
VIRGINIA
Marion
RESIDENTIAL UPHOLSTERY
MISSISSIPPI
Myrtle
Sherman
NORTH CAROLINA
Hickory
Monroe
CONTRACT
SALES
VIRGINIA
Chilhowie
Martinsville
We at LADD are proud of the wide variety of furniture we produce and market. We
invite you to visit our Internet website at www.laddfurniture.com for a sampling
of these products, along with information on locating nearby dealers.
(photos of furniture appear here)
CORPORATE DESCRIPTION
LADD is one of North America's largest residential furniture manufacturers.
Through its American of Martinsville subsidiary, LADD is also a leading supplier
of contract furniture to the hotel guest room, assisted-living (retirement), and
governmental markets. Between December 1995 and year-end 1996, LADD divested
four of its non-strategic operating businesses and used the proceeds from the
divestitures to reduce debt. LADD operates 20 manufacturing facilities in eight
states and employs more than 6,000 people. LADD markets its broad range of
residential and contract furniture products under the major brand names American
Drew, American of Martinsville, Barclay, Clayton Marcus, Lea, Pennsylvania House
and Pilliod. These products are sold domestically and, through LADD
International, to over 50 countries around the world. The company's common stock
trades on the Nasdaq Stock Market under the symbol: LADF.
FINANCIAL HIGHLIGHTS
In thousands, except per share data and ratios
- -----------------------------------------------------------------------
1995(R) 1996(R) 1997
- -----------------------------------------------------------------------
OPERATING STATEMENT
Net sales $ 599,203 497,457 525,500
Gross profit 96,204 85,875 96,450
Operating income (loss)* (5,141) 11,512 22,215
Net earnings (loss) (25,190) (2,435) 6,312
Average shares outstanding 7,721 7,722 7,744
PER SHARE
Net sales $ 77.61 64.42 67.86
Net earnings (loss) (3.26) (0.32) 0.81
Cash dividends 0.27 -- --
Year-end book value 16.32 16.05 16.91
BALANCE SHEET
Net working capital $ 80,317 98,740 116,330
Total assets 313,775 315,031 329,190
Total financing** 151,944 130,952 125,393
Shareholders' equity 125,986 123,900 130,925
RATIOS
Gross margin 16.1% 17.3 18.4
Operating profit (loss) margin* (0.9)% 2.3 4.2
Return (loss) on sales (4.2)% (0.5) 1.2
Return (loss) on beginning equity (16.5)% (1.9) 5.1
Total financing ratio*** 54.7% 51.4 48.9
Current ratio 2.3x 2.6 2.7
OTHER
Capital spending $ 11,560 8,347 7,504
Depreciation and amortization 16,429 15,331 14,228
Year-end employees (actual number) 6,880 5,800 6,150
Year-end shareholders (estimated) 5,000 4,000 4,400
- -----------------------------------------------------------------------
FISCAL YEAR 1997 CONTAINED 53 WEEKS. (R) RESTATED TO REFLECT THE CHANGE IN 1997
IN INVENTORY ACCOUNTING FROM THE LIFO METHOD TO THE FIFO METHOD FOR ONE OF THE
COMPANY'S BUSINESS UNITS. *BEFORE PRETAX RESTRUCTURING CHARGES OF $25.1 MILLION
IN 1995 AND $3.4 MILLION IN 1996. **INCLUDING $36.0 MILLION AT YEAR-END 1995
FROM THE COMPANY'S ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM, WHICH WAS
TERMINATED ON MARCH 28, 1996. ***TOTAL FINANCING AS PERCENT OF TOTAL FINANCING
PLUS SHAREHOLDERS' EQUITY.
1
FELLOW SHAREHOLDER
[Photo of Fred Schuermann
appears here]
Fred Schuermann
In the wake of management's strategic decision in mid-1995 to focus on the
casegoods (wood furniture) and upholstery sectors of LADD's residential
furniture manufacturing business, it is reassuring to note that our fiscal 1997
earnings of $6.3 million, or $0.81 per share, were the highest achieved by the
company since 1989. Excluding two former, non-strategic, businesses which were
divested during 1996, net sales for fiscal 1997 increased 9 percent, to $525
million. We were particularly pleased that our residential casegoods and
upholstery divisions were each able to grow their total sales in the range of
9-10 percent in 1997's final quarter, even after adjusting for an extra week in
the 1997 fiscal fourth quarter.
This encouraging top line growth toward the end of the year reflected a number
of strong new products introduced during 1997, and the sales momentum which
developed from these products as the year progressed. Our American of
Martinsville contract (commercial) furniture business continued to do extremely
well, growing its sales 45 percent for the full year 1997. LADD's overall order
backlog at the end of 1997 was 35 percent higher than at the start of the year,
including a 12 percent increase in our residential furniture order backlog.
In addition to the progress made during 1997 in product development, we also
improved our financial performance in a number of specific, targeted areas.
Total debt was reduced by $5.6 million during 1997. Shareholders' equity rose a
little over $7 million, to $16.91 per share, from $16.05 at the start of the
year. Profitability also improved, as LADD's earnings before interest, taxes,
depreciation and amortization (EBITDA) rose to 6.8% of net sales in fiscal 1997
from the prior year's 4.6%. This progress is a tribute to the combined efforts
and hard work of LADD's management team and 6,000-plus employees.
It is very encouraging that the LADD turnaround, which began two years ago, is
on track and gaining momentum. But at the same time, we realize that we still
have a long way to go in terms of restoring the company to a position of
pre-eminence within the residential furniture manufacturing industry. As just
one gauge of this opportunity, while our 1997 net earnings of $6.3 million were
the best since 1989, we earned more than $16 million in 1989 and management's
long-term profitability objectives exceed even that level.
It is our intention to move LADD steadily back in this direction. We plan to do
this by focusing intently on what we know best: manufacturing attractive, high
value wood and upholstered furniture for our contract (commercial) and
residential customers. We want LADD to be recognized among furniture retailers,
commercial customers, consumers, and competitors alike as a company with
excellent
2
(graphic appear here)
products, quality, and customer service - and a company which consistently
generates solid profits for its shareholders. We believe that by paying close
attention to the basics of our business and by listening closely to our
employees and customers, we can make this goal a reality. An update on the
progress achieved within our casegoods, upholstery, contract and corporate
groups last year is contained in subsequent pages of this report.
On behalf of LADD's shareholders and employees, the management team wishes to
express its heartfelt thanks and appreciation to three directors who will retire
from the LADD board effective at this year's annual meeting, in accordance with
the board's governance guideline, adopted in 1997, of retirement at age 70. Bill
Fenn, Don Hunziker, and Jim Corrigan have all been valued board members since
LADD's formation in the early 1980's. In addition, Don Hunziker and Bill Fenn
served as leaders and key members of the LADD management team until their
retirement from day-to-day management responsibilities in 1992. We will miss
their wise counsel, and want to wish them well. And, it is with deep sadness
that we note the recent death of Bill Cash. Bill was a prominent Winston-Salem
business leader and seasoned executive who served on LADD's board of directors
from 1981 until his retirement in 1997. He will be missed by all of us.
We want to cordially invite you to attend LADD's 1997 annual meeting, which will
be held at the Grandover Resort and Conference Center, near our new Greensboro
corporate headquarters. If you will be unable to attend the meeting, I encourage
you to fill out, date, sign and return your proxy in the envelope provided.
All of us at LADD are excited about the prospects for 1998. U.S. consumer
confidence is currently at a 30-year high. Interest rates and unemployment
levels are at their lowest levels in many years. And housing sales remain
strong. Given these positive macroeconomic factors and our current order
backlog, the coming year appears to offer good promise for our industry and our
company. On behalf of all of us affiliated with LADD, I want to sincerely thank
you for your continued support and encouragement.
/s/ Fred
FRED L. SCHUERMANN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3
RESIDENTIAL CASEGOODS
[Photo of Don Mitchell (graphic appears here with caption)
appears here]
Don Mitchell
LADD's four residential casegoods (wood furniture) manufacturing companies -
American Drew, Lea Industries, Pennsylvania House and Pilliod Furniture-produce
a broad assortment of products. Their offerings range from promotionally-priced
adult and youth bedrooms to medium-priced bedroom, dining room and occasional
furniture and higher-priced solid wood furniture in all three categories. The
group operates 12 manufacturing facilities located in seven states. Total sales
in fiscal 1997 were $286 million, up 3 percent from the prior year's $277
million. In the final three months of fiscal 1997, total casegoods sales
accelerated to $78 million from $66 million in the year-earlier quarter.
Each company worked hard during 1997 to develop strong new product introductions
for the semiannual International Home Furnishings markets held every April and
October in High Point, NC. Lea Industries' new Stars &Stripes collection of
youth bedroom furniture-a licensee group introduced in collaboration with famed
Americas' Cup yachtsman Dennis Conner-has quickly developed into one of the
company's most successful new products ever. American Drew re-introduced its
well-known traditional 18th century Cherry Grove line, and dealer orders for
this large collection have since been tracking at roughly double the order rate
of the previous year. Pennsylvania House celebrated the 50th anniversary of its
Hallmark Cherry collection by remerchandising this popular traditional group,
and created major dealer excitement with its first-ever licensee fashion
collection, designed in conjunction with famed American designer, Bill Blass.
And Pilliod's new Belledonne master bedroom group, introduced at the April
market, with its serpentine drawer fronts and high gloss white finish, has been
a very strong line for Pilliod dealers.
In the year ahead, major emphasis will continue to be placed on new product
development at all the LADD casegoods companies. For example, Lea Industries
will be launching its recently-announced Grant Hill youth furniture collection,
which is expected to be a big success with furniture dealers around the country.
Also, Pennsylvania House will be expanding its "lifestyle" collection, both in
terms of product and presentation, in order to appeal to consumers with more
casual furnishings preferences. In addition to these efforts, new advertising
plans for Pennsylvania House dealers are in the process of implementation to
heighten consumer awareness of this already well-known name, and each LADD brand
is planning to further develop its Internet presence among consumers in the
coming year.
4
RESIDENTIAL UPHOLSTERY
[Photo of Ken Church
appears here]
Ken Church
The LADD upholstery group manufactures and markets promotionally-priced to upper
medium-priced residential upholstery products, primarily under the Barclay,
Clayton Marcus, HickoryMark and Pennsylvania House brand names, and operates six
manufacturing facilities in North Carolina and Mississippi. Upholstery sales for
fiscal 1997 totaled $123 million, down 1 percent from the prior year, as the
group continued to drop some of its less profitable products and dealers. Fourth
quarter sales in fiscal 1997 accelerated to $34 million from $29 million in the
same period of 1996, and the upholstery group's order backlog at year-end 1997
was 27 percent higher than a year earlier.
During 1997, the LADD upholstery group successfully merged its information
systems and consolidated its other administrative and manufacturing systems,
completing the process begun in 1996. A new supplier partnership program was
initiated to consolidate the number of vendors and capitalize on group
synergies. These actions lowered overhead and materials costs, and further cost
reductions are anticipated through the use of value engineering and
benchmarking. From a product perspective, the group continues to expand existing
leather programs, with this segment now accounting for roughly 25 percent of
total volume. In addition, new automated leather cutting and procurement
strategies have been implemented to accommodate anticipated sales growth and
improve margins.
(graphic and caption appear here)
Along with the leather segment of the upholstery market, the group is focused on
the "lifestyle" design area, the second fastest growth segment in the upholstery
market place. This product area features the same type of casual elements
typical of recent trends in the apparel industry.
All the LADD upholstery lines now employ a total quality process featuring
employee involvement and statistical quality measurement. Diversification of the
Barclay customer base is also being pursued as one way to reduce the group's
exposure to the cyclical nature of the promotional segment of the business.
Overall, management anticipates improved profitability in 1998, along with top
line sales growth at or above the industry rate.
5
CONTRACT SALES
[Photo of Mike Haley
appears here]
Mike Haley
LADD's American of Martinsville ("AOM") contract or "commercial" furniture
manufacturing business is the leading supplier of hotel guest room and
assisted-living (retirement) furnishings in the U.S. The contract sales group
has national contracts to supply major hotel chains such as Marriott
International and assisted-living industry leader Beverly Enterprises. The
company operates two Virginia manufacturing locations located in Martinsville
and Chilhowie.
Contract sales for fiscal 1997 rose 45 percent from a year earlier, to an
all-time high of $116 million, and have more than doubled since 1994 as the
company has continued to gain market share during this period. The group's
profit margins also increased in 1997, while its net profits reached their
highest level in over ten years, reflecting continued close management attention
to all aspects of the business. A strong emphasis on quality allowed AOM to cut
its cost of product non-compliance roughly in half last year, at the same time
production volumes were soaring.
(graphic and caption appear here)
In order to enhance its contract upholstery business, and in response to strong
demand, AOM invested a little over $1 million in 1997 to add computerized
equipment to its Martinsville,VA upholstery manufacturing operation, creating
substantial new upholstery capacity and adding approximately 150 new
manufacturing jobs.
One of the major highlights for the group in 1997 was the furnishing of the new
392-room Moscow Marriott Grand Hotel, the largest hotel in Russia and only the
second full service hotel in the city of Moscow. Total 1997 contract exports
rose to $13 million from 1996's $7 million.
During 1998, management plans to continue growing the group's sales to hotels,
assisted-living facilities and government markets by continuing to focus on
customer satisfaction and quality products. To further support the growth and
recognition of the AOM brand, increased capital investment projects have been
scheduled for 1998 to substantially raise the capacity of its Chilhowie
casegoods plant, located in southwestern Virginia.
6
LADD CORPORATE
[Photo of Bill Creekmuir
appears here]
Bill Creekmuir
LADD's organizational structure consolidates under one corporate "umbrella" a
number of basic shared business services and activities which each of the
individual LADD operating companies would otherwise have to perform for itself
in a less efficient, more costly, manner. Such services include: information
technology ("IT"); accounting and treasury functions; risk management, audit and
legal services; investor relations; customer credit; international marketing;
tax planning and management activities; human resources and benefits management;
and transportation/ logistics. Each corporate department contributes to LADD's
financial strength or to its bottom line, through increasing the efficiency of a
particular operation. Cumulatively, such efficiencies make LADD one of the
industry's leaders, measured by total SG&A expense as a percent of net sales.
(graphic and caption appear here)
Some of the more specific achievements of the corporate group in 1997 were the
expansion of LADD's Internet website (www.laddfurniture.com); further IT system
improvement and consolidation in the company's casegoods group; major tax
planning initiatives; employee benefits improvement and consolidation; the
relocation of the corporate headquarters to more efficiently serve LADD's
customers; and plant safety management procedures which place LADD ahead of
industry benchmark levels in this important area.
Total exports for 1997 increased to $30 million, or 5.7% of total LADD sales,
from $24 million (excluding divestiture companies) or 5.0% of net sales in
fiscal 1996, despite significant sales challenges affecting Asian markets during
the latter part of 1997. Progress was made in a number of targeted foreign
markets in 1997, and increased North American marketing efforts are underway for
1998. Management's goal is to grow total international sales to a level of 10
percent of total sales over the next 3-5 years.
Major projects in the coming year include increased employee training; improved
logistics management and usage of the company's LADDTransportation business to
better meet our customers' delivery needs; additional IT consolidation and
systems enhancement, including year 2000 compliance efforts; further reduction
of LADD's interest costs; and continued improvement in managing our customer
credit operations and vendor relationships.
7
DIRECTORS, OFFICERS & CORPORATE DATA
Board of Directors
Richard R. Allen
Chairman
RETIRED CHIEF EXECUTIVE OFFICER, LADD
James H. Corrigan, Jr.(1,3)
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mebane Packaging Group Inc.
Charles R. Eitel (2,3)
PRESIDENT AND CHIEF OPERATING OFFICER
Interface, Inc.
O. William Fenn, Jr.(1)
RETIRED VICE CHAIRMAN, LADD
Don A. Hunziker(1)
RETIRED CHAIRMAN, LADD
Thomas F. Keller, Ph.D.(2,3)
R. J. REYNOLDS PROFESSOR AND FORMER DEAN
Fuqua School of Business, Duke University
Zenon S. Nie (1,3)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Simmons Company
L. Glenn Orr, Jr.(2,3)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Orr Management Company
Fred L. Schuermann, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(1) AUDIT COMMITTEE
(2) COMPENSATION COMMITTEE
(3) CORPORATE GOVERNANCE COMMITTEE
Corporate Executive Officers
Kenneth E. Church
EXECUTIVE VICE PRESIDENT, LADD
PRESIDENT, LADD Upholstery Group
William S. Creekmuir
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
SECRETARY AND TREASURER, LADD
Michael P. Haley
EXECUTIVE VICE PRESIDENT, LADD
PRESIDENT, LADD Contract Sales Group
Donald L. Mitchell
EXECUTIVE VICE PRESIDENT, LADD
PRESIDENT, LADD Casegoods Group
Fred L. Schuermann, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER, LADD
Other Executives
Daryl B. Adams
VICE PRESIDENT, CORPORATE CONTROLLER AND
CHIEF ACCOUNTING OFFICER, LADD
Jesse A. Brinkley
PRESIDENT, Lea Industries
Victor D. Dyer
VICE PRESIDENT, HUMAN RESOURCES, LADD
Kenneth B. Fonville
PRESIDENT, Pennsylvania House Casegoods
Greg P. Noe
PRESIDENT, Pilliod Furniture
David C. Ogren
VICE PRESIDENT, MARKET DEVELOPMENT, LADD
Jeffrey R. Scheffer
PRESIDENT, American Drew
Corporate Headquarters
4620 Grandover Parkway, P.O. Box 26777
Greensboro, NC 27417-6777
Phone: (336) 294-LADD
U.S. FAX: (336) 315-4399
International FAX: (336) 315-4394
Internet Address: WWW.LADDFURNITURE.COM
Stock Transfer Agent
Wachovia Bank, N.A.
Winston-Salem, NC
Shareholder Account Information: 1-800-633-4236
Legal Counsel
Kilpatrick Stockton LLP
Winston-Salem, NC
Independent Auditors
KPMGPeat Marwick LLP
Greensboro, NC
Other Information
For other information on LADD, please contact:
John J. Ong, CFA
DIRECTOR, INVESTOR RELATIONS
Phone: (336) 315-4049 or E-Mail: JONG@LADDNET.COM
Stock Listing
LADD's common stock is traded on the Nasdaq Stock Market under the Nasdaq
symbol: LADF. At year-end 1997, LADD had an estimated 4,400 shareholders.
Annual Meeting
Stockholders are cordially invited to attend LADD's 1998 Annual Meeting, to be
held Thursday, May 7th, at 10:00 a.m. at the Grandover Resort & Conference
Center in Greensboro, NC.
[Photo of Ladd's new headquarters in Greensboro, NC appears here]
LADD'S NEW HEADQUARTERS IN GREENSBORO, NC
8