ITEM 1. BUSINESS
Fairwood Corporation ("Fairwood") is a privately held Delaware corporation organized in 1988 by investors including Citicorp Venture Capital Ltd. ("CVCL") for the purpose of acquiring all of the common stock of Consolidated Furniture Corporation, formerly named Mohasco Corporation ("Consolidated Furniture"). At the date of acquisition, Consolidated Furniture's operations were diversified and included the manufacture of residential furniture and carpet, and the rental of residential and office furniture. Consolidated Furniture sold its carpet and rental operations in 1988.
The principal executive offices of Fairwood are located at One Commerce Center, 1201 Orange St., Suite 790, Wilmington, Delaware 19801. Fairwood is a holding company with no independent operations: its primary asset is all of the common stock of Consolidated Furniture.
On June 3, 1999, Furniture Comfort Corporation ("Furniture Comfort" formerly Futorian Furnishings, Inc.), Consolidated Furniture's operating subsidiary, sold substantially all of the assets of the Stratford Division for approximately $14 million in cash plus the assumption of certain liabilities. The proceeds from the sale were used to pay-down the revolving credit and term loan. The sale included substantially all of the business and assets of the Stratford Division, including the sale of its office and showroom in Bannockburn, Illinois and the assignment of leases for certain other manufacturing and showroom facilities. The final sales price for the net assets of Stratford Division was subject to certain post-closing adjustments. As a result of this sale, Furniture Comfort recognized a loss of approximately $2 million, which includes $1 million for claims previously submitted by the purchaser of Stratford regarding post-closing adjustments.
Fairwood's subsidiary, Consolidated Furniture, is the parent of Furniture Comfort Corporation whose sole operating division, Barcalounger Division ("Barcalounger") manufactures upholstered stationary and motion furniture, such as modular living room groups, recliners, rockers and glider chairs. In September 1999, Barcalounger Division incurred substantial damage due to floods caused by the heavy rains of Hurricane Floyd. The damage to inventory was approximately $5.8 million. This amount includes the destruction of all finished inventory, approximately 95% of work in process and approximately 50% of raw materials. Lost sales of approximately $6 million resulted from the plant being closed for approximately three weeks. Losses experienced by the Company were largely offset by insurance proceeds. The net effect was a $0.5 million loss.
On January 3, 1996, certain holders of the Fairwood public debentures (the "Bondholders") filed an involuntary Chapter 7 case against Fairwood in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court." Fairwood, Consolidated Furniture and certain affiliates filed a motion in response to the involuntary filing seeking to dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court denied the motion to dismiss the petition.
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Thereafter, on December 26, 1996, Fairwood exercised its right to convert the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood continues to operate as a debtor in possession under Section 1108 of the Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation. Fairwood Corporation's direct and indirect subsidiaries, including Consolidated Furniture Corporation, Furniture Comfort Corporation, as well as its operating division, Barcalounger, are not parties to the bankruptcy. In April 1997, the Bondholders' filed a Motion with the Bankruptcy Court seeking to convert Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the appointment of a Chapter 11 trustee. By order dated March 2, 1999, the Bondholders' motion to convert the case or, alternatively, for the appointment of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the District Court entered an Order affirming the Bankruptcy Court's decision in all respects. The Bondholders appealed to the Second Circuit Court of Appeals, which on January 4, 2001 entered an order affirming the judgment of the District Court. It is not yet known what further action, if any, the Bondholders will take or what the ultimate outcome of the Chapter 11 case will be. However, Consolidated Furniture and subsidiaries in the meantime continue to operate in the normal course of business.
In October 1998, the Bankruptcy Court approved the settlement of issues arising out of an Internal Revenue Service ("IRS") audit examination of the consolidated Federal income tax returns of Fairwood and its subsidiaries for the periods ended July 11, 1988 through December 31, 1991. In the second quarter of 1999, payment of the Fairwood Group's estimated Federal tax liability was made to the IRS. The tax payment, including estimated interest, was approximately $4.5 million and was provided for in the financial statements in previous years. See Item 3. LEGAL PROCEEDINGS.
Operations
Furniture Comfort, through its Barcalounger division, serves selected segments of the highly diversified $22 billion residential furniture market. Consolidated Furniture entered the furniture industry through a series of acquisitions commencing in 1964. Currently a diversified line of upholstered motion furniture is manufactured and sold under the Barcalounger brand name, whose products have been successfully targeted to a more selective, higher priced market. Barcalounger manufactures and sells higher-priced motion furniture and is well known for its high-quality recliners. The products are sold nationally to furniture retailers and department stores mainly through commissioned sales forces.
The furniture industry is affected to a substantial degree by style, value and fashion. Barcalounger participates in important furnishings market showings held during the year in High Point, North Carolina to acquaint retailers with the significant number of new products introduced each year. Barcalounger frequently reviews its product lines to evaluate whether minor or major restyling of such lines is warranted. To generate new product and style ideas based upon consumer and retailer response, Barcalounger maintains in-house design staffs and contracts with outside designers. The designers consult with manufacturing management to analyze the economic feasibility of producing new products based on their designs.
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Barcalounger operates in a highly competitive segment of the motion furniture business. Many new competitors and existing stationary manufacturers have entered this particular market, as well as existing competitors, which have expanded their lines. Barcalounger has been able to maintain its market share by focusing on its core high-end high-quality product lines. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES. For the years ended December 31, 2000, 1999 and 1998, net sales by Barcalounger were $58.7 million, $50.1 million and $54.7 million, respectively.
The furniture market is highly competitive and includes a large number of manufacturers, none of which dominates the market. Certain of these manufacturers produce a broader range of furniture than Barcalounger, and many of them have greater financial and other resources. In addition, there are relatively few barriers to entry into the industry. Competition could require Barcalounger to reduce prices, offer better credit terms, or increase spending on product development, marketing or sales, any of which could adversely affect the Company.
Barcalounger targets a selected market for its high-end recliner chair and motion upholstered furniture. Barcalounger sells mainly to furniture stores and department stores that carry more expensive products and provide interior design services directly or indirectly. Barcalounger gives limited warranties for its products. The value and fine quality of its furniture is apparent as hardwood frames are emphasized and only the finest leather and fabric coverings are offered. Barcalounger has significant brand recognition and has a reputation of having one of the best product lines in terms of value, quality, design and service in the higher priced segment of the motion furniture industry.
Barcalounger is well known in the furniture industry, which is characterized, by a large number of relatively small manufacturers. The following are among the Company's larger competitors: Life Style Furnishings International, Furniture Brands International, La-Z-Boy, Klausner, Natuzzi, and Bassett, many of which have greater financial resources than the Company. Competition is intense at all levels, stressing price, style, fabric and product finish.
Factors Affecting the Home Furnishings Industry
The furniture industry as a whole is affected by demographics, household formations, the level of personal discretionary income, household mobility and the rate of new home construction. There exists a substantial replacement market that is relatively less affected by these factors.
Research and Development
Since the furniture industry is characterized by active competition among a large number of companies, many of which also have substantial facilities and resources, Barcalounger believes that the maintenance of high product quality and the development of new products are essential to maintaining its competitive position. In support of these goals, Barcalounger conducts research and development activities.
The Furniture Comfort Corporation expended a total of $7,403,000 in the past five years for research and development programs of which $466,000, $1,187,000, and $2,026,000 was expended in 2000, 1999 and 1998, respectively. Barcalounger's share included $2,250,000 for the past five years and $466,000, $470,000 and $455,000 for 2000, 1999 and 1998, respectively.
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Employees
Fairwood has no employees but its subsidiaries and their operating division employed 430 persons at December 31, 2000. The Barcalounger division has a long record of generally harmonious relations with employees. None of the employees are subject to a collective bargaining agreement.
Backlog
The backlog of orders for the Barcalounger division was approximately $5,523,000 at December 31, 2000 and approximately $9,002,000 at December 31, 1999. The decrease in backlog is attributable to the higher than normal backlog in prior year because of the loss of inventory and production time due to the flood in 1999. It is expected that the backlog at December 31, 2000 will be filled in the current year. Furniture Comfort does not consider backlog to be a significant indicator of the sales outlook for its products beyond the period of a few months.
Seasonality, Major Customers and Export Sales
There are seasonal factors, which affect Barcalounger's business. Spring and fall are generally considered periods of increased interest by consumers in interior furnishings since these are periods of increased real estate activity involving relocation of families. The Christmas holiday season and other special occasions usually generate increased sales of some of Barcalounger's furniture lines. On the other hand, inclement weather in mid-winter generally discourages the purchase of interior furnishings. Similarly, the closedown of a portion of Barcalounger's activities for vacation periods in July has a limiting effect on production as well as sales. Barcalounger maintains adequate levels of inventory to meet seasonal demands.
Export sales for 2000, 1999 and 1998 were approximately 2% of sales for each year, of which approximately 1% was made to Canada for each year.
Environmental and Raw Materials
In 2000, there were no significant effects upon the capital expenditures, earnings and competitive position of Barcalounger occasioned by compliance with provisions of federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment.
Raw materials purchased by Barcalounger are all procured in the open market from a number of suppliers. In general, no major difficulties have been experienced in obtaining raw materials.
Patents
Patents are not a significant consideration in the manufacture of most of Barcalounger's products. Barcalounger does not believe that their operating income is materially dependent on any one patent or license or group of related patents or licenses.
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ITEM 2.
ITEM 2. PROPERTIES
The furniture manufacturing activities of Barcalounger are conducted in a modern facility of suitable construction. This facility is in good operating condition, reasonably maintained and contains reasonably modern equipment. All of the principal items of machinery and equipment located in this facility are owned by Furniture Comfort or its operating division.
Barcalounger also leases showrooms in High Point, North Carolina and San Francisco, California for display and storage of products. Fairwood and Consolidated Furniture lease office space in Wilmington, Delaware.
Barcalounger believes that its plant and facilities, in the aggregate, are adequate, suitable and of sufficient capacity for purposes of conducting its current business for the foreseeable future without making capital expenditures materially higher than historical levels.
As of December 31, 2000, Furniture Comfort Corporation has leased furniture facilities as follows:
Substantially all of the assets of Consolidated Furniture and its subsidiaries are subject to a lien in favor of Court Square Capital Limited ("CSCL") granted in connection with the Credit Agreement (See Note 4 to the Company's Consolidated Financial Statements set forth in item 8).
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In October 1998, the Bankruptcy Court approved the settlement of issues arising out of an Internal Revenue Service ("IRS") audit examination of the consolidated Federal income tax returns of Fairwood and its subsidiaries for the periods ended July 11, 1988 through December 31, 1991. In the second quarter of 1999, payment of the Fairwood Group's estimated Federal tax liability was made to the IRS. The tax payment, including estimated interest, was approximately $4.8 million and was provided for in the financial statements in previous years.
As approved by the Bankruptcy Court, the settlement was funded by additional borrowings under Consolidated Furniture's existing revolving credit agreement, with any refund obtained returned to the lender under that facility. The settlement significantly reduced Fairwood's available net operating loss carry forwards.
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Fairwood is obligated to the extent of any adjustment by the IRS to the interest component of the settlement and the state tax effect of this settlement. A provision for additional interest of $1.9 million and taxes of $0.1 million, as of December 31 2000 remains. The provision for interest and provision for taxes are included in accrued interest and Federal and state income taxes, respectively on the accompanying consolidated balance sheet. The Company has not reached final settlement with all taxing authorities, therefore the amount of the provisions are subject to change.
On October 4, 1994, Consolidated Furniture was served with a complaint filed in U.S. District Court in Philadelphia by third party plaintiffs against Consolidated Furniture and its former subsidiary, Sloane Blabon Corporation, which engaged in the linoleum business, U.S. VS. BERKS ASSOCIATES, et al., Civ. No. 91-4868, E.D. PA. The original complaint in the case was filed by the Environmental Protection Agency against Berks Associates and others to recover over $200 million from twelve defendants (not including Consolidated Furniture) for costs incurred or to be incurred in connection with the investigation and remediation of a Super Fund site in Douglasville, Pennsylvania. The original defendants then sued over 600 third party defendants to share in the liability, if any. Sloane Blabon is alleged to have disposed of benzine at the site from 1949 through May 1953, when Sloane Blabon sold its relevant assets to Congoleum Corporation. During the period in question, Sloane Blabon disposed of substantial quantities of benzine to Berks Associates at the Douglasville site. However, Consolidated Furniture does not believe its disposals were toxic as alleged. The damages sought from Sloane Blabon and Consolidated Furniture are unspecified. On August 28, 1995 Consolidated Furniture joined with five other Potentially Responsible Parties and made an offer of settlement to the EPA. Consolidated Furniture's share of the offer is approximately $190,000. The EPA has not rejected or accepted the offer.
On January 3, 1996, certain holders of the Fairwood public debentures (the "Bondholders") filed an involuntary Chapter 7 case against Fairwood in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court." Fairwood, Consolidated Furniture and certain affiliates filed a motion in response to the involuntary filing seeking to dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court denied the motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood continues to operate as a debtor in possession under Section 1108 of the Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation. Fairwood Corporation's direct and indirect subsidiaries, including Consolidated Furniture Corporation, Furniture Comfort Corporation, as well as its operating division, Barcalounger, are not parties to the bankruptcy. In April 1997, the Bondholders' filed a Motion with the Bankruptcy Court seeking to convert Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the appointment of a Chapter 11 trustee. By order dated March 2, 1999, the Bondholders' motion to convert the case or, alternatively, for the appointment of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the District Court entered an Order affirming the Bankruptcy Court's decision in all respects. The Bondholders appealed to the Second Circuit Court of Appeals, which on January 4, 2001 entered an order affirming the judgment of the District Court. It is not yet known what further action, if any, the Bondholders will take or what the ultimate outcome of the Chapter 11 case will be. However, Consolidated Furniture and subsidiaries in the meantime continue to operate in the normal course of business.
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ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS
Fairwood's common stock is privately held, and therefore, no established public trading market exists. At December 31, 2000 and 1999, there were three shareowners of Fairwood's common stock. No dividends were declared on Fairwood's common stock in 2000 and 1999. The ability of Fairwood to pay dividends and make distributions in respect of its common stock is restricted by instruments relating to Fairwood's debt. Furthermore, the ability of Consolidated Furniture and its subsidiaries to transfer moneys to Fairwood (including without limitation by dividend or distribution) is restricted by instruments relating to Consolidated Furniture's and its subsidiaries' debt, including the Credit Agreement. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" and Note 4 to Fairwood's Consolidated Financial Statements set forth in Item 8.
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
FAIRWOOD CORPORATION AND SUBSIDIARIES
Five-Year Summary of Consolidated Financial Data (Dollar Amounts in Millions)
* - Does not include accrued interest for 2000, 1999, 1998, 1997 and 1996 of $176.4, $147.5 million, $118.5 million, $91.4 million and $64.4 million, respectively.
In 1999, operations data includes the activities of the Stratford Division for the period from January 1 through June 3, 1999 (date of sale). Accordingly, the data presented for 1999 is not comparable with 2000 or 1998, 1997 and 1996.
For additional information, see the Company's Consolidated Financial Statements included with this report, including Notes 3 and 11 thereto regarding certain tax and liquidity matters.
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ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
Certain information in this annual report on Form 10-K, including but not limited to the Management's Discussion and Analysis of Financial Condition and Results of Operations, may constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934. Certain forward-looking statements can be identified by the use of forward-looking terminology such as, "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or the negative thereof or derivatives thereof or other comparable terminology, or by discussions of strategy, plans or intentions. Forward-looking statements involve risks and uncertainties, which could cause actual results to be materially different than those in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update such information.
2000 vs. 1999 Results of Operations
Consolidated net sales of approximately $58.7 million for 2000 decreased 41.4% from 1999 net sales of approximately $100.1 million, due primarily to the sale of Stratford operations in 1999. Consolidated cost of sales decreased 48.6% in 2000 to approximately $47.0 million, or 80.1% of net sales as compared to $91.4 million, or 91.4% of net sales, in 1999. These sales and cost of sales decreases were caused largely by the sale of Stratford.
On June 3, 1999, Furniture Comfort Corporation ("Furniture Comfort") formerly named Futorian Furnishings, Inc., Consolidated Furniture's operating subsidiary, sold substantially all of the assets of the Stratford Division for approximately $14 million in cash plus the assumption of certain liabilities. The proceeds from the sale were used to pay-down the revolving credit and term loan. The sale included substantially all of the business and assets of the Stratford Division, including its office and showroom in Bannockburn, Illinois and the assignment of leases for certain other manufacturing and showroom facilities. The final sales price for the net assets of Stratford Division was subject to certain post-closing adjustments. As a result of this sale, Furniture Comfort recognized a loss of approximately $2 million, which includes $1 million for claims previously submitted by the purchaser of Stratford regarding post-closing adjustments.
Net sales for 2000 by Barcalounger increased 17.2% to approximately $58.7 million as compared to $50.1 million in 1999, principally due to lost sales in 1999 from the flood related closure at Barcalounger's Rocky Mount, North Carolina facility and a 7.7% increase in average selling prices. The average selling price increase is the result of the sale of products with more expensive upper grade leather. Barcalounger continues to add to its product offerings of higher-priced recliner and motion upholstered furniture through an emphasis on more expensive leather and fabric coverings. Concurrent with these new offerings, Barcalounger discontinued certain lower-priced products. This change led to a sales mix, which resulted in increases in average sales prices. Barcalounger cost of sales increased to 80.4% of net sales in 2000, as compared to 79.3% in 1999. The increase in cost of sales as a percentage of sales is primarily the result of unfavorable labor variances attributable to hiring and training of new personnel in order to handle the large backlog at the end of 1999 because of the flood related closure in September 1999.
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Consolidated selling, administrative and general expenses decreased 50.5% to approximately $9.1 million in 2000 from approximately $18.2 million in 1999. The decrease was largely a result of the sale of Stratford. Selling, administrative and general expenses of Barcalounger increased 4.8% to approximately $6.6 million in 2000, as compared to approximately $6.3 million for 1999.
Consolidated interest expense increased 12.4% to $86.1 million from $76.6 million due primarily to additional borrowings under the Credit Agreement, as discussed in Liquidity and Capital Resources and increases in the prime lending rate during the year.
Barcalounger pretax earnings increased 35.1% to approximately $5.0 million in 2000 from approximately $3.7 million in 1999. The increase in pretax earnings was due primarily to the lost sales in 1999 from the flood related closure.
1999 vs. 1998 Results of Operations
Consolidated net sales of approximately $100.1 million for 1999 decreased 35.1% from 1998 net sales of approximately $154.2 million, due primarily to the sale of Stratford operations in 1999. Consolidated cost of sales decreased 36.5% in 1999 to approximately $91.4 million, or 91.4% of net sales as compared to $143.9 million, or 93.3% of net sales, in 1998. These sales and cost of sales decreases were caused largely by the sale of Stratford.
On June 3, 1999, Furniture Comfort, Consolidated Furniture's operating subsidiary, sold substantially all of the assets of the Stratford Division for approximately $14 million in cash plus the assumption of certain liabilities. The proceeds from the sale were used to pay-down the revolving credit and term loan. The sale included substantially all of the business and assets of the Stratford Division, including its office and showroom in Bannockburn, Illinois and the assignment of leases for certain other manufacturing and showroom facilities. The final sales price for the net assets of Stratford Division was subject to certain post-closing adjustments. As a result of this sale, Furniture Comfort recognized a loss of approximately $2 million, which includes $1 million for claims previously submitted by the purchaser of Stratford regarding post-closing adjustments.
Net sales for 1999 by Barcalounger decreased 8.4% to approximately $50.1 million as compared to $54.7 million in 1998, principally due to lost sales from the flood related closure at Barcalounger's Rocky Mount, North Carolina facility partially offset by a 3.7% increase in average selling prices. The average selling price increase is the result of the sale of products with more expensive upper grade leather. Barcalounger continues to add to its product offerings of higher-priced recliner and motion upholstered furniture through an emphasis on more expensive leather and fabric coverings. Concurrent with these new offerings, Barcalounger discontinued certain lower-priced products. This change led to a sales mix, which resulted in increases in average sales prices. Barcalounger cost of sales decreased to 79.3% of net sales in 1999, as compared to 80.4% in 1998. The decrease in cost of sales as a percentage of sales is primarily the result of lower costs associated with certain raw materials.
Consolidated selling, administrative and general expenses decreased 24.5% to approximately $18.2 million in 1999 from approximately $24.1 million in 1998. The decrease was largely a result of the sale of Stratford. Selling, administrative and general expenses of Barcalounger remained constant at $6.3 million for 1999 and 1998.
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On September 16, 1999, Barcalounger incurred substantial damage due to floods caused by the heavy rains of Hurricane Floyd. The damage to inventory was approximately $5.8 million. This amount includes the destruction of all finished inventory, approximately 95% of work in process and approximately 50% of raw materials. Lost sales of approximately $4 million resulted from the plant being closed for approximately three weeks. Losses experienced by the Company were largely offset by insurance proceeds. The net effect was a $0.5 million loss.
Consolidated interest expense increased 6.5% to $76.6 million from $71.9 million due primarily to additional borrowings under the Credit Agreement, as discussed in Liquidity and Capital Resources.
Barcalounger pretax earnings decreased 15.9% to approximately $3.7 million in 1999 from approximately $4.4 million in 1998. The decrease in pretax earnings was due primarily to the lost sales from the flood related closure.
Liquidity and Capital Resources
Capital requirements for operations during 2000 and 1999 were provided primarily by borrowings under the revolving credit facility and operating cash flows at Barcalounger.
Fairwood had a working capital deficit of approximately $(331.9) million and $(302.8) million at December 31, 2000 and 1999, respectively. At December 31, 2000, Fairwood had long-term debt of approximately $678.6 million of which $168.8 million was current. Long-term debt at December 31, 1999 was approximately $625.5 million of which $168.8 million was current. Accrued interest on long-term debt was $176.4 million at December 31, 2000 and $147.5 million at December 31, 1999. Accrued interest is classified as a current liability. All of the current maturities of long-term debt at December 31, 2000 and 1999, and $168.9 million and $141.9 million of accrued interest at December 31, 2000 and 1999, respectively are subject to compromise in the bankruptcy proceedings.
In conjunction with Fairwood's acquisition by merger of Consolidated Furniture on September 22, 1989, certain bridge loans were refinanced with loans under a credit agreement with Court Square Capital Limited ("CSCL") (the "Credit Agreement") and senior subordinated pay-in-kind debentures due to CSCL. In exchange for the approximately 6.85% of Consolidated Furniture common stock then outstanding, Fairwood issued $33.5 million of subordinated pay-in-kind merger debentures and 918,170 warrants to purchase, in the aggregate, 142,900 shares of Fairwood's Class A common stock. The exercise period for the warrants issued with the merger debentures expired on September 22, 1995. The assets of Consolidated Furniture and its subsidiaries are pledged as security for the amounts due under the Credit Agreement. Certain instruments related to the Credit Agreement have been amended and certain covenants therein have been waived at various times through December 2000.
Throughout 2000, 1999 and 1998, Consolidated Furniture funded interest obligations related to long-term indebtedness through increased borrowings from CSCL. Increases in outstanding borrowings from CSCL under the Credit Agreement during the years ended December 31, 2000, 1999 and 1998 were approximately $57.0 million, $70.9 million and $51.1 million, respectively. All outstanding debt and accrued interest at December 31, 2000, excluding the $62.9 million of outstanding merger debentures plus $66.4 million accrued interest thereon is payable to CSCL, which is an indirect subsidiary of Citigroup and an affiliate of CVCL. Consolidated Furniture has obtained an extension of the debt payable to CSCL to January 2002. Interest on the revolving credit loan of Consolidated Furniture and its subsidiaries is payable quarterly at 1-1/2% above the applicable prime rate, which prime rate was 9.50% at December 31, 2000.
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Interest on the senior subordinated debentures of Consolidated Furniture is payable semi-annually at 18%. Interest on the senior subordinated pay-in-kind debentures and merger debentures of Fairwood is payable semi-annually at 15-1/2% and 16-7/8%, respectively.
Interest payments during the years ended December 31, 2000, 1999 and 1998 of approximately $57.0 million, $48.1 million and $44.8 million, respectively were primarily made through increased borrowings under the revolving credit agreement. No principal payments were made in the years ended December 31, 2000 and 1999 and $.2 million was made during 1998.
Annual maturities on debt for the years ended December 31, 2001 and 2002 are approximately $168.8 million and $509.8 million, respectively. Interest payments expected to be made through increased borrowings and cash from operations for the years ended December 31, 2001, 2002 and 2003 are estimated to be approximately $63.3 million, $70.3 million and $78.0 million.
On April 1, 1995 and each semi-annual interest payment date thereafter, Fairwood failed to make the required interest payments due on the senior subordinated pay-in-kind debentures and merger debentures (collectively, the "Fairwood Debentures") and Fairwood does not expect to make the cash interest payments required under the Fairwood Debentures on any future semi-annual interest payment dates. Accrued interest of $168.9 million on the Fairwood Debentures, which includes $102.5 million due to CSCL, is included in accrued interest on the consolidated balance sheet as of December 31, 2000. See Note 4 to the accompanying Consolidated Financial Statements.
Based on the terms of the Fairwood Debentures, the failure to make the interest payment constitutes an event of default, which permits the acceleration of the Fairwood Debentures by the demand of the holders of the requisite aggregate principal amount of the debentures. Upon acceleration, the Fairwood debentures and all accrued interest would be due and payable. Accordingly, the Fairwood Debentures totaling $168.8 million have been classified as current liabilities in the accompanying Consolidated Financial Statements as of December 31, 2000.
Capital additions were approximately $0.2 million, $0.5 million and $1.4 million for the years 2000, 1999 and 1998, respectively. Barcalounger anticipates making capital expenditures of approximately $.75 million during 2001, primarily for the purpose of maintaining and upgrading their manufacturing equipment, machinery and facilities. Barcalounger has no firm commitments for the purchase of capital equipment or facilities. It is anticipated that necessary capital expenditures will be funded through cash flow generated from operations of Barcalounger or available credit facilities under the Consolidated Furniture's Credit Agreement with CSCL. Consolidated Furniture and Furniture Comfort intend to pursue other sources of financing to the extent available and cost effective.
Consolidated Furniture, Furniture Comfort and the operating divisions are dependent upon CSCL for funding of their debt service costs. Instruments relating to the Credit Agreement and senior subordinated debentures have been amended and certain provisions thereof waived at various times through December 2000 to provide more favorable terms to Consolidated Furniture and, in certain instances, to avoid defaults hereunder. Under the Credit Agreement, Consolidated Furniture and its subsidiaries are generally restricted from transferring moneys to Fairwood (including without limitation by dividend or distribution) with the exception of amounts for (a) specified administrative expenses of the Company and (b) payment of income taxes. Furthermore, Consolidated Furniture is subject to additional restrictions on transferring moneys to Fairwood (including without limitation by dividend or distribution)
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under the indenture for its senior subordinated debentures, which generally requires the satisfaction of certain financial conditions for such transfers. Fairwood is subject to additional restrictions on payment or transfer of moneys (including without limitation by dividend or distribution) under the indentures for its senior subordinated pay-in-kind debentures and merger debentures, which generally require the satisfaction of certain financial conditions for such transfers.
Consolidated Furniture anticipates that funds provided by Barcalounger and available credit facilities under the Credit Agreement will be available in 2001 to support the operations of Barcalounger. However, as discussed above, funds provided by available credit facilities will not be adequate or available to make transfers to Fairwood for cash interest payments due in 2001 or thereafter on the Fairwood senior subordinated pay-in-kind debentures and merger debentures. Consolidated Furniture's obligations under the Credit Agreement are collateralized by substantially all of the assets of Consolidated Furniture and its subsidiaries.
Consolidated Furniture's revolving credit and senior subordinated debentures mature on January 2, 2002 and, accordingly, have been classified as noncurrent liabilities in the accompanying consolidated balance sheets as of December 31, 2000. Consolidated Furniture intends to negotiate an extension of these maturity dates with CSCL or refinance such indebtedness prior to January 2, 2002. However, there can be no assurance that Consolidated Furniture will be able to negotiate such an extension, or that the terms of such extension or refinancing will not be on terms less favorable than those currently in place.
On January 3, 1996, certain holders of the Fairwood public debentures (the "Bondholders") filed an involuntary Chapter 7 petition against Fairwood in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court.") Fairwood, Consolidated Furniture and certain Citicorp affiliates filed a motion in response to the involuntary filing seeking to dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court denied the motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood continues to operate as a debtor in possession under Section 1108 of the Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation. Fairwood Corporation's direct and indirect subsidiaries, including Consolidated Furniture Corporation, Furniture Comfort Corporation, as well as its operating division, Barcalounger, are not parties to the bankruptcy. In April 1997, the Bondholders' filed a Motion with the Bankruptcy Court seeking to convert Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the appointment of a Chapter 11 trustee. By order dated March 2, 1999, the Bondholders' motion to convert the case or, alternatively, for the appointment of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the District Court entered an Order affirming the Bankruptcy Court's decision in all respects. The Bondholders appealed to the Second Circuit Court of Appeals, which on January 4, 2001 entered an order affirming the judgment of the District Court. It is not yet known what further action, if any, the Bondholders will take or what the ultimate outcome of the Chapter 11 case will be. However, Consolidated Furniture and subsidiaries in the meantime continue to operate in the normal course of business.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Fairwood is exposed to risks related to fluctuations in interest rates on the revolving credit facility and term loan agreement and the Credit Agreement. Fairwood does not utilize interest rate swaps, forwards or option contracts on foreign currencies or commodities, or other types of derivative instruments. Fairwood has other borrowing facilities, however these have fixed interest rates.
For fixed rate debt, changes in interest rates generally affect the fair value of the underlying indebtedness, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair value, but do affect future earnings and cash flows.
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Assuming the amount outstanding under the Credit Agreement remains at $429.8 million, the balance at December 31, 2000, each one percentage point increase in the prime interest rate would result in an increase in interest expense for the coming year of approximately $4.3 million. The fixed rate debt includes the following (in thousands):
The fair value of the fixed rate debt, and changes in fair value due to fluctuations in market rates cannot be reasonably estimated considering Fairwood's ongoing financial difficulties.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a part of this report:
Independent Auditors' Report Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Operations for the Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareowner's Equity (Deficit) for the Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the Years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements
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Independent Auditors' Report
The Shareowners and Board of Directors Fairwood Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Fairwood Corporation and subsidiaries ("Fairwood") as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareowners' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2000. We also have audited the related financial statement schedule as listed in the accompanying index for Item 14(a)2 on page 43. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fairwood Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that Fairwood will continue as a going concern. As discussed in Notes 4 and 11 to the consolidated financial statements, Fairwood failed to make the required interest payments on its senior subordinated pay-in-kind and merger debentures when due in 1995, and all semi-annual interest payments due thereafter and does not expect to be able to make such payments in the future. Also, as described in notes 1 and 11, Fairwood continues to operate as a debtor in possession under Section 1108 of the U.S. Bankruptcy Code. These matters raise substantial doubt about the ability of Fairwood Corporation to continue as a going concern. Management's plans in regard to these matters are described in Notes 1 and 11. The consolidated financial statements and financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Washington, DC March 15, 2001
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(In thousands except share and per share data)
See accompanying notes to consolidated financial statements.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
See accompanying notes to consolidated financial statements.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareowners' Deficit
Years Ended December 31, 2000, 1999 and 1998
(In thousands)
See accompanying notes to consolidated financial statements.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
See accompanying notes to consolidated financial statements.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
Principles of Consolidation and Description of Business
The consolidated financial statements represent a consolidation of the financial statements of Fairwood Corporation ("Fairwood" or the "Company"), and Consolidated Furniture Corporation ("Consolidated Furniture") and all of its subsidiaries. All significant intercompany balances, transactions and profits have been eliminated in consolidation.
Through its wholly owned subsidiary, Consolidated Furniture and Consolidated Furniture's wholly-owned subsidiary Furniture Comfort Corporation ("Furniture Comfort" formerly Futorian Furnishings, Inc.), the Company manufactures and sells higher-priced upholstered motion furniture mainly to furniture and department stores that carry more expensive products. The products are sold nationally under the brand name Barcalounger, mainly through a commissioned sales force.
As further described in note 11, Fairwood is currently operating as debtor in possession under Section 1108 of the United States Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation.
Inventories
All inventories (comprised of materials, labor and overhead costs) are valued at the lower of cost or market using the last-in, first-out (LIFO) method. In 2000 the Company had a LIFO liquidation of $64,000.
The components of inventory are as follows (in thousands):
Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is provided on a straight-line basis over the estimated useful lives as follows: buildings 45 years; machinery and equipment 7 to 10 years; and leasehold improvements over the shorter of the term of related leases or 10 years.
Revenue Recognition
Revenue is recognized when title to furniture passes to the customer. The Company provides an allowance for estimated future customer returns under the warranty terms of sale.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business (continued)
Statements of Cash Flows
Cash and cash equivalents include cash in banks and highly liquid short-term investments having a maturity of three months or less on the date of purchase.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting amounts of existing assets and liabilities and their respective tax bases at each year-end. Deferred tax assets and liabilities are measured using enacted tax rates and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce the deferred tax asset to the amount which the Company believes will be more likely than not to be realized. Income tax expense is the amount payable for the year and the change during the period in deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
The Company reviews all long-lived assets to be held and used in the business for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. The Company considers a history of operating losses to be its primary indicator of potential impairment. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business (continued)
Impairment of Long-Lived Assets (continued)
The Company deems an asset to be impaired if a forecast of undiscounted future operating cash flows directly related to the asset, including disposal value, if any, is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, an estimate of fair value is based on the best information available, including prices for similar assets or the results of valuation techniques such as discounting estimated future cash flows as if the decision to continue to use the impaired asset was a new investment decision. The Company generally measures fair value using industry knowledge, price quotes, when attainable, and other factors relevant to determine recoverability. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from such estimates.
Comprehensive Income
Comprehensive income of Fairwood consists of an additional pension liability and net loss. The Statement requires only additional disclosures in the consolidated financial statements; it does not affect the Company's financial position or results of operations.
(2) Divestiture
On June 3, 1999, Furniture Comfort, Consolidated Furniture's operating subsidiary, sold substantially all of the assets of the Stratford Division for approximately $14 million in cash plus the assumption of certain liabilities. The proceeds from the sale were used to pay-down the revolving credit and term loan. The sale included substantially all of the business and assets of the Stratford Division, including its office and showroom in Bannockburn, Illinois and the assignment of leases for certain other manufacturing and showroom facilities. The final sales price for the net assets of Stratford Division was subject to certain post-closing adjustments. As a result of this sale, Furniture Comfort recognized a loss of approximately $2 million in 1999, which includes $1 million for claims submitted by the purchaser of Stratford regarding post-closing adjustments.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes
No income taxes have been provided in the accompanying statements of operations because the Company is in a net operating loss carryforward position.
In October 1998, the United States Bankruptcy Court (the "Bankruptcy Court") approved the settlement of issues arising out of an Internal Revenue Service ("IRS") audit examination of the consolidated Federal income tax returns of Fairwood and its subsidiaries for the periods ended July 11, 1988 through December 31, 1991. In the second quarter of 1999, payment of the Fairwood Group's estimated Federal tax liability was made to the IRS. The tax payment, including estimated interest, was approximately $4.5 million and was provided for in the financial statements in previous years.
As approved by the Bankruptcy Court, the settlement was funded by additional borrowings under Consolidated Furniture's existing revolving credit agreement, with any refund obtained returned to the lender under that facility. The settlement significantly reduced Fairwood's available net operating loss carryforwards.
Fairwood is obligated to the extent of any adjustment by the IRS to the interest component of the settlement and the state tax effect of this settlement. An accrual for additional interest of $0.1 million and taxes of $3.9 million remains at December 31, 2000. These accruals for interest and taxes are included in accrued interest and Federal and state income taxes, respectively on the accompanying consolidated balance sheet. The Company has not reached final settlement with all taxing authorities, therefore the amount of the accruals are subject to change.
A reconciliation of the provision for income taxes included in the statements of operations and the amount computed by applying the U.S. Federal income tax rate, in thousands, is summarized below:
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
The tax effects of temporary differences as of December 31, in thousands, are as follows:
The valuation allowance for deferred tax assets as of January 1, 2000 and 1999 was $144,333,000 and $115,451,000, respectively. The net changes in the total valuation allowance for the years ended December 31, 2000 and 1999 were increases of $27,592,000 and $28,882,000, respectively.
At December 31, 2000, the Company's net operating loss carryforwards of approximately $437,922,000 expire in various years through 2021.
Due to certain changes in the ownership structure of Fairwood's shareholders', Fairwood's net operating losses and other tax attributes may be further limited by the Internal Revenue Code (Code) Sections 382 and 383.
(4) Long-term Debt
In conjunction with Fairwood's acquisition by merger of Consolidated Furniture on September 22, 1989, certain bridge loans were refinanced with loans under a credit agreement with Court Square Capital Limited ("CSCL"), an affiliated company, (the "Credit Agreement") and senior subordinated pay-in-kind debentures due to CSCL. The assets of Consolidated Furniture and its subsidiaries are pledged as security for the amounts due under the Credit Agreement. Certain instruments related to the Credit Agreement have been amended and certain covenants therein have been waived at various times through December 2000.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
The outstanding debt at December 31, was as follows (in thousands):
All outstanding debt and accrued interest at December 31, 2000, excluding the $62.9 million of outstanding merger debentures plus $66.4 million accrued interest thereon, is payable to CSCL.
On April 1, 1995 and each semi-annual interest payment date thereafter, Fairwood failed to make the required interest payments due on the senior subordinated pay-in-kind debentures and merger debentures (collectively, the "Fairwood Debentures") and Fairwood does not expect to make the cash interest payments required under the Fairwood Debentures on any future semi-annual interest payment dates. Accrued interest of $168.9 million on the Fairwood Debentures, which includes $102.5 million due to CSCL, is included in accrued interest in the accompanying consolidated balance sheet as of December 31, 2000.
Based on the terms of the Fairwood Debentures, the failure to make the April 1, 1995 and subsequent period interest payments constitute an event of default, which permits the acceleration of the Fairwood Debentures by the demand of the holders of the requisite aggregate principal amount of the debentures. Upon acceleration, the Fairwood Debentures and all accrued interest would be due and payable. Accordingly, the Fairwood Debentures have been classified as current liabilities in the accompanying consolidated balance sheets.
The fair market value of the debentures and revolving credit debt cannot be reasonably estimated considering Fairwood's ongoing financial difficulties (Note 11).
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt (continued)
Annual maturities of long-term debt are as follows:
In January 1999, Consolidated Furniture entered into the Eighth Amendment to the Senior Subordinated Debentures due January 4, 1999, which extended the due date to January 3, 2000. In December 1999, Consolidated Furniture entered into the Ninth Amendment to the Senior Subordinated Debentures due January 3, 2000, which extended the due date to January 2, 2001. In December 2000, Consolidated Furniture entered into the Tenth Amendment to the Senior Subordinated Debentures due January 2, 2001, which extended the due date to January 2, 2002.
In April 1999, Consolidated Furniture entered into the Twenty-fourth Amendment to the Credit Agreement, which changed various covenants and increased the amount of the Revolving Credit Commitment to $366,000,000. In September 1999, Consolidated Furniture entered into the Twenty-fifth Amendment to the Credit Agreement, which changed various covenants and increased the amount of the Revolving Credit Commitment to $380,000,000. In December 1999, Consolidated Furniture entered into the Twenty-sixth Amendment to the Credit Agreement, which changed various covenants and increased the amount of the Revolving Credit Commitment to $435,000,000. In December 2000, Consolidated Furniture entered into the Twenty-seventh Amendment to the Credit Agreement, which changed various covenants and increased the amount of the Revolving Credit Commitment to $500,000,000 and extended the due date to January 2, 2002. The interest rate under the Credit Agreement is prime plus 1.5 percent, which averaged approximately 10.7 percent for 2000.
Substantially all of Fairwood's debt instruments restrict the payment of dividends, and the Credit Agreement with CSCL relating to Consolidated Furniture's revolving credit facility, contains certain financial covenant tests. Fairwood plans to attempt to refinance, or negotiate an extension of, the debt payable to CSCL when due.
Fairwood continues to recognize interest expense related to the Merger Debentures and Senior Subordinated Debentures although the interest on these notes may not be ultimately payable upon the final confirmation of the Chapter 11 bankruptcy proceedings (See Note 11). Interest expense of $27 million was recorded related to these notes on the Consolidated Statements of Operations in each of the years ending December 31, 2000, 1999 and 1998.
(5) Redeemable Preferred Stock
The Company issued 1,000 shares of junior preferred stock, par value $.01 per share, for $100,000, which shares are held by CSCL. Dividends accrue at $18 per share annually. As of December 31, 2000 and 1999, dividends payable were approximately $621,000 and $505,000, respectively, and were included in accounts payable in the accompanying consolidated balance sheets.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Common Stock
Holders of Class A common stock are entitled to convert their shares to an equal number of shares of Class B common stock and holders of Class B common stock are entitled to convert their shares to an equal number of shares of Class A common stock.
(7) Employee Benefit Plans
All salaried employees, excluding certain key executives, and hourly paid employees of Fairwood with one year of service were covered by non-contributory defined benefit retirement plans through May 31, 1993, at which time further benefit accruals ceased and the plans were "frozen." Benefits for the plans are determined based on length of service and certain average annual employee earnings. The cost of the retirement plans is accrued annually; funding is in accordance with actuarial requirements of the plans, subject to the Employee Retirement Income Security Act of 1974, as amended.
Information with respect to the retirement plans for 2000 and 1999 has been determined by consulting actuaries. The following table sets forth the plans' funded status at December 31, and reconciles amounts recognized in the consolidated balance sheets at December 31, (in thousands):
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
Pension expense is summarized, in thousands, as follows:
During 2000 and 1999 Fairwood directed the plan to pay lump sum distributions to settle a portion of Fairwood's obligation under the plans. As a result of the settlements, Fairwood recognized a loss of $0 and $1,736,000, respectively. Furthermore, on December 29, 1998 Fairwood purchased an annuity contract settling an additional $7,892,000 of the accumulated pension benefit obligation. The discount rate for 1998 was reduced to reflect the actual price of this purchased annuity contract.
Effective June 1, 1993, the following defined contribution plans were adopted by the Company's operating companies:
Barcalounger Retirement Plan
This non-contributory plan is designed to provide income at retirement and covers all Barcalounger employees with at least one year of service. Annual company contributions are discretionary and are allocated based on individual participant's earnings and length of service. For the years ended December 31, 2000, 1999 and 1998, Barcalounger contributions were $144,000, $154,000 and $144,000, respectively.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans (continued)
Barcalounger Savings Plan
This plan is designed to provide a savings vehicle for Barcalounger employees with at least one year of service who may elect to participate by saving on a before-tax and/or after-tax basis in one or more of four investment funds. Annual company contributions match 25% of participants' contributions of up to four percent of earnings. For the years ended December 31, 2000, 1999 and 1998, Barcalounger matching contributions were $58,000, $56,000 and $54,000, respectively.
Barcalounger Executive Deferred Compensation Plan
An Executive Deferred Compensation Plan effective August 1, 1999, was established by Barcalounger, to provide certain of its designated executives with an additional method of planning for their retirement. In addition, the Plan serves as an incentive for them to promote the success of the Company and to encourage them to maintain their employment relationships with the Company. Amounts of contributions are determined at the sole discretion of the Board of Directors of Furniture Comfort. For the years ended December 31, 2000 and 1999, Barcalounger designated contributions of $100,000 and $80,000, respectively, to the plan.
Stratford Retirement Plan
This non-contributory plan was designed to provide income at retirement and covers all Stratford employees with at least one year of service. Annual company contributions were based on individual participant's earnings and length of service. This plan was terminated when the Stratford Division was sold. For the years ended December 31, 2000, 1999 and 1998 Stratford contributions were $0, $0 and $600,000, respectively.
Consolidated Furniture also sponsors an investment plan. This investment plan is a defined contribution plan covering all employees of Consolidated Furniture and its subsidiaries, who have a minimum of one year of service. For the years ended December 31, 2000, 1999 and 1998, Consolidated Furniture contributions were $2,000, $2,000 and $2,000, respectively.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Related party transactions
Through June 3, 1999, (see note 2) Stratford provided new product development and selling activities to Simmons Upholstered Furniture Corporation, an affiliate. As a result of this Agreement, Stratford recognized approximately $14 million and $7 million of revenue in 1999 and 1998, respectively, from the manufacture and supply of product and was reimbursed by Simmons approximately $250,000 and $600,000 for new product development and approximately $1.2 million and $2.7 million, respectively, for selling expenses. The new product development and selling expense reimbursements are recognized as a reduction to selling, administrative and general expenses in the accompanying consolidated statements of operations. Also, in 1999 and 1998, Stratford recognized as a reduction in general and administrative expenses, approximately $1.4 million and $2.2 million of reimbursements for general and administrative expenses. The revenues and related cost for the manufacture and supply of product are included in net sales and cost of sales, respectively, in the accompanying consolidated statements of operations. At December 31, 1998, approximately $4,089,000 was due from Simmons under this Agreement, which was repaid in 1999. Under a separate agreement, Simmons owed Stratford $500,000 at December 31, 1998, which was repaid in 1999.
(9) Rental Commitments
The Company and its subsidiaries lease certain manufacturing, showroom and warehousing facilities under various operating leases.
Future minimum lease payments at December 31, 2000 under all non-cancelable operating leases are as follows (In thousands):
It is expected that, in the normal course of business, non-cancelable leases that expire will be renewed or replaced.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Rental Commitments (continued)
Rental expense is summarized, in thousands, as follows:
(10) Contingencies
Consolidated Furniture was served a complaint by third party plaintiffs against Consolidated Furniture and a former subsidiary. The original complaint in the case was filed by the Environmental Protection Agency to recover over $200 million from 12 defendants (not including Consolidated Furniture), for costs incurred in connection with the investigation and remediation of a Super Fund site. On August 28, 1995, Consolidated Furniture joined with 5 other Potentially Responsible Parties and made an offer of settlement to the EPA. Consolidated Furniture's share of the offer is approximately $190,000. The EPA has not rejected or accepted the offer.
There are other contingent liabilities at December 31, 2000 consisting of purchase commitments and legal proceedings arising in the ordinary course of business including environmental litigation. Fairwood believes that the financial risk involved in connection with all other contingent liabilities, except as otherwise disclosed in these consolidated financial statements, is not material in relation to the consolidated financial position of the Company.
(11) Liquidity
As discussed in Note 4, interest on Fairwood's senior subordinated pay-in-kind debentures and merger debentures was not paid on April 1, 1995 and each semi-annual interest payment date thereafter and Fairwood does not expect to make the cash interest payments required under the Fairwood Debentures on any future semi-annual interest payment date. Fairwood has substantially no assets other than the common stock of Consolidated Furniture, and Consolidated Furniture and its primary operating subsidiary have pledged substantially all of their assets to collateralize their obligations under the Credit Agreement. Furthermore, the ability of Consolidated Furniture and its subsidiaries to transfer moneys to Fairwood (including without limitation by dividend or distribution) is restricted by instruments relating to Consolidated Furniture's and its subsidiaries' debt, including the Credit Agreement.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
Throughout portions of 2000, 1999, and 1998, Consolidated Furniture did not generate sufficient funds from operations to fully meet its interest obligations related to its long-term indebtedness. During this period, Consolidated Furniture funded its interest obligations under the Credit Agreement through increased borrowings from CSCL under such Agreement.
Consolidated Furniture is dependent upon CSCL for funding of its debt service costs. Instruments relating to the revolving credit facility and senior subordinated debentures have been amended and certain provisions thereof waived at various times through December 2000 to provide more favorable terms to Consolidated Furniture and, in certain instances, to avoid defaults there under. Under the Credit Agreement, Consolidated Furniture and its subsidiaries are generally restricted from transferring moneys to Fairwood (including without limitation by dividend or distribution) with the exception of amounts for (a) specified administrative expenses of the Company and (b) payment of income taxes. Furthermore, Consolidated Furniture is subject to additional restrictions on transferring moneys to Fairwood (including without limitation by dividend or distribution) under the indenture for its senior subordinated debentures, which generally requires the satisfaction of certain financial conditions for such transfers. Fairwood is subject to additional restrictions on payment or transfer of moneys (including without limitation by dividend or distribution) under the indentures for its senior subordinated pay-in-kind debentures and merger debentures, which generally require the satisfaction of certain financial conditions for such transfers.
Cash flows from Barcalounger and its parent companies, Furniture Comfort and Consolidated Furniture, will not be sufficient to permit the Company to make cash interest payments on Fairwood's senior subordinated pay-in-kind debentures and merger debentures. Consolidated Furniture's credit facilities do not permit it to borrow funds to enable Fairwood to make cash interest payments on the senior subordinated pay-in-kind debentures and merger debentures. Accordingly, since Fairwood has failed to make the interest payments required since 1995, see note 4, and is expected to fail to make any future cash interest payments, the Fairwood Debentures have been classified as current. Based on the terms of the Fairwood Debentures, the failure to make the April 1, 1995 and subsequent period interest payment constitutes an event of default which permits the acceleration of the Fairwood Debentures by the demand of the holders of the requisite aggregate principal amount of the debentures. Upon acceleration, the Fairwood Debentures and all accrued interest would be due and payable.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Liquidity (continued)
On January 3, 1996, certain holders of the Fairwood public debentures (the "Bondholders") filed an involuntary Chapter 7 petition against Fairwood in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court.") Fairwood, Consolidated Furniture and certain Citicorp affiliates filed a motion in response to the involuntary filing seeking to dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court denied the motion to dismiss the petition.
Thereafter, on December 26, 1996, Fairwood exercised its right to convert the Chapter 7 case to a case under Chapter 11. As of the date hereof, Fairwood continues to operate as a debtor in possession under Section 1108 of the Bankruptcy Code. The Chapter 11 case pertains only to Fairwood Corporation. Fairwood Corporation's direct and indirect subsidiaries, including Consolidated Furniture Corporation, Furniture Comfort Corporation, as well as its operating division, Barcalounger, are not parties to the bankruptcy. In April 1997, the Bondholders' filed a Motion with the Bankruptcy Court seeking to convert Fairwood's Chapter 11 case to a case under Chapter 7 or, alternatively, for the appointment of a Chapter 11 trustee. By order dated March 2, 1999, the Bondholders' motion to convert the case or, alternatively, for the appointment of a Chapter 11 trustee, was denied in its entirety. On March 10, 2000, the District Court entered an Order affirming the Bankruptcy Court's decision in all respects. The Bondholders appealed to the Second Circuit Court of Appeals, which on January 4, 2001 entered an order affirming the judgment of the District Court. It is not yet known what further action, if any, the Bondholders will take or what the ultimate outcome of the Chapter 11 case will be. However, Consolidated Furniture and subsidiaries in the meantime continue to operate in the normal course of business.
As discussed in Note 4, based on uncertainties involved with respect to the ultimate resolution of the matters described above, Fairwood continues to accrue interest on the Fairwood Debentures. The total amount of interest expense recorded on the Fairwood Debentures was $27 million in each of the years ended December 31, 2000, 1999 and 1998. The following liabilities are subject to compromise: Senior subordinated pay-in-kind debentures of $105,853,000; Merger debentures of $62,928,000; and accrued interest of $168,914,000 and $141,888,000 and accrued preferred stock dividends of $621,000 and $505,000 as of December 31, 2000 and 1999 respectively.
(12) Flood damage
In September 1999, Barcalounger Division, the only remaining operating division of Furniture Comfort, incurred substantial damage due to floods caused by the heavy rains of Hurricane Floyd. The damage to inventory was approximately $5.8 million. This amount includes the destruction of all finished inventory, approximately 95% of work in process and approximately 50% of raw materials. Barcalounger lost sales as a result of its Rocky Mount, North Carolina plant being closed for approximately three weeks. Losses experienced by the Company were largely offset by insurance proceeds. The net effect was a $0.5 million loss.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Segment Reporting
In June 1997, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 requires Fairwood to present certain information about each identified segment that exceeds certain quantitative thresholds for revenue, profit or loss, and assets.
Prior to the sale of Stratford, Fairwood's reportable segments were strategic business units that offerred different products. They were managed separately because each business had distinctly different markets and they had separate marketing and manufacturing facilities.
Stratford Division:
On June 3, 1999, Furniture Comfort sold substantially all of the assets of the Stratford Division for approximately $14 million in cash plus the assumption of certain liabilities (see note 2). Stratford had targeted a broad market for it mid-priced recliner, motion and stationary upholstered furniture. Stratford sold mainly to large national retail furniture and department stores.
Barcalounger Division:
Barcalounger targets a selected market for its high-end recliner chair and motion upholstered furniture. Barcalounger sells mainly to furniture stores and department stores that carry more expensive products and provide interior design services directly or indirectly. Barcalounger gives extensive warranties for its products.
The required segment financial information, in thousands, for the years ending December 31, are as follows:
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Segment Reporting (continued)
* - includes loss from flood of $461.
Geographical information Revenues
(14) Selected Quarterly Financial Data (Unaudited)
On June 3, 1999, Furniture Comfort sold substantially all of the assets of the Stratford Division for approximately $14 million in cash plus the assumption of certain liabilities. The proceeds from the sale were used to pay-down the revolving credit and term loan. As a result of this sale, Furniture Comfort recognized a loss of approximately $2 million, which includes $1 million for claims submitted by the purchaser of Stratford regarding post-closing adjustments. During the fourth quarter of 2000, Furniture Comfort recorded an additional liability of approximately $0.6 million due to former Stratford employees, which is included in operating income for the quarter ended December 31, 2000.
In September 1999, Barcalounger Division, the only remaining operating division of Furniture Comfort, incurred substantial damage due to floods caused by the heavy rains of Hurricane Floyd. The damage to inventory was approximately $5.8 million. Barcalounger also lost sales as a result of its Rocky Mount, North Carolina plant being closed for approximately three weeks.
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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.
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Fairwood's senior executive officer holds the title of Chief Financial Officer, Executive Vice President, Secretary and Treasurer. No executive officer holds the title of President or Chief Executive Officer, but the functions customarily performed by the person holding such titles are performed by Fairwood's Chief Financial Officer, Executive Vice President, Secretary and Treasurer. There are no arrangements or understandings between any director and any other person naming such person pursuant to which such director was selected as a director.
The following is the president of Furniture Comfort Corporation and may be deemed to be an executive officer of the Company as of December 31, 2000:
There are no family relationships among any of the Company's directors or officers.
The following is a brief account of the business experience during the past five years of Mr. Stephens:
In connection with services provided by The Finley Group, a management consulting firm, Mr. Stephens, a principal of that firm, has acted as president of a number of companies. In October 1992, Mr. Stephens became acting president of Barcalounger. In February 1999, Mr. Stephens was named President and Chief Executive Officer of Furniture Comfort Corporation.
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ITEM 11.
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
(1) 2000, 1999 and 1998 amounts represent Consolidated Furniture contributions to the investment plan of $1,560, $1,500 and $1,500, respectively, and automobile allowance of $6,000 for each year.
(2) 2000 amount represents company contributions to the investment plan of $2,749, $20,000 contributed to a deferred compensation plan and $1,500 for the value of the use of a company vehicle. 1999 amount represents company contributions to the investment plan of $3,203, $20,000 set aside in an unfunded deferred compensation plan and $1,500 for the value of the use of a company vehicle. 1998 amount represents company contributions to the investment plan of $3,018 and $1,193 for the value of the use of a company vehicle.
(3) Effective February 25, 1999, Mr. Adelman resigned as President and Chief Executive Officer at Furniture Comfort Corporation.
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Employment Agreements
Consolidated Furniture entered into an employment agreement with Mr. Sganga, who is named in the summary compensation table, effective December 15, 1993, which provided for an annual salary, plus such bonuses as may be awarded in the discretion of the Board of Directors. This agreement ended on December 31, 1995, and Mr. Sganga continues to be employed under similar terms.
Salaried Investment Plan
Officers of Consolidated Furniture are eligible to participate in its Tax-qualified Investment Plan for Salaried and Hourly Employees. Directors who are not officers are not eligible. Consolidated Furniture may, but is not obligated to, contribute up to 100% of any savings of a participant not exceeding 4% of salary.
The full value of a participant's investment in the plan becomes payable upon retirement, disability or death. Upon termination of employment for other reasons, a participant is entitled to the accumulated value of his or her savings, and to varying amounts of Consolidated Furniture's contributions depending on years of membership in the plan, with 100% thereof payable if years of membership are 5 or more.
During 2000, 1999 and 1998, such contributions for Mr. Sganga were $1,560, $1,500 and $1,500, respectively. The Company contribution for Mr. Stephens was $2,749, $3,203 and $3,018 in 2000, 1999 and 1998, respectively.
Incentive Plan
Consolidated Furniture maintains an executive incentive (bonus) plan implemented to provide individual awards for attainment of specified business objectives. Under the executive incentive plan, each of Consolidated Furniture's profit centers is assigned certain business goals annually, which are based on earnings and cash flow. Awards are made to profit center participants based upon the extent to which their respective profit centers attain their goals. Total awards made for the 2000 Plan Year were $488,385, including awards of $218,375 for Mr. Stephens. Total awards made for the 1999 Plan Year were $388,079, including awards of $169,519 for Mr. Stephens. Total awards made for the 1998 Plan Year were $588,563 including awards of $232,712 for Mr. Stephens. Executive Deferred Compensation Plan
An Executive Deferred Compensation Plan effective August 1, 1999, was established by The Barcalounger Company, a division of Furniture Comfort Corporation, to provide certain of its designated executives with an additional method of planning for their retirement. In addition, the Plan serves as an incentive for them to promote the success of the Company and to encourage them to maintain their employment relationships with the Company. Total amounts contributed for 2000 and 1999 were $100,000 and $80,000, respectively, including $20,000 and $20,000, respectively, for Mr. Stephens.
Directors' Compensation
As of the date of this Annual Report on Form 10-K, the Company has not determined what compensation directors who are not officers of the Company will receive for their service as director. No compensation was paid to directors for their services as directors in 1998, 1999 or 2000.
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Compensation Committee Interlocks and Insider Participation
The Company's board of directors does not have a separate compensation committee. Accordingly, the entire board of directors considers executive compensation matters, except that any executive officer who is a director does not take part in executive compensation matters regarding that executive officer.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
Fairwood's common stock consists of both voting stock and non-voting stock. The table below sets forth, as of February 28, 2001, certain information regarding the directors and executive officers and each person who owns of record or beneficially 5% or more of the outstanding shares of common stock. Such beneficial owners own their shares directly and have sole voting and investment power with respect to their shares.
* 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
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CVCL will no longer be presumed to have control of Fairwood under the regulations of the Small Business Administration upon the earlier of (i) the date on which the Company's ratio of earnings before interest, taxes and depreciation to interest expense on a consolidated basis has been 1.5 to 1 for three consecutive fiscal quarters or (ii) December 31, 1997 (or such later date as may be consented to by the Small Business Administration). The Small Business Administration has extended the December 31, 1997 conversion date to December 31, 2002. The Agreement has been accepted by the Small Business Administration. CVCL is a subsidiary of Citibank, N.A., a national bank which is owned by Citigroup and is an affiliate of CSCL.
** Mr. Muqaddam disclaims beneficial ownership of these shares owned of record by CVCL which are attributed to him by reason of his status as an officer of CVCL.
Ownership by Directors and Officers
As of February 28, 2001, no shares of the Company's common stock were beneficially held by any director or officer.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As further described in the Company's financial statements in Item 8, a large majority of the Company's long-term debt at December 31, 2000 is payable to CSCL, an affiliate of CVCL, the Company's majority shareowner. M. Saleem Muqaddam, a director of the Company, is a vice president of CVCL and CSCL. During 2000 and at December 31, 2000, the largest aggregate amount of indebtedness outstanding that was payable to CSCL was approximately $615.6 million. See Note 4, Long-term Debt, in the Notes to Consolidated Financial Statements set forth in Item 8. During 2000 the Company borrowed approximately $57.0 million from CSCL and made no payments to CSCL. During 2001 it is anticipated that approximately $63.3 million will be borrowed from CSCL and that no repayments to CSCL will be made. It is also anticipated that interest due to CSCL on the senior subordinated pay-in-kind debentures, which interest approximates $16.4 million, will not be paid.
399 Venture Partners, Inc. ("VPI"), an affiliate of CVCL owns a majority of Furnishings International Inc. (formerly Simmons Holding Corporation) ("Furnishings"), the parent of Simmons Upholstered Furniture Corporation ("Simmons"). M. Saleem Muqaddam is a vice president of VPI and a director of Furnishings, Simmons and the Company. Stratford and Simmons were parties to a Manufacturing Agreement dated as of November 29, 1995 (the "Agreement"). Under this Agreement, Stratford had agreed to manufacture product for and supply product on behalf of Simmons for a term of one year, subject to automatic annual renewals, unless terminated by either party. (See Note 8 to the Company's Consolidated Financial Statements set forth in Item 8). The Agreement was terminated in 1999.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page ----
Other schedules are omitted because of the absence of conditions under which they are required.
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3. Exhibits --------
Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K
(3.1) Certificate of Incorporation of the Registrant, as amended incorporated by reference to Exhibit 3.3 of the Registrant's Registration Statement on Form S-4 (the "Form S-4")).
(3.2) By-Laws of the Registrant (incorporated by reference to exhibit 3.4 of the Form S-4).
(3.3) Certificate of Amendment of Certificate of Incorporation, dated March 22, 1993 (incorporated by reference to Exhibit 3.3 of the Registrant's annual report on Form 10-K for the year ended December 31, 1992 (the "1992 Form 10-K")).
(4.1) Indenture, dated as of August 15, 1989, between Fairwood Corporation, formerly MHS Holdings Corporation the "Company") and Bankers Trust Company, as Trustee, relating to the 16-7/8% Subordinated Pay-In-Kind Debentures due 2004 (the "Merger Debentures"), (incorporated reference to Exhibit 4.1 of the Registrant's third quarter report on Form 10-Q for the quarter ended September 30, 1989 (the "1989 Third Quarter 10-Q")).
(4.2) Form of Merger Debentures, included as Exhibit A to Exhibit 4.1, (incorporated by reference to Exhibit 4.2 of the 1989 Third Quarter 10-Q).
(4.3) Pledge and Security Agreement, dated as of August 15, 1989, made by the Company to Bankers Trust Company, as Trustee, (incorporated by reference to Exhibit 4.3 of the 1989 Third Quarter 10-Q).
(4.4) 15-1/2% Senior Subordinated Pay-In-Kind Debentures of the Company, dated as of September 22, 1989, issued to Citicorp Capital Investors Ltd. (incorporated by reference to Exhibit 4.6 of the 1989 Third Quarter 10-Q).
(4.5) Pledge and Security Agreement, dated September 22, 1989, made by the Company to Citicorp Capital Investors Ltd., as Agent, (incorporated by reference to Exhibit 4.7 of the 1989 Third Quarter 10-Q).
(4.6) Credit Agreement dated as of September 22, 1989 among Mohasco Corporation ("Mohasco"), Mohasco Upholstered Furniture Corporation, Chromcraft Corporation, Super Sagless Corporation, Choice Seats Corporation and Peters Revington Corporation and Citicorp Capital Investors Ltd. (the "Credit Agreement"), (incorporated by reference to Exhibit 4.8 of the Registrant's annual report on Form 10-K for the year ended December 31, 1989 (the "1989 Form 10-K")).
(4.7) Amendment, dated December 15, 1989, to the Credit Agreement, (incorporated by reference to Exhibit 4.9 of the 1989 Form 10-K).
(4.8) Amendment, dated March 13, 1990, to the Credit Agreement, (incorporated by reference to Exhibit 4.10 of the 1989 Form 10-K).
(4.9) Notice of Election and Waiver, dated March 13, 1990, to the Credit Agreement, (incorporated by reference to Exhibit 4.11 of the Registrant's annual report on Form 10-K for the year ended December 31, 1990 (the "1990 Form 10-K")).
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(4.10) Term Note B, dated March 13, 1990, issued to Court Square Capital Limited, (incorporated by reference to Exhibit 4.12 of the 1989 Form 10-K).
(4.11) Agreement and Waiver, dated August 15, 1990, to the Credit Agreement, (incorporated by reference to Exhibit 4.13 of the 1990 Form 10-K).
(4.12) Agreement and Waiver, dated September 5, 1990, to the Credit Agreement, (incorporated by reference to Exhibit 4.14 of the 1990 Form 10-K).
(4.13) Agreement and Waiver, dated September 15, 1990, to the Credit Agreement, (incorporated by reference to Exhibit 4.16 of the 1990 Form 10-K).
(4.14) Waiver and Amendment, dated September 15, 1990, to the Credit Agreement and letter, dated September 15, 1990, related thereto, (incorporated by reference to Exhibit 4.16 of the 1990 Form 10-K).
(4.15) Waiver and Fourth Amendment, dated as of December 31, 1990, to the Credit Agreement, (incorporated by reference to Exhibit 4.17 of the 1990 Form 10-K).
(4.16) Revolving Credit Note, dated September 22, 1989, amended and restated as of September 15, 1990, issued to Court Square Capital Limited, and Endorsement No. 1 thereto, dated as of December 31, 1990, (incorporated by reference to Exhibit 4.18 of the 1990 Form 10-K).
(4.17) Increasing Rate Senior Subordinated Debentures of Mohasco Corporation dated as of September 22, 1989 issued to Citicorp Capital Investors Ltd. (the "Senior Subordinated Debentures"), (incorporated by reference to Exhibit 4.13 of the 1989 Form 10-K).
(4.18) Amendment, dated March 30, 1990, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.14 of the 1989 Form 10-K).
(4.19) Second Amendment, dated as of December 31, 1990, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.21 of the 1990 Form 10-K).
(4.20) Endorsement No. 1, dated as of December 31, 1990, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.22 of the 1990 Form 10-K).
(4.21) Waiver, dated as of June 29, 1991, to the Credit Agreement, (incorporated by reference to Exhibit 4.23 of the Registrant's annual report on Form 10-K for the year ended December 31,1991 the "1991 Form 10-K")).
(4.22) Waiver, dated as of October 31, 1991, to the Credit Agreement, (incorporated by reference to Exhibit 4.24 of the 1991 Form 10-K).
(4.23) Waiver and Fifth Amendment, dated as of March 27, 1992, to Credit Agreement, (incorporated by reference to Exhibit 4.26 of the 1991 Form 10-K).
(4.24) Third Amendment, dated as of March 27, 1992, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.27 of the 1991 Form 10-K).
(4.25) Endorsement No. 2, dated as of March 27, 1992, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.28 of the 1991 Form 10-K).
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(4.26) Sixth Amendment, dated as of April 23, 1992, to Credit Agreement, (incorporated by reference to Exhibit 4.1 of the Registrant's second quarter report on Form 10-Q for the quarter ended June 27, 1992 (the "1992 Second Quarter 10-Q")).
(4.27) Seventh Amendment, dated as of April 23, 1992, to Credit Agreement, (incorporated by reference to Exhibit 4.2 of the 1992 Second Quarter 10-Q).
(4.28) Eighth Amendment, dated as of September 26, 1992, to Credit Agreement, (incorporated by reference to Exhibit 4.1 of the Registrant's third quarter report on Form 10-Q for the quarter ended September 26,1992 (the "1992 Third Quarter 10-Q")).
(4.29) Waiver and Ninth Amendment, dated as of February 4, 1993, to Credit Agreement, (incorporated by reference to Exhibit 4.32 of the 1992 Form 10-K).
(4.30) Tenth Amendment, dated as of March 22, 1993, to Credit Agreement, (incorporated by reference to Exhibit 4.33 of the 1992 Form 10-K).
(4.31) Recision of Waiver, dated as of April 30, 1993, to Credit Agreement, (incorporated by reference to Exhibit 4.1 of the Registrant's first quarter report on Form 10-Q for the quarter ended April 3, 1993 (the "1993 First Quarter 10-Q")).
(4.32) Eleventh Amendment, dated as of March 25, 1994, to Credit Agreement, (incorporated by reference to Exhibit 4.35 of the 1993 Form 10-K).
(4.33) Fourth Amendment, dated as of January 3, 1994, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.36 of the 1993 Form 10-K).
(4.34) Factoring Agreement, dated as of July 25, 1995, between Capital Factors, Inc. and Stratford Company, a division of Furniture Comfort Corporation, (incorporated by reference to Exhibit 4.37 of the 1995 Form 10-K).
(4.35) Debt Subordination Agreement, dated as of July, 1995, between Capital Factors, Inc. and Consolidated Furniture Corporation, formerly Mohasco Corporation, (incorporated by reference to Exhibit 4.38 of the 1995 Form 10-K).
(4.36) Lien Subordination Agreement, dated as of July 25, 1995, between Capital Factors, Inc. and Court Square Capital Limited, (incorporated by reference to Exhibit 4.39 of the 1995 Form 10-K).
(4.37) Twelfth Amendment, dated as of November 30, 1995, to Credit Agreement, (incorporated by reference to Exhibit 4.40 of the 1995 Form 10-K).
(4.38) Fifth Amendment, dated as of January 2, 1996, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.41 of the Registrant's first quarter report on Form 10-Q for the quarter ended March 30, 1996 (the "1996 First Quarter 10-Q")).
(4.39) Thirteenth Amendment, dated as of January 13, 1996, to Credit Agreement, (incorporated by reference to Exhibit 4.42 of the Registrant's first quarter report on Form 10-Q for the quarter ended March 30, 1996 (the "1996 First Quarter 10-Q")).
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(4.40) Fourteenth Amendment, dated as of March 25, 1996, to Credit Agreement, (incorporated by reference to Exhibit 4.43 of the Registrant's first quarter report on Form 10-Q for the quarter ended March 30, 1996 (the "1996 First Quarter 10-Q")).
(4.41) Fifteenth Amendment, dated as of September 30, 1996, to Credit Agreement, (incorporated by reference to Exhibit 4.36 of the 1993 Form 10-K).
(4.42) Sixteenth Amendment, dated as of December 31, 1996, to Credit Agreement, (incorporated by reference to Exhibit 4.36 of the 1993 Form 10-K).
(4.43) Sixth Amendment, dated as of January 2, 1997, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.43 of the 1996 Form 10-K).
(4.44) Factoring Agreement, dated as of December 10, 1996, between Capital Factors, Inc. and Barcalounger Company, a division of Furniture Comfort Corporation, (incorporated by reference to Exhibit 4.44 of the 1996 Form 10-K).
(4.45) Debt Subordination Agreement, dated as of December 10, 1996, between Capital Factors, Inc. and Consolidated Furniture Corporation, formerly Mohasco Corporation, (incorporated by reference to Exhibit 4.45 of the 1996 Form 10-K).
(4.46) Lien Subordination Agreement, dated as of December 10, 1996, between Capital Factors, Inc. and Court Square Capital Limited, (incorporated by reference to Exhibit 4.46 of the 1996 Form 10-K).
(4.47) Seventeenth Amendment, dated as of May 23, 1997, to Credit Agreement, (incorporated by reference to Exhibit 4.47 of the 1997 Form 10-K).
(4.48) Eighteenth Amendment, dated as of July 1, 1997, to Credit Agreement, (incorporated by reference to Exhibit 4.48 of the 1997 Form 10-K).
(4.49) Mortgage, Security Agreement, Assignment of Rents and Financing Statement, dated November 12, 1997, by Futorian Furnishings, Inc. in favor of Banco Popular, (incorporated by reference to Exhibit 4.49 of the 1997 Form 10-K).
(4.50) Mortgage Note, dated November 12, 1997, by Futorian Furnishings, Inc. and Banco Popular, (incorporated by reference to Exhibit 4.50 of the 1997 Form 10-K).
(4.51) Nineteenth Amendment, dated as of January 30, 1998, to Credit Agreement, (incorporated by reference to Exhibit 4.51 of the 1997 Form 10-K).
(4.52) Twentieth Amendment, dated as of January 31, 1998, to Credit Agreement, (incorporated by reference to Exhibit 4.52 of the 1997 Form 10-K).
(4.54) Seventh Amendment, dated as of January 2, 1998, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.54 of the 1997 Form 10-K).
(4.55) Twenty-first Amendment, dated as of February 1, 1998, to Credit Agreement, (incorporated by reference to Exhibit 4.55 of the 1998 Form 10-K).
(4.56) Twenty-second Amendment, dated as of September 30, 1998, to Credit Agreement, (incorporated by reference to Exhibit 4.56 of the 1998 Form 10-K).
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(4.57) Twenty-third Amendment, dated as of December 15, 1998, to Credit Agreement, (incorporated by reference to Exhibit 4.57 of the 1998 Form 10-K).
(4.58) Eighth Amendment, dated as of January 4, 1999, to the Senior Subordinated Debentures, (incorporated by reference to Exhibit 4.58 of the 1998 Form 10-K).
(4.59) Twenty-fourth Amendment, dated as of April 2, 1999, to Credit Agreement (incorporated by reference to Exhibit 4.59 of the 1999 Form 10-K).
(4.60) Twenty-fifth Amendment, dated as of September 30, 1999, to Credit Agreement (incorporated by reference to Exhibit 4.60 of the 1999 Form 10-K).
(4.61) Twenty-sixth Amendment, dated as of December 29, 1999, to Credit Agreement (incorporated by reference to Exhibit 4.61 of the 1999 Form 10-K).
(4.62) Ninth Amendment, dated as of December 29, 1999, to the Senior Subordinated Debentures (incorporated by reference to Exhibit 4.62 of the 1999 Form 10-K).
(4.63) Twenty-seventh Amendment, dated as of December 29, 2000, to Credit Agreement.
(4.64) Tenth Amendment, dated as of December 29, 2000, to the Senior Subordinated Debentures.
(10.1) Mohasco Executive Retirement Plan, (incorporated by reference to Exhibit 10.5 of the 1990 Form 10-K).
(10.2) Mohasco Corporation Executive Incentive Plan, (incorporated by reference to Exhibit 10.6 of the 1990 Form 10-K).
(10.3) Amendment, dated December 31, 1991, to the Mohasco Executive Retirement Plan, (incorporated by reference to Exhibit 10.6 of the 1991 Form 10-K).
(10.5) Real Estate Purchase Agreement, dated September 15, 1997, between Furniture Comfort Corporation and American National Bank and Trust Company, not personally, but solely as Trustee under Trust Agreement dated July 17, 1978, and known as Trust No. 43449 (incorporated by reference to Exhibit 10.5 of the 1998 Form 10-K).
(10.6) Agreement for Purchase and Sale of Assets among Furniture Comfort Corporation, Consolidated Furniture Corporation, Vanguard, L.L.C., Heath Furnishings, L.L.C., Stratford Upholstery, L.L.C., Simmons Upholstery, L.L.C., Western Upholstery Company, L.L.C., and Vanguard Properties II, L.L.C. dated June 3, 1999, (incorporated by reference to Exhibit 1.1 of the June 3, 1999 Form 8-K).
(21.1) List of Subsidiaries of the Registrant.
The Company agrees to furnish the Securities and Exchange Commission, upon request, a copy of any instrument defining the rights of holders of long term debt of the Company and its consolidated subsidiaries.
(b) Reports on Form 8-K
None
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Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2000, 1999 and 1998
(In Thousands)
(1) - Primarily the result of the sale of the Stratford Division's net assets.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FAIRWOOD CORPORATION
By: /s/ John B. Sganga ---------------------------- John B. Sganga Chief Financial Officer, Executive Vice President, Secretary and Treasurer
Date: March 31, 2001 --------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 2001 by the following persons on behalf of the Registrant and in the capacities indicated.
Title -----
/s/ John B. Sganga - --------------------------- John B. Sganga Director and Chief Financial Officer, Executive Vice President, Secretary and Treasurer (principal executive, financial and accounting officer)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 2001 by the following person on behalf of the Registrant and in the capacity indicated.
Title -----
/s/ M. Saleem Muqaddam Director - -------------------------------- M. Saleem Muqaddam
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