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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year
ended December 31,2001
[] TRANSACTION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from to
Commission file number 0-25246
WINSLOEW FURNITURE, INC.
(Exact name of registrant as specified in its charter)
Florida 63-1127982
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
160 Village Street, Birmingham, Alabama 35242
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
(205) 408-7600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- K or any amendment to
this Form 10-K. [X]
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of January 21, 2002 was 1,000.
INDEX TO ITEMS
Page
PART I
ITEM 1. Business 3
ITEM 2. Properties 18
ITEM 3. Legal Proceedings 20
ITEM 4. Submission of Matters to a Vote of Security
Holders 20
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 20
ITEM 6. Selected Financial Data 21
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 36
ITEM 8. Financial Statements and Supplementary Data 37
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 72
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 73
ITEM 11. Executive Compensation 78
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 85
ITEM 13. Certain Relationships and Related Transactions 86
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 90
Signatures 96
PART I
ITEM 1. BUSINESS
On August 27, 1999, Trivest Furniture Corporation, an affiliate of Trivest,
merged with and into us, and we were the surviving corporation. For financial
reporting purposes, the merger is considered effective August 27, 1999 and our
operations prior thereto and thereafter are respectively classified as
predecessor company and successor company operations. The operations of the
successor company represent 100% of the businesses of the predecessor.
Therefore, certain operational data for the twelve months ended December 31,
1999 have been presented on a combined basis because such information is
comparable to the historical data of the predecessor and the current data of the
successor.
The historical financial statements of the successor company and its predecessor
are presented separately as described in Note 2 to the Consolidated Financial
Statements included under Item 8.
GENERAL
We are a leading designer, manufacturer and distributor of a broad offering of
casual indoor and outdoor furniture and contract and hospitality products. We
also manufacture certain ready-to-assemble furniture products. Our casual
furniture includes chairs, chaise lounges, tables, umbrellas and related
accessories, which are generally constructed from aluminum, wrought iron, wood
or fiberglass. In addition, our casual line includes a variety of tables,
chairs, benches and swings for the site amenity market. Our seating products
include wood, metal and upholstered chairs, sofas and loveseats, which are
offered in a wide variety of finish and fabric options. All of our casual
furniture, excluding Wabash, and contract and hospitality products are
manufactured pursuant to customer orders. We sell our furniture products to the
residential market and to the contract and hospitality market, consisting of
commercial and institutional users.
Business
We market our casual furniture products to the residential market under the
Winston, Pompeii, Brown Jordan, Vineyard and Shae Designs brand names through
approximately 67 independent sales representatives and to over 800 active
customers, which are primarily specialty patio furniture stores located
throughout the United States. In addition, we market our casual products to the
mass merchandise market under the Casual Living, Better Homes and Gardens and
Samsonite brand names.
We also market a broad line of casual furniture products in the contract markets
under the Texacraft, Tropic Craft, Pompeii and Brown Jordan brand names,
primarily through our in-house sales force, to lodging and restaurant chains,
country clubs, apartment developers and property management firms, architectural
design firms, municipalities and other commercial and institutional users. In
addition, we market a variety of products under the Wabash brand name. These
products are targeted at educational facilities, municipality and recreation
centers, hotels and motels and other institutional and corporate users.
We market our seating products to a broad customer base in the contract and
hospitality market under the Loewenstein, Lodging By Liberty, Stuart Clark and
Charter brand names through approximately 24 regional independent sales
organizations. Our customers include lodging and restaurant chains,
architectural design firms, professional sports complexes, schools, healthcare
facilities, office furniture dealers, retail store planners and other commercial
and institutional users in the contract and hospitality market. We manufacture
over 300 distinct models of seating products ranging from traditional to
contemporary styles of chairs, as well as reception area love seats, sofas and
stools. We design, assemble and finish our seating products with component parts
from a variety of suppliers, including a number of Italian manufacturers.
Over the past several years, we have undertaken a number of initiatives to
strengthen and grow our core casual furniture and seating businesses. We have
focused resources on our core business and disposed of non-core or unprofitable
operations. In 1997, we sold our wrought iron furniture business, and in 1998 we
discontinued and sold or liquidated certain of our ready-to-assemble furniture
operations. We also embarked on a focused acquisition program to broaden our
core product offering in the casual segment that, to date, has resulted in the
acquisitions of Tropic Craft, a manufacturer of casual furniture sold into the
contract markets; Pompeii, a manufacturer of upper-end casual furniture sold
into both the residential and contract markets; Brown Jordan, a manufacturer
whose products serve the premium to unlimited market categories in both retail
and contract markets and Casual Living Worldwide who markets to national
retailers and specialty patio stores under a variety of brand names in the
moderate to lower price points; and Wabash Valley, a manufacturer of site
amenities products in the institutional and corporate markets. Our balanced
approach to growth has also resulted in acquisitions to complement our seating
segment. These acquisitions included Stuart Clark and Charter during 2000, both
of which manufacture upholstered furniture for the hospitality industry. In
addition, the Company purchased The Woodsmiths Company in March 2001. Woodsmiths
is a manufacturer of custom tabletops for the contract and hospitality markets.
We were incorporated in the state of Florida on September 23, 1994. Our
principal executive offices are located at 160 Village Street, Birmingham,
Alabama 35242, and our telephone number is (205) 408-7600.
History
We were formed in December 1994 through the merger of Winston Furniture Company,
Inc., a designer, manufacturer and distributor of casual furniture for both the
residential and contract and hospitality markets, and Loewenstein Furniture
Group, Inc., a manufacturer of seating products for the contract and hospitality
markets and of ready-to-assemble furniture products, with and into WinsLoew
Furniture, Inc., a newly-formed corporation that was organized for the purpose
of the merger. Prior to that merger, Winston and Loewenstein were publicly held
corporations whose common stock traded on the NASDAQ National Market. From
December 1994 through August 1999, we were a publicly held corporation, and our
common stock traded on the NASDAQ National Market.
During the fourth quarter of 1995, we disposed of the assets of our office
seating business. During the third quarter of 1997, we disposed of certain
assets of our wrought iron furniture manufacturing business in the casual
furniture product line. During 1997, we adopted a plan to dispose of our three
ready-to-assemble furniture businesses and recorded a pretax non-cash charge
totaling $12.4 million in the fourth quarter of 1997 relating to the disposal of
our ready-to-assemble operations. During 1998, we sold one of the businesses,
completed the liquidation of a second, our futon business, and decided to retain
the third ready-to-assemble business, Southern Wood, due to improved
profitability and, accordingly, have reclassified our Southern Wood results to
continuing operations.
During the third quarter of 1998, we acquired the stock of Tropic Craft, a
manufacturer of aluminum casual outdoor furniture sold into contract markets.
In July 1999, we acquired all of the stock of Pompeii, a manufacturer of
upper-end aluminum casual furniture sold into the contract and residential
markets.
In March 2000, we acquired all of the stock of Wabash Valley Manufacturing, a
manufacturer of site amenity furniture sold into the institutional and corporate
markets.
On June 16, 2000 the Company purchased certain assets of Stuart Clark, Inc. and
its affiliates. Stuart Clark is a manufacturer of mid price point upholstered
furniture for the hospitality industry
On August 11, 2000 the Company purchased all of the stock of Charter Furniture.
Charter provides high quality upholstered furniture for rooms, suites and common
areas of premier hospitality companies.
Recent Developments
On March 9, 2001 the Company purchased all of the outstanding stock of The
Woodsmiths Company. Woodsmiths, a manufacturer of custom tabletops for the
contract and hospitality industry, is located in Pompano Beach, Florida. The
purchase price of approximately $2.8 million was paid in cash of approximately
$2.5 million and $0.3 million in equity investment.
In addition, the stock purchase agreement provides for an additional contingent
deferred payment of up to $1,000,000 based upon Woodsmiths' earnings before
interest, taxes, depreciation, amortization and management fees. The maximum
contingent payment amount of $1,000,000 was recorded at the time of purchase as
an addition to goodwill and an accrued liability of the Company. The amount of
any such contingent payment will be made directly to the former sole shareholder
and serves as a financial incentive.
The acquisition resulted in goodwill of approximately $3.4 million and was
accounted for under the purchase method of accounting. The operating results of
Woodsmiths have been included in the consolidated operating results beginning on
the date of acquisition.
On May 8, 2001 WinsLoew Furniture, Inc. and its parent WLFI Holdings, Inc.
acquired all of the outstanding stock of Brown Jordan International, Inc. (BJI)
at a purchase price of $78.6 million. The Stock Purchase Agreement by and among
WLFI Holdings, Inc., the Company, BJI and the Stockholders of BJI also called
for the repayment of outstanding BJI indebtedness at closing, which approximated
$44.6 million. The amount of consideration paid by the Company for the BJI stock
was determined through an arm's length negotiation between representatives of
the Company and BJI.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired on a
preliminary basis using the fair value of the assets acquired. This preliminary
basis is subject to review and subject to change. Pursuant to the purchase
method of accounting, the excess of the purchase price over the $44.6 million
fair value of net assets after payment of BJI indebtedness at closing, has been
recorded as goodwill in the amount of $78.6 million. The operating results of
BJI have been included in the consolidated operating results since the date of
acquisition.
In order to complete the acquisition, the merger described in Note 1 to the
Consolidated Financial Statements included under item 8 was consummated
simultaneously.
WLFI Holdings, Inc. raised $50.9 million of equity and issued $22 million of
subordinated notes to the sellers for BJI stock. Holdings contributed the cash
of $50.9 million to the Company as additional equity. The stock of BJI, obtained
in the exchange of subordinated notes, was also contributed to the Company. The
balance of the proceeds was provided through a refinancing of the Company's
existing Senior Credit Facility. The new Senior Credit Facility consists of a
$165 million Term Loan and a $60 million revolving credit facility.
In January of 2002, Bruce Albertson was named the Company's President and Chief
Executive Officer replacing Bobby Tesney. Mr. Albertson joined GE Appliances in
1976 as a sales counselor, advancing over the course of the next 25 years to
become, in succession, General Manager of Brand Management & Distribution
Strategy, President of GE Appliances in Hong Kong, and Vice President for Global
Marketing and Product Management in Louisville. Most recently, Mr. Albertson was
the President and CEO of Iomega Corporation, based in Utah.
COMPETITIVE STRENGTHS
We believe that we have achieved our leading market position by capitalizing on
the following key competitive strengths.
Reputation for Producing High Quality Products. Our reputation for providing
customers with high quality products is built upon our use of superior
structural designs, aesthetic styling, sophisticated manufacturing techniques
and strict quality control standards. Our dedication to quality begins with a
customer-oriented design process that is based upon independent market research
and the involvement of senior management, independent designers, sales
representatives, dealers, our engineering department and suppliers. We also
employ a number of sophisticated manufacturing processes that increase the
quality of our products and differentiate them from those of our competitors.
For example, we use an electrostatically applied ultraviolet cured wood
finishing system that produces one of the most consistent, durable and vibrant
finishes in the industry. Further, to ensure that only the highest quality
products are shipped to our customers, we have established numerous checkpoints
where the quality of all of the products is examined during the manufacturing
process. Our focus on quality is evidenced by our low level of actual warranty
claims. Our reputation for producing high quality products is further evidenced
by our receipt of the Casual Furniture Retailer Association's prestigious
"Manufacturer's Leadership Award" four times, most recently for 2000, and being
recognized as a finalist every year since the award was first given in 1990. The
criteria for this award include quality, design, merchandising, customer service
and ethics.
Unique Delivery Capabilities. We have tailored our operations to meet the unique
delivery requirements of our customers. On time delivery is critical to our
casual furniture retailers because of their short selling season, general desire
to minimize inventory levels and need to offer their customers products that
will be available at the time of or soon after their purchase. Our commitment to
timely delivery to these retailers is exemplified by our "Quick Ship" program
under which we, rather than the customer, pay the freight charges if shipment is
not made within 15 working days from the credit approval of a customer's order.
Since we introduced this program in 1988, we have never had to pay freight
charges. Our ability to deliver "in time, on time" is also important to our
contract market customers, who must receive our casual furniture or seating
products on a timely basis to meet their own construction or operating
deadlines. We believe that our "Quick Ship" program and our ability to deliver
our products "in time, on time" are unique in the furniture manufacturing
industry and distinguish us from our competitors.
Continual Focus on Customer Service. We are dedicated to providing the highest
level of customer service through our focus on complete customer satisfaction.
We provide a variety of services, which are geared towards assisting our
customers to improve the profitability of their business while strengthening
their loyalty to our products. For example, in our casual furniture segment, we
provide retailers with improved terms and extended payment plans for products
ordered prior to the main selling season that ensures them product availability
and slightly lower costs. We also respond to customers' urgent orders with our
"red flag" service that gives such products priority in our plants throughout
the manufacturing process.
Moreover, in the event a customer requests a replacement part that does not need
to be manufactured; we guarantee delivery within 24 hours of our receipt of the
order. This level of customer service is equally important to our seating
customers. Since our seating customers require unique product features, we work
closely with them to provide customized seating products that meet their
particular needs. We offer these customized products quickly and cost
effectively through our flexible manufacturing processes and trained sales staff
knowledgeable in the design, manufacture, variety and decor applications of our
products. We also have a customer service department at each manufacturing plant
to respond directly to customer inquiries.
Efficient Operations and Variable Cost Structure. We continually review our
operations to identify ways to streamline our manufacturing process and reduce
our costs in order to further increase efficiencies and profitability. Over the
past few years, we have:
. improved our manufacturing capabilities through the use of
technologically advanced systems,
. optimized our use of vertical integration and outsourcing, as
appropriate,
. exited lower margin or non-core businesses, and
. extensively reconfigured manufacturing processes within our
principal manufacturing facilities.
We operate our business with a highly variable cost structure so we can react
quickly to significant changes in market conditions. Our manufacturing and other
operations can be rapidly adjusted, as appropriate, to reduce labor, raw
materials, general administrative and other costs. These variable costs
represent the majority of our total operating expenses. Historically, our
variable cost structure, combined with our flexible manufacturing capabilities,
has allowed us to maintain our profit margins during periods of market weakness.
Experienced Management Team with Significant Ownership. Our experienced and
dedicated management team has been instrumental in our success and represents
one of our key competitive advantages. Bruce Albertson, our new President and
CEO, brings extensive marketing and management expertise to our organization.
Bobby Tesney, our Vice-Chairman, has over 20 years of industry related
experience. We also benefit from the experience and expertise of Trivest, a
private investment firm specializing in acquisitions, recapitalizations and
other principal investing activities, which has been an investor in WinsLoew and
its predecessors since 1985. Trivest provides strategic consulting, acquisition
and other advice to us. Earl Powell, president and chief executive officer of
Trivest, has served as Chairman of the Board of WinsLoew and its predecessors
for over 11 years.
BUSINESS STRATEGY
Our strategic objective is to further enhance our leading market position in the
residential and contract and hospitality furniture markets. We plan on achieving
this objective through the continued implementation of the following strategies:
Increase Penetration of Existing Customers. We are constantly working on ways to
increase our sales to our existing customer base. We believe that we can
increase our penetration of existing customers by continuing to emphasize high
quality products, timely delivery and customer service together with
innovatively styled new product designs. For example, through these focused
efforts our specialty retail customers are dedicating increased retail floor
space to our casual furniture products, which generates increased sales for our
products. Similarly, we began selling seating products to a single Marriott
lodging chain in the early 1990's, and today, due to our consistently superior
performance, we are a preferred provider of seating products to Marriott and
several of its affiliated lodging chains.
Attract New Customers. We have undertaken a number of programs to expand our
customer base in existing and new markets. Examples of these efforts include the
use of specific market focused sales personnel, private labeling and the
targeting of national specialty stores. In our seating business, we are in the
process of establishing dedicated sales groups to focus on attractive specialty
end markets. We established our first such group to focus exclusively on selling
seating products in the lodging industry. Through our private labeling program,
we are seeking to take advantage of the trend towards outsourcing by selling our
seating products to several nationally recognized designers of office furniture
systems who in turn sell our products under their own brand name. In the
residential market, we are targeting national specialty stores that offer home
design products, including casual furniture. The penetration of these national
specialty retailers allows us to take advantage of new, expanding distribution
channels and capitalize on the significant marketing clout of these retailers
without significantly increasing our selling and marketing expenses or
cannibalizing our existing customer base.
Selectively Introduce New Products. We annually update and expand our product
line with new designs and styles, as well as periodically introduce
complementary products. Each year we undergo a design process that results in
the introduction of newly designed products that make up a meaningful portion of
our product offering. Our design process involves personnel from all areas of
the Company including senior management, manufacturing and sales, as well as our
distributors and sales representatives in an effort to design new furniture
styles that are attractive and innovative while cost effective to manufacture
and have a higher likelihood of success. We also periodically add new products
that complement our existing product offering. For example, we recently expanded
our product line to include tables for lobbies and other common areas in the
hospitality industry.
Selectively Pursue Complementary Acquisitions. We continually review acquisition
opportunities that augment or complement our existing operations or provide
entry into new geographic markets. We also seek to improve the efficiency of our
recent acquisitions by reducing overhead, leveraging sales and distribution,
achieving raw material purchasing savings and improving manufacturing
operations. Tropic Craft for example, which was acquired in 1998, provided us
with an increased presence in the contract market for casual furniture. Pompeii,
which we acquired on July 30, 1999, provides us with a leading brand in the
upper end of the casual furniture market and a significant opportunity to
achieve operating efficiencies. In addition, the acquisitions of Wabash, Stuart
Clark and Charter Furniture in 2000, have broadened our product offering and
placed us in a position to service all price points in the lodging market. In
2001 we again complimented our contract and hospitality segment with the
acquisition of The Woodsmiths Company- a manufacturer of custom tabletops.
Finally, our most recent acquisitions of Brown Jordan, a manufacturer whose
products serve the premium to unlimited market categories in both retail and
contract markets and Casual Living Worldwide who markets to national retailers
and specialty patio stores under a variety of brand names in the moderate to
lower price points have rounded out our product offering in the both retail and
contract segments of the casual business.
PRODUCTS AND MARKETS
We design, manufacture and distribute three principal product lines: casual
furniture designed for residential, commercial and institutional use; seating
products designed for commercial and institutional use; and ready-to-assemble
furniture designed for household use. For the year ending December 31, 2001, our
casual, seating and ready-to-assemble furniture products accounted for 72.3%,
24.5% and 3.2%, respectively, of our net sales. The following is a summary of
our principal products, customers and markets:
Brand Principal Products Principal Customers
and Markets
Winston Casual outdoor furniture, Specialty patio stores,
and including chairs, chaise full-line furniture
Brown lounges, tables, umbrellas retailers and department
Jordan and related accessories, stores in the residential
constructed of extruded market.
and tubular aluminum.
Texacraft Casual outdoor furniture, Lodging and restaurant
and including chairs,chaise chains,country clubs,
Tropic lounges,tables,umbrellas apartment developers and
Craft and related accessories, managers, architectural
constructed of aluminum, design firms,municipalities
wrought iron, wood and and other commercial and
fiberglass. institutional users in the
contract market.
Pompeii Casual indoor and outdoor Specialty patio stores,fine
furniture, including chairs, furniture stores, design
chaise lounges,tables, showrooms and residential
umbrellas and related designers in the residential
accessories, constructed of market; and architectural
extruded and tubular design firms, commercial
aluminum. design firms and specifiers
and purchasing agents in the
contract market.
Wabash Site amenity products Educational facilities,
including:tables,chairs, municipality and recreation
benches, swings and related centers,hotels, motels and other
accessories constructed of motels and other institutional
sheet steel or expanded and corporate users.
steel mesh that is coated
with heat fused plastisol.
Loewenstein Contemporary to traditional Lodging and restaurant chains,
products, such as wood seating architectural design
upholstered chairs, firms, metal and sports
loveseats. facilities, schools, sofas and
healthcare facilitites, office
furniture dealers, retail store
planners and other commercial
and institutional users in the
contract and hospitality market.
Charter, Custom and semi-custom Hotel and other hospitality
Lodging By upholstered furnishings markets.
Liberty, such as,sofas, benches,
Stuart Clark chaises, chairs, lounge
chairs and ottomans.
Southern Ready to assemble furniture Mass Merchandisers and
Wood products, such as book catalog wholesalers.
Products shelves, entertainment
centers,coffee tables,
end tables, computer
stations and wall units,
as well as case goods,
such as chest of drawers,
changing towers and hutches,
all of which are constructed
of wood.
Shae Designs, Extruded and cast aluminum, Speciality patio furnishings
Samsonite wrought iron, steel, all- stores and department stores
and weather wicker and wood
The Vineyard Collection casual furnishings
Casual Living, Casual outdoor furniture, Mass merchants and home
And Samsonite including, chairs, chaise centers
lounges, tables, umbrellas
and related accessories
constructed of extruded
and tubular aluminum.
Woodsmiths Custom table tops, bases Restaurants, hotels, country
and conference room clubs, health care facilites,
furnishings universities and government
agencies.
We market our casual furniture products, consisting principally of medium to
upper-end casual indoor and outdoor furniture, under the Winston, Texacraft,
Tropic Craft, Pompeii, Brown Jordan, Vineyard and Shae Designs brand names. In
addition we target the value priced market under the Casual Living and Samsonite
brand names. We currently manufacture and sell over 25 separate style
collections of casual furniture products that include traditional, European, and
contemporary design patterns. Within each style collection there are multiple
products including chairs, tables, chaise lounges and accessory pieces such as
ottomans, cocktail tables, end tables, tea carts and umbrellas constructed of
extruded, tubular and cast aluminum, steel, wrought iron, wood and fiberglass.
We offer chairs with glider action, adjustable positions and rocking and swivel
motions, as well as a selection of restaurant and indoor and outdoor seating.
Our casual seating products feature cushions and vinyl strapping in a variety of
colors and patterns. All of our casual furniture products feature a durable
painted finish, which is also offered in a wide selection of colors. The
suggested retail prices for a residential table and four chairs currently range
from approximately $700 to $5,000 for our medium to upper-end segment and $150
to $800 for the promotionally priced market. Our casual furniture is generally
used by residential customers indoors and on patios, decks and poolsides, while
our contract customers generally use our products in restaurants and lodging, as
well as for outdoor purposes.
Our casual segment also includes site amenity products under the Wabash Valley
brand name. The Wabash product line includes a wide variety of tables, chairs,
benches and swings as well as accessory items such as tree grates, basket
trucks, bike loops, planters, ash urns, and litter receptacles. All of these
products are constructed of either expanded steel mesh, welded wire or sheet
steel, which provide the highest degree of strength and durability. Components
are covered with a 1/4" of homogeneous heat fused plastisol or in the case of
framework, a baked-on polyester dry powder, which provides a superior coating
and appearance. Our amenity products are generally used by governmental,
healthcare, educational, recreational and corporate customers.
Our seating products are marketed under the Loewenstein, Lodging By Liberty,
Stuart Clark, Charter and Woodsmiths brand names and include over 600 distinct
models, ranging from contemporary to traditional styles, of wood, metal and
upholstered chairs, reception area love seats, sofas, ottomans, chaises, stools
and tables. We assemble wood frames and finish them with one of our numerous
standard colors or, if requested, to the customer's specification. Our metal
chairs are available in chrome or in a selection of standard powder coat
finishes. For upholstered products, the customer may select from a number of
catalog fabrics, vinyls and leathers or may specify or supply its choice of
materials. We maintain an inventory of unassembled chair components that enables
us to respond quickly to large quantity orders in a variety of finish and fabric
combinations. Our seating products have a number of commercial and institutional
uses, including seating for in-room lodging and common areas, stadium luxury
skyboxes, restaurants, lounges and classrooms. We have excellent and in many
instances long-term relationships with our diverse customer base, which
includes, for example, Marriott International. Moreover, we entered into a three
year contract with Marriott, effective January 1, 1999, under which we are a
preferred supplier of upholstered seating products for certain of its
affiliates, including Marriott's Lodging, Senior Living Services and Marketplace
businesses, as well as Host Marriott Services Corporation. We also provide
seating for various retailers, as well as commercial and institutional
construction projects, such as professional sports stadiums and arenas.
We sell our ready-to-assemble products under the Southern Wood Products brand
name to mass merchandisers and catalog wholesalers. Our ready-to-assemble
products include promotionally priced traditional ready-to-assemble "flatline"
and "spindle" furniture and a new line of fully assembled case goods furniture
products designed for household use. "Flatline" products include
ready-to-assemble items that are constructed of flat pieces of wood, such as
book shelves, entertainment and computer centers and tape storage units. Our
"spindle" products include ready-to-assemble items that are constructed of flat
pieces of wood connected by decorative joints and brackets, such as coffee
tables, end tables, wall units and rolling carts. Case goods products include
fully assembled four drawer chests and three-drawer chest and changing towers,
with an optional hutch.
MANUFACTURING
We produce our products at ten manufacturing facilities located throughout the
United States and one facility in Mexico. See "Properties." We have tailored our
manufacturing processes to each business to maximize efficiencies, create high
quality products and maintain operating flexibility. Our casual furniture
facilities are vertically integrated - we manufacture our residential and
contract casual furniture products from basic raw materials such as aluminum rod
and fabric. In contrast, our seating facilities take advantage of outsourcing
opportunities - we assemble our seating products from wood components received
from our Italian and other suppliers. In both cases, we maintain flexible
manufacturing processes that enable us to:
. minimize finished goods inventory and warehousing costs;
. efficiently expand our product lines to meet the demands of
a diverse customer base; and
. effectively control the cost, quality and production time
of our products.
We believe that our facilities are among the most modern in the furniture
industry and that the efficiencies attributable to these plants are a
significant factor in our relatively low manufacturing costs. These low
manufacturing costs, combined with our philosophy of strict cost controls in all
areas of our operations, have enabled us to continually increase gross margins
and income from operations without the necessity of significant price increases.
Casual Furniture
In the manufacturing process for our residential and contract casual furniture
products, we cut extruded aluminum tubes to size and shape or bend them in
specially designed machinery. The aluminum is then welded to form a solid frame,
and the frame is subjected to a grinding and buffing process to eliminate any
rough spots that may have been caused during welding. After this process is
completed, the frame is cleaned, painted in a state-of-the-art powder coating
system and heat cured. We then add vinyl strapping, cushions, fabric slings, or
other accessories to the finished frame, as appropriate. We then package the
product with umbrellas, tempered glass and other accessories, as applicable, and
ship it to the customer.
We believe that we manufacture the highest quality aluminum casual furniture in
our price range. Unlike manufacturers of lower-end products that rivet or bolt
major frame components, we weld the major frame components of our aluminum
furniture, thereby increasing the durability and enhancing the appearance of the
aluminum product line. Our state-of-the-art powder coated painting process
results in an attractive and durable finish. To ensure that only the highest
quality products are shipped to customers, our quality control department has
established numerous checkpoints where the quality of all of our aluminum
products is examined during the manufacturing process.
Wabash Valley acts as designer, manufacturer and finisher of all our site
amenity products. The fabrication process includes cutting, punching, forming,
bending, sawing, welding and grinding. We have invested heavily in our
fabrication capabilities in the past few years, with focus in CNC technology.
This includes a roll forming line, robotic welding, CNC plasma, CNC punching and
cutting as well as CNC tube bending. All CNC equipment instructions are
downloaded from our on-site drafting and engineering department.
All fabricated weldments enter into a grinding area for inspection and
deburring. After this process is completed the parts enter a wash, rinse and
prime cycle. Upon exiting this phase of the manufacturing process the parts flow
either to powder coating booths or our plastisol dip tanks. Throughout the
manufacturing process all parts and components are carefully inspected to ensure
the highest degree of quality. This commitment to quality allows us to offer a
five-year limited warranty, which we believe to be one of the most comprehensive
in the industry.
Contract and Hospitality
We assemble most of our contract and hospitality products to order, but do not
generally have the same level of vertical integration as is present in the
manufacture of our casual product lines. Instead, we purchase component parts
from a variety of suppliers, including a number of Italian suppliers. We utilize
these component parts because they enable us to offer sturdy and aesthetically
appealing products, which incorporate unique designs and sophisticated
manufacturing techniques that are generally unavailable or are not cost
effective in the United States. The principal elements of wood chair assembly
include:
. frame glue-up;
. sanding;
. seat assembly (in which upholstered seats are constructed
from component bottoms, foam padding and cloth coverings); and
. painting/lacquering.
To provide consistency and speed in this finishing process, we utilize a
state-of-the-art conveyorized paint line with electrostatic spray guns and a
three-dimensional ultraviolet drying system. In particular, Loewenstein's
finishing system applies specially formulated materials via robotic
reciprocators and utilizes three advanced technologies:
. electrostatic finish application, which is designed to ensure that a
significantly higher percentage of the actual finishing material
will adhere to the product, thereby reducing raw material costs;
. ultraviolet finishing materials, which allow a much higher
solids content, thereby reducing environmental concerns and
enhancing finish quality; and
. high-powered ultraviolet light, which can cure chairs in less
than 60 seconds, thereby speeding inventory turn-over and
reducing warehouse requirements.
For upholstered products, the specified fabric cloth is stretched to the chair
frame over foam padding. We generally assemble our metal chairs from imported
components. After rework and leveling, we carton our chairs to prevent damage in
transportation. The manufacturing process also includes a number of product
inspections and other quality control procedures.
Ready-to-Assemble Furniture
For the manufacture of our ready-to-assemble products, which include "spindle,"
"flatline" and case goods products, we use high-density particleboard, which we
laminate with a variety of wood grains and solid colors. For our "spindle"
products, we turn, stain and lacquer all of the spindles and then individually
box the products with spindles and board, along with any necessary hardware and
assembly instructions. For our "flatline" products we individually box the cut
laminated particleboard, along with necessary hardware and assembly
instructions. For our case goods products, the edges of the cut laminated
particleboard may be "soft formed" for aesthetic value. We then assemble the
unit using glue, screws and hardware, such as self-closing drawer runners, on
all units.
Manufacturing Capacity
Management believes that the Company's manufacturing facilities in the casual
and contract and hospitality product lines are currently operating, in the
aggregate, at approximately 65% of capacity, assuming a one-shift basis.
Management considers the Company's present manufacturing capacity to be
sufficient for the foreseeable future and believes that, by adding multiple
shift operations, the Company can significantly increase the total capacity of
its facilities to meet growing product demand with minimal additional capital
expenditures. In addition, the Company engages in an ongoing maintenance and
upgrading program, and considers its machinery and equipment to be in good
condition and adequate for the purposes for which they are currently used.
MARKETING AND SALES
We sell our products through both independent manufacturers representatives and
internal sales staff. We sell our residential casual furniture through
approximately 25 independent sales representatives and we sell our contract and
hospitality products through approximately 80 independent sales representatives.
We have strong relationships with our independent sales personnel. We primarily
use an internal sales staff to sell our casual furniture products into the
contract market. Our site amenity and ready-to-assemble products are sold
exclusively by independent sales representatives. Senior management is also
involved in the sales process for all of our furniture products.
Each independent representative:
. promotes, solicits and sells our products in an assigned territory;
. assists in the collection of receivables; and
. receives commissions based on the net sales made in his or her
territory.
We determine the prices at which our products will be sold and may refuse to
accept any orders submitted by a sales representative for credit-worthiness or
other reasons. Our independent representatives do not carry directly competing
product lines.
We have developed a comprehensive marketing program to assist our
representatives in selling our products. Key elements of this program include:
. holding exhibitions at national and regional furniture markets
and leasing year-round showrooms at the Merchandise Mart in
Chicago, Illinois and High Point, North Carolina;
. providing retailers with annual four-color catalogs of our
products, sample materials illustrating available colors and
fabrics, point of sale materials and special sales brochures;
. providing information directly to representatives at annual sales
meetings attended by senior management and manufacturing
personnel;
. maintaining a customer service department at each of our
manufacturing facilities which ensures that we promptly respond
to the needs and orders of our customers;
. maintaining regular contact with key retailers; and
. conducting ongoing surveys to determine dealer satisfaction.
BACKLOG
As of December 31, 2001, our backlog of orders was approximately $96.1 million,
compared to $23.4 million at December 31, 2000. Our backlog is defined as
committed purchase orders with future ship dates. The increase over 2000 results
largely from the additional backlog associated with the Brown Jordan
International acquisition. Management, in accordance with industry practice,
generally permits orders to be canceled prior to shipment without penalty.
Further, management does not consider backlog to be predictive of future sales
activity because of our short manufacturing cycle and delivery time in both our
casual and seating segments and, especially in the case of casual furniture, the
seasonality of sales.
RAW MATERIAL AND SOURCING
Our principal raw materials consist of extruded aluminum tubes, expanded mesh
steel, sheet and tube steel, woven vinyl fabrics, paint/finishing materials,
vinyl strapping, cushion filler materials, cartons, glass table tops, component
parts for seating, particle board and other lumber products and hardware.
Although we have no long-term supply contracts, we generally maintain a number
of sources for our raw materials and have not experienced any significant
problems in obtaining adequate supplies for our operations. In addition,
increases in the cost of our raw materials, such as fluctuations in the costs of
aluminum, lumber and other raw materials have not historically had a material
adverse effect on our results of operations because we are generally able to
pass through such increases in raw material costs to our customers over time
through price increases. We believe that our policy of maintaining several
sources for most supplies and our large volume purchases contribute to our
ability to obtain competitive pricing. Nevertheless, the market for aluminum is,
from time to time, highly competitive, and its price, as a commodity, is subject
to market conditions beyond our control. Accordingly, future price increases
could have a material adverse effect on our business, financial condition, and
results of operations or prospects.
A significant portion of the Loewenstein raw materials consist of component
chair parts purchased from several Italian manufacturers. We view our suppliers
as "partners" and work with such suppliers on an ongoing basis to design and
develop new products. We believe that these cooperative efforts, our long-
standing relationships with these suppliers and our experience in conducting
on-site, quality control inspections provide us with a competitive advantage
over many other furniture manufacturers, including a competitive purchasing
advantage in times of product shortages. In addition, in the case of our Italian
suppliers, we generally contract for our purchases of such component parts in
such manner as to minimize our exposure to foreign currency fluctuations. We
have close working relationships with our foreign suppliers and our future
success may depend, in part, on maintaining these or similar relationships.
Given the special nature of the manufacturing capabilities of these suppliers,
in particular certain wood-bending capabilities, and sources of specialized wood
types, our Loewenstein division could experience a disruption in operations in
the event of any replacement of such suppliers. Situations beyond our control,
including political instability, significant and prolonged foreign currency
fluctuations, economic disruptions, the imposition of tariffs and import and
export controls, changes in government policies and other factors could have a
material adverse effect on our business, financial condition, results of
operations or prospects.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies that
compete directly with us may have greater financial and other resources than we
do. Based on our extensive industry experience, we believe that competition in
casual furniture and seating is generally a function of product design,
construction quality, prompt delivery, product availability, customer service
and price. Similarly, management believes that competition in our promotional
price niche of the ready-to-assemble furniture industry is limited, and is based
primarily on price, product availability, prompt delivery and customer service.
We believe that we successfully compete in the furniture industry primarily on
the basis of our innovatively styled product offerings, our unique delivery
capabilities, the quality of our products, and our emphasis on providing high
levels of customer service. We believe that our residential casual product line
has a leading share of the casual furniture market in the geographic region east
of the Mississippi River.
Sales of imported, foreign-produced furniture has increased in recent years.
During 2001 we moved to address this share of the market through acquisitions.
The company now has a manufacturing facility in Mexcio and 20% ownership in a
furniture manufacturer located in China. This move has opened up new casual
furniture markets that were previously not targeted by the Company.
In the seating segment, we compete with many manufacturers, ranging from large,
national, publicly traded entities to small, one-product firms selling to small,
geographic markets.
TRADEMARKS AND PATENTS
We have registered the Winston, Loewenstein, Pompeii, Southern Wood Products,
Wabash Valley trademarks with the United States Patent and Trademark Office, in
addition to numerous trademarks under Brown Jordan Company and BJIP, Inc. We
believe that our trademark position is adequately protected in all markets in
which we do business. We also believe that our various trade names are generally
well recognized by dealers and distributors, and are associated with a high
level of quality and value.
We hold several design and utility patents; however, it is no longer our policy
to apply for design and utility patents, as we do not believe that they are of
significance to our business.
EMPLOYEES
At December 31, 2001, we had approximately 1,814 full-time employees, of whom
168 were employed in management, 273 in sales, general, and administrative
positions, and 1,373 in manufacturing, shipping, and warehouse positions.
The Company has two manufacturing locations whose employees are subject to
collective bargaining agreements. Approximately 130 of our hourly employees in
Haleyville, Alabama, are represented by the Retail, Wholesale, and Department
Store Union. The labor agreement between WinsLoew and such union, which expires
in July 2006, provides that there shall be no strikes, slowdowns or lockouts.
In addition, approximately 120 of our hourly employees in El Monte, California
are represented by the Paper, Allied-Industrial, Chemical and Energy Workers
International Union. The labor agreement between WinsLoew and the union expires
in September 2006. The contract provides that there shall be no strikes,
slowdowns or lockouts.
Management considers its employee relations to be good.
ENVIRONMENTAL MATTERS
We believe that we comply in all material respects with all applicable federal,
state and local provisions relating to the protection of the environment. The
principal environmental regulations that apply to us govern air emissions, water
quality and the storage and disposition of solvents. In particular, we are
subject to environmental laws and regulations regarding air emissions from paint
and finishing operations and wood dust levels in our manufacturing operations.
As is typical of the furniture manufacturing industry, our finishing operations
use products that may be deemed hazardous and that pose an inherent risk of
environmental contamination. Compliance with environmental protection laws and
regulations has not had a material adverse impact on our financial condition or
results of operations in the past and we do not expect compliance to have a
material adverse impact in the future.
ITEM 2. PROPERTIES
Properties
The following table provides information with respect to each of our properties:
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Location Primary Use Approx. Sq. Ft. Leased/Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Birmingham, AL Corporate Headquarters 9,800 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture manuf./offices 155,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture and manufacturing 218,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture warehouse 20,000 Owned
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- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Haleyville, AL Casual furniture warehouse 30,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Medley, FL Casual furniture manufacturing and offices 133,000 Leased(1)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Medley, FL Casual furniture manufacturing and offices 40,000 Leased(1)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Casual furniture merchandise showroom 12,000 Leased(2)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
High Point, NC Casual furniture showroom 3,300 Leased(3)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
High Point, NC Casual furniture showroom 6,000 Leased(4)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Houston, TX Casual furniture manuf/sales office 89,500 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Ocala, FL Casual furniture sales office 49,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Pompano Beach, FL Seating manufacturing/offices 100,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Pompano Beach, FL Seating manufacturing and offices 45,000 Leased(5)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Liberty, NC Seating warehouse 25,000 Leased(6)
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- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Liberty, NC Seating manufacturing and offices 126,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Seating merchandise mart showroom 5,500 Leased(7)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Sparta, TN Ready-to-assemble manuf/offices 94,300 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Sparta, TN Ready-to-assemble manuf/offices 63,300 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Silver Lake, IN Amenities product manuf/offices 240,000 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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El Monte, CA Seating manufacturing/offices 55,000 Leased(8)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
El Monte, CA Seating manufacturing 19,450 Leased(9)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Washington, DC Casual furniture showroom 3,500 Leased(10)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Casual furniture showroom 7,049 Leased(11)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Dallas TX Casual furniture showroom 4,916 Leased(12)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
San Francisco, CA Casual furniture showroom 3,889 Leased(13)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Los Angeles, CA Casual furniture showroom 5,467 Leased(14)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
High Point, NC Casual furniture showroom 4,761 Leased(15)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Miami, FL Casual furniture showroom 5,178 Leased(16)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
New York, NY Casual furniture showroom 6,316 Leased(17)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Laguna, CA Casual furniture showroom 3,888 Leased(18)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
El Monte, CA Casual furniture manuf/offices 29,232 Leased(19)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Long Beach, CA Advertising and furniture design center and showroom 2,182 Leased(20)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Juarez, MX Casual furniture manuf/offices 259,800 Leased(21)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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El Monte, CA Seating manufacturing/offices 211,140 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Newport, AK Warehouse 119,324 Owned
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Bentonville, AK Sales office 4,200 Leased(22)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Chicago, IL Casual furniture showroom 9,485 Leased(23)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
Oxnard, CA Casual furniture manuf/offices 200,000 Leased(24)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Ripon, WI Sales office 750 Leased(25)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Rancho Murieta, CA Retail link office 200 Leased (26)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
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Pompano Beach, FL Warehouse 10,000 Leased (27)
- ------------------------------ -------------------------------------------------------- ----------------------- -------------------
(1) Lease expires March, 2012.
(2) Lease expires August, 2002
(3) Lease expires December, 2002.
(4) Lease expires March, 2002.
(5) Lease expires June, 2002.
(6) Lease expires December, 2002.
(7) Lease expires March, 2009.
(8) Lease expires March, 2002.
(9) Lease expires March, 2003.
(10) Lease expires February, 2007.
(11) Lease expires December, 2004.
(12) Lease expires December, 2006.
(13) Lease expires December, 2006.
(14) Lease expires April, 2007.
(15) Lease expires October, 2005.
(16) Lease expires December, 2003.
(17) Lease expires September, 2011.
(18) Lease expires October, 2004.
(19) Lease expires September, 2002.
(20 Lease expires January, 2004.
(21) Lease expires October, 2002.
(22) Lease expires June, 2004.
(23) Lease expires August, 2007.
(24) Lease expires December, 2007.
(25) Lease expires March, 2006.
(26) Lease expires June, 2002.
(27) Lease expires February, 2003.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and other claims arising
in the ordinary course of our business. We maintain insurance coverage against
potential claims in an amount that we believe to be adequate. Based primarily on
discussions with counsel and management familiar with the underlying disputes
and except as described below, we believe that we are not presently a party to
any litigation, the outcome of which would have a material adverse effect on our
business, financial condition, results of operations or future prospects.
As reported in Part I item III of the Company's Annual Report on form 10-K for
the fiscal years ended December 31, 1999 and 2000, and incorporated herein by
reference, the Company and former members of its board of directors have been
named as defendants in a lawsuit filed on March 25, 1999 in the Circuit Court of
Jefferson County, Alabama, styled Craig Smith v. WinsLoew Furniture, Inc. et al.
On June 14, 1999, we and the members of the board of directors filed a motion to
dismiss the lawsuit or, in the alternative, to grant summary judgment in our
favor. After a hearing held on November 11, 1999, the court granted our motion
to dismiss but gave the plaintiff 30 days' leave to file an amended complaint.
The plaintiff filed an amended complaint on December 15, 1999 and another motion
to dismiss was filed on behalf of all defendants on February 28, 2000. A hearing
on the motion to dismiss was set for April 11, 2000. The court subsequently
denied the Company's motion to dismiss and a status conference was scheduled for
November 28, 2000.
On January 11, 2001 the Honorable Thomas Woodall entered an order giving
preliminary approval to a proposed settlement of this action. The proposed
settlement provides for no additional benefit to be bestowed upon the class and
possible payment by the Company of attorney fees in an amount not to exceed
$575,000. A final hearing was held on April 24, 2001. At the hearing the
settlement was approved and the case was dismissed with prejudice. WinsLoew has
fulfilled its portion of the liability under the terms of the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
Consolidated Financial Statements of WinsLoew. The following data reflects
Southern Wood as a continuing operation (see Note 4 of Notes to Consolidated
Financial Statements). The following selected consolidated financial data should
be read in conjunction with WinsLoew's Consolidated Financial Statements and
related Notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included herein.
Year Ended
December 31,
(In thousands) 2001 2000 1999 1998 1997
Net sales 286,154 188,963 162,139 141,360 122,145
Cost of sales 199,568 110,941 96,384 87,232 79,431
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
Gross profit 86,586 78,022 65,755 54,128 42,714
Selling, general
administrative expense 44,124 30,063 25,674 23,124 21,427
Amortization expense 9,078 6,957 3,321 1,122 992
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
Operating income 33,384 41,002 36,760 29,882 20,295
Interest expense 31,758 27,114 8,910 635 2,296
Net income before income
taxes, discontinued
operations
and extraordinary item 1,626 13,888 27,850 29,247 17,999
Provision for income taxes 4,040 7,151 11,339 10,947 6,838
------------------ --------------------------------- --------------- -----------------
------------------ --------------------------------- --------------- -----------------
Net (loss) income before discontinued
operations and extraordinary item (2,414) 6,737 16,511 18,300 11,161
Loss from discontinued operations,
net of tax - - - - (718)
Gain(loss) on sale of discontinued
operations, net of taxes - - 755 2,031 (8,200)
Net (loss)income before
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
extraordinary item (2,414) 6,737 17,266 20,331 2,243
Extraordinary item, net of tax (1,550) - - - -
------------------ ---------------- --------------- --------------- -----------------
------------------ ---------------- --------------- --------------- -----------------
Net(loss)income (3,964) 6,737 17,266 20,331 2,961
================== ================ =============== =============== =================
================== ================ =============== =============== =================
Other Financial Data 2001 2000 1999 1998 1997
Depreciation and amortization $17,609 $10,561 $4,845 $2,618 $2,643
Capital expenditures $5,165 $6,021 $3,265 $942 $425
Ratio of earnings to fixed charges 1.1x 1.5x 3.9x 47.1x 8.8x
(In thousands)
Working capital $62,622 $33,784 $26,721 $25,924 $29,937
Total assets $528,018 $367,622 $308,062 $84,553 $80,414
Long-term debt (less current portion) $287,878 $238,147 $198,258 $1,400 $15,908
Total debt $295,078 $242,172 $201,958 $1,447 $16,423
Stockholder's equity $168,365 $97,876 $81,711 $66,226 $51,026
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements about our financial
condition, results of operations and business within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can find many of these statements by looking for words like "will,"
"should," "believes," "expects," "anticipates," "estimates," "intends," "may,"
"pro forma," or similar expressions used in this prospectus. These
forward-looking statements are subject to assumptions, risks and uncertainties,
including those relating to the following:
o our level of leverage;
o our ability to meet our debt service obligations;
o the subordination of the registered notes to our senior indebtedness,
which is secured by substantially all of our assets;
o the restrictions imposed upon us by our indenture and our senior
credit facility;
o our ability to identify suitable acquisition opportunities and
to finance, complete and integrate acquisitions;
o the competitive and cyclical nature of the furniture manufacturing
industry; and
o general domestic and global economic conditions.
Because these statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. You are cautioned not to place undue reliance on these statements,
which speak only as of the date of this filing.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this filing. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this filing.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described in the Notes to Consolidated Financial Statements, on August 27,
1999, WinsLoew and Trivest Furniture Corporation, a newly formed Florida
corporation was merged with and into WinsLoew, with WinsLoew being the surviving
corporation. WinsLoew accounted for the transaction in accordance with the
purchase method of accounting and adjusted the basis of the assets and
liabilities based upon the purchase price. Accordingly, the financial statements
for periods subsequent to August 26, 1999 are presented on the Company's new
basis of accounting, while the results of operations for the period ended August
26, 1999 and years ended December 31, 1998 and 1997 reflect historical results
of the predecessor company. The operations of the successor company represent
100% of the businesses of the predecessor. Therefore, certain operational data
for the twelve months ended December 31, 1999 have been presented on a combined
basis because, other than goodwill amortization and interest expense, such
information is comparable to the historical data of the predecessor and the
current data of the successor.
The merger resulted in a significant increase in net goodwill and debt recorded
in WinsLoew's financial statements. The increases resulted in materially higher
charges for amortization and interest after August 27, 1999.
Prior to the acquisition of BJI, the Company completed a restructuring
transaction involving two new legal entities, the final result of which, was the
formation of a new holding company called WLFI Holdings, Inc.("Holdings").
Holdings, a Florida corporation, became the Company's parent company.
In order to accomplish this restructuring transaction, Holdings was initially
formed as the Company's wholly-owned subsidiary. In addition to Holdings, the
Company formed another company called WLFI Merger, Inc., a Florida corporation,
as a wholly-owned subsidiary of Holdings. Then, immediately prior to the
consummation of the Brown Jordan acquisition, we merged with WLFI Merger, Inc.
and we were the surviving corporation of the merger.
As a result of this transaction, we became the wholly-owned subsidiary of the
new holding company, Holdings, and the Company's shares of common stock which
were outstanding immediately prior to the merger were converted into shares of
common stock of the new holding company. In addition, each warrant or option to
purchase shares of the Company's common stock was converted into a warrant or
option to purchase common stock of the holding company. Finally, by operation of
the merger the separate corporate existence of WLFI Merger ended.
GENERAL
WinsLoew is a leading designer, manufacturer and distributor of a broad offering
of casual indoor and outdoor furniture, site amenities and seating products. Our
casual furniture includes chairs, chaise lounges, tables, umbrellas and related
accessories which are generally constructed from aluminum, wrought iron, wood,
or fiberglass. Our site amenity product line, which is part of our casual
segment, includes tables, chairs, benches, swings and complimentary items
constructed from steel sheet, expanded mesh and steel tubing. Our seating
products include wood, metal and upholstered chairs, sofas and loveseats that
are offered in a wide variety of finish and fabric options. All of our casual
and seating products are manufactured pursuant to customer orders. We sell our
furniture products to the residential market and to the contract and hospitality
market consisting of commercial and institutional users.
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses, completed the liquidation of the futon business and decided to
retain its Southern Wood business due to improved profitability (see Note 3 to
Notes to the Consolidated Financial Statements). The amounts reflected hereafter
include Southern Wood as a continuing operation.
Purchase of Tropic Craft. In June 1998, we purchased all of the stock of Tropic
Craft, a designer and manufacturer of casual furniture sold into the contract
markets, for $9.3 million in cash. In addition, the seller is entitled to
receive aggregate contingent purchase price payments of up to $1.0 million upon
achievement of targeted earning performance with respect to the years ending
June 30, 1999 and June 30, 2000. During 1999 and 2000 we made payments of
$500,000 against this contingency agreement. The acquisition resulted in
goodwill of $6.9 million. Funds for the acquisition were provided under our
existing credit facility. We accounted for the acquisition under the purchase
method and, accordingly, the operating results of Tropic Craft have been
included in our historical consolidated operating results only since the date of
acquisition.
Purchase of Pompeii. In July 1999, we acquired all of the stock of Pompeii, a
manufacturer of upper-end aluminum casual furniture sold into the contract and
residential markets, for $18.2 million in cash. Pompeii provides us with a
leading brand in the upper end of the casual furniture market and a significant
opportunity to achieve operating efficiencies. We funded the Pompeii acquisition
with available cash on hand and expect to fund the integration costs with
working capital. We accounted for the acquisition under the purchase method and,
accordingly, the operating results of Pompeii have been included in our
historical consolidated operating results only since the date of the
acquisition.
Purchase of Wabash. In March 2000, we acquired all of the stock of Wabash Valley
Manufacturing, a manufacturer of site amenities furniture sold into the
institutional and corporate markets. The purchase price of approximately $35.5
million was paid in cash and financed with $7.1 million of equity investment
from the sellers and Trivest Furniture, borrowings of $20.0 million under the
acquisition loan and $8.4 million under the revolving credit facility. The
acquisition resulted in goodwill of $22.5 million and was accounted for under
the purchase method of accounting. The operating results of Wabash have been
included in our historical consolidated operating results only since the date of
the acquisition.
Purchase of Stuart Clark.On June 16, 2000 the Company purchased certain assets
of Stuart Clark, Inc. and its affiliates. Stuart Clark is a manufacturer of mid
price point upholstered furniture for the hospitality industry. The purchase
price of approximately $3.1 million was paid in cash and financed with $0.3
million of equity investment from the sellers and borrowings of $2.8 million
under the Company's revolving credit facility. The assets and operations of
Stuart Clark were merged into our existing seating facility in Liberty, North
Carolina. The acquisition resulted in goodwill of approximately $2.8 million and
was accounted for under the purchase method of accounting. The operating results
of Stuart Clark have been included in the consolidated operating results since
the date of acquisition.
Purchase of Charter Furniture. On August 11, 2000 the Company purchased all of
the stock of Charter Furniture. Charter provides high quality upholstered
furniture for rooms, suites and common areas of premier hospitality companies.
The purchase price of approximately $18.5 million was paid in cash and financed
with $3.3 million of equity investment from the sellers and Trivest Furniture
and $15.2 million under the revolving credit facility. The acquisition resulted
in goodwill of $18.7 million and was accounted for under the purchase method of
accounting. The operating results of Charter have been included in the
consolidated operating results since the date of acquisition.
Purchase of The Woodsmiths Company. On March 9, 2001 the Company purchased all
of the outstanding stock of The Woodsmiths Company. Woodsmiths, a manufacturer
of custom tabletops for the contract and hospitality industry, is located in
Pompano Beach, Florida. The purchase price of approximately $2.8 million was
paid in cash of approximately $0.3 million and a $2.5 note payable to the sole
shareholder of Woodsmiths. The acquisition resulted in goodwill of approximately
$3.4 million and was accounted for under the purchase method of accounting. The
operating results of Woodsmiths have been included in the consolidated operating
results beginning on the date of acquisition.
Purchase of Brown Jordan International, Inc. On May 8, 2001 WinsLoew Furniture,
Inc. and its parent WLFI Holdings, Inc. acquired all of the outstanding stock of
Brown Jordan International, Inc. (BJI) at a purchase price of $78.6 million. The
Stock Purchase Agreement by and among WLFI Holdings, Inc., the Company, BJI and
the Stockholders of BJI also called for the repayment of outstanding BJI
indebtedness at closing, which approximated $44.6 million. The amount of
consideration paid by the Company for the BJI stock was determined through an
arm's length negotiation between representatives of the Company and BJI.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired on a
preliminary basis using the fair value of the assets acquired. This preliminary
basis is subject to review and subject to change. Pursuant to the purchase
method of accounting, the excess of the purchase price over the $44.6 million
fair value of net assets after payment of BJI indebtedness at closing, has been
recorded as goodwill in the amount of $78.6 million. The operating results of
BJI have been included in the consolidated operating results since the date of
acquisition.
WLFI Holdings, Inc. raised $50.9 million of equity and issued $22 million of
subordinated notes to the sellers for BJI stock. Holdings contributed the cash
of $50.9 million to the Company as additional equity. The stock of BJI, obtained
in the exchange of subordinated notes, was also contributed to the Company. The
balance of the proceeds was provided through a refinancing of the Company's
existing Senior Credit Facility. The new Senior Credit Facility consists of a
$165 million Term Loan and a $60 million revolving credit facility.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross margin as a
percent of net sales for the years ended December 31, 2001, 2000 and 1999 for
each of the Company's product lines (in thousands, except for percentages): This
table combines the predecessor company period ended August 26, 1999 with the
successor company period ended December 31, 1999 for purposes of the discussion
of year-end December 31, 1999 results.
2001 2000 1999
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Casual
$206,980 $63,691 30.8% $108,050 $49,949 46.2% $74,586 $36,526 49.0%
Contract
and
Hospitality
$70,159 $21,623 30.9% $69,458 $26,027 37.5% $72,346 $25,704 35.5%
Ready to
Assemble
$9,015 $1,272 14.1% $11,455 $2,046 17.9% $15,207 $3,525 23.2%
- -------------------------------------------- ----------------------------------------- -----------------------------------------
$286,154 $86,586 30.3% $188,963 $78,022 41.3% $162,139 $65,755 40.6%
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales. This table
combines the predecessor company period ended August 26, 1999 with the successor
company period ended December 31, 1999 for purposes of the discussion of
year-end December 31, 1999 results.
For the Years Ended December 31,
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2001 2000 1999
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Gross profit 30.30% 41.30% 40.60%
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Selling, general and admin expenses 15.40% 15.90% 15.80%
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Amortization 3.20% 3.70% 2.00%
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Operating Income 11.70% 21.70% 22.80%
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Interest expense 11.10% 14.30% 5.50%
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Provision for income taxes 1.40% 3.80% 7.30%
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Income from continuing operations 0.80% 3.60% 10.20%
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Gain from sale of discontinued operations,
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net of tax 0.00% 0.00% 0.50%
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Extraordinary item, net of tax 0.50% 0.00% 0.00%
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Net (Loss)income (1.40%) 3.60% 10.70%
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COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000
For purposes of this discussion, "pro forma" refers to the estimated
consolidated results had the acquisitions of Wabash, Stuart Clark, Charter
Furniture, Woodsmiths and Brown Jordan International occurred on January 1,
2000.
Net Sales. WinsLoew's actual consolidated net sales increased $97.2 million in
2001, or 51.4% to $286.2 million compared to $189.0 million in 2000. WinsLoew's
consolidated net sales for 2001 on a pro forma basis decreased $35.6 million or
9.1% to $356.9 million, compared to pro forma net sales of $392.5 million in
2000. Casual pro forma sales decreased by 5.8% from 2000 resulting from poor
spring weather in the northeast as well as softness in the residential market
resulting from a sluggish economy. The contract and hospitality product line
experienced a pro forma sales decrease of 18.4% resulting from a slowdown in new
construction and refurbishing projects in the lodging market caused by economic
recession. In addition, the contract and hospitality market was impacted
particularly hard by the events of September 11, 2001. The RTA product line
experienced a sales decrease of 21.3% due to lost floor space with a major mass
merchandiser and credit tightening/catalog reductions at other major customers.
Gross Profit. Actual gross profit increased $8.6 million in 2001 or 11.0% to
$86.6 million compared to $78.0 million in 2000. Consolidated pro forma gross
profit decreased $22.8 million in 2001 or 18.5% to $100.4 million in 2001
compared to $123.2 million in 2000. The casual product line experienced lower
pro forma gross margins in 2001, resulting from a combination of low-margin
volume sales and the addition of Casual Living Worldwide, as part of the BJI
acquisition in 2001. Casual Living targets the lower margin, mass merchandise
market. The contract and hospitality product line pro forma gross margin
decreased as a result of lower volumes and the inclusion of Charter for all of
2001. Finally, the RTA product line experienced decreased gross margin in 2001
due to lower volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses on an actual basis increased $14.0 million or 46.8% from
$30.1 million in 2000 to $44.1 million in 2001 primarily resulting from
acquisitions. On a pro forma basis, selling, general and administrative
expenses, decreased $3.4 million in 2001, to $52.3 million compared to $55.7
million in 2000, due to planned cost reduction measures, efficiencies achieved
through acquisitions and lower expenses related to volume.
Amortization. Amortization expense increased $2.1 million or 30.5% from $7.0
million in 2000 to $9.1 million in 2001. The increase is related to a full year
of goodwill amortization from acquisitions in 2000 as well as additional
goodwill amortization related to acquisitions in 2001. On a pro forma basis,
amortization expense increased $0.1 million in 2001, compared to 2000.
Operating Income. As a result of the above, actual operating income decreased
18.6% from $41.0 million in 2000 (21.7% of net sales) to $33.4 million (11.7% of
net sales) in 2001. Operating income on a pro forma basis decreased $19.4
million to $38.2 million (10.7% of net sales) in 2001, compared to pro forma
operating income of $57.6 million (14.7% of net sales) in 2000.
Interest Expense. Actual interest expense increased $4.7 million in 2001 to
$31.8 million from $27.1 million in 2000 as a result of additional debt service
associated with acquisitions. Further, the Company has increased its debt by
$53.0 million from December 31, 2000 primarily as a result of acquisitions. Pro
forma interest expense decreased $5.0 million in 2001 compared to 2000. The
primary reason for the decrease is the impact of lower interest rates in 2001
compared to 2000.
Provision for Income Taxes. The effective tax rate in 2001 and 2000 is greater
than the federal statutory rate due to the effect of state income taxes and
non-deductible goodwill amortization. The increase in the effective tax rate in
2001 compared to 2000 is primarily due to the non-deductible goodwill related to
the BJI acquisition.
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Sales. WinsLoew's consolidated net sales for 2000 increased $26.9 million or
16.5% to $189.0 million, compared to $162.1 million in 1999. Casual product line
sales increased by 5.3% from 1999 net of the effect of the Wabash acquisition
and adjusted for the effect of the Pompeii acquisition. When including the
acquisitions of Pompeii and Wabash, casual sales increased 44.9% over 1999.
Management believes that due to its high quality and innovative designs,
existing retail customers have continued to allocate more floor space, requiring
larger inventories of the Company's casual aluminum furniture. The contract and
hospitality product line experienced a sales decrease, net of the acquisitions
of Stuart Clark and Charter, of 16.6% resulting from softness in the lodging
market. Specifically, sales to contract and hospitality customers were down
approximately $7 million from 1999. When including the acquisitions of Stuart
Clark and Charter, contract and hospitality sales decreased 4.0% from 1999. The
RTA product line experienced a sales decrease of 24.7% due to inventory
reduction and credit tightening/catalog reductions at major customers.
Gross Profit. Consolidated gross profit increased $12.2 million in 2000 to $78.0
million compared to $65.8 million in 1999. The casual product line experienced
lower gross margins in 2000, resulting from the inclusion of Pompeii for all of
2000 as well as the Wabash acquisition in 2000. The seating product line
experienced improved gross margins as a result of favorable product mix and
improved operating efficiencies. Finally, the RTA product line experienced
decreased gross profits in 2000 due to lower overhead absorption driven by lower
volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million in 2000, compared to 1999, due to
acquisitions. When removing the impact of acquisitions, S, G & A expenses
decreased by $2.7 million from 1999 as a result of commission expense and other
variable costs related to the decreased sales volume in 2000, as well as
targeted reductions in administrative overhead.
Amortization. Amortization expense increased $3.6 million in 2000, compared to
1999, due to a full year of amortization of goodwill in 2000 related to the
Pompeii acquisition and the going-private transaction, both of which occurred in
1999. In addition, incremental amortization of intangibles was recorded in 2000
as a result of the Wabash, Stuart Clark and Charter acquisitions. Amortization
related to goodwill recorded as a result of the going-private transaction
totaled $1.6 million for the period from August 27, 1999 to December 31, 1999,
compared to $4.7 million in 2000.
Operating Income. As a result of the above, we recorded operating income of
$41.0 million (21.7% of net sales) in 2000, compared to operating income of
$36.8 million (22.7% of net sales) in 1999.
Interest Expense. Our interest expense increased $18.2 million in 2000, compared
to 1999. The primary reason for the increase is the impact of debt service
related to the going-private transaction, for all of 2000. In addition, the
Company has increased its debt by $40.2 million from December 31, 1999 primarily
as a result acquisitions and capital expenditures.
Provision for Income Taxes. The effective tax rate from continuing operations of
51.5% in 2000 is greater than the federal statutory rate due to the effect of
state income taxes and non-deductible goodwill amortization. Our effective tax
rate from continuing operations of 40.6% in 1999 is greater than the federal
statutory rate due to the effect of state income taxes and non-deductible
goodwill amortization. The increase in the effective tax rate over 1999 is due
to the non-deductible goodwill related to the going-private transaction.
SEASONALITY AND QUARTERLY INFORMATION
Sales of retail casual products are typically higher in the second quarter of
each year as a result of high retail demand for casual furniture preceding the
summer months. Mass merchandise casual products are typically higher in the
fourth and first quarters as mass merchants warehouse product in preparation for
the spring season. Weather conditions during the peak retail selling season and
the resulting impact on consumer purchases of outdoor furniture products can
also affect sales of our casual products.
The following table presents the Company's unaudited quarterly data for 2001 and
2000. Such operating results are not necessarily indicative of results for
future periods. WinsLoew believes that all necessary and normal recurring
adjustments have been included in the amounts in order to present fairly and in
accordance with generally accepted accounting principles the selected quarterly
information when read in conjunction with WinsLoew's Consolidated Financial
Statements included elsewhere herein. The results of operations for any quarter
are not necessarily indicative of results for a full year.
(In thousands)
2001 Quarters First Second Third Fourth
----------------------------------------------------------
Net Sales $39,718 $79,253 $57,115 $110,068
Gross Profit 15,001 28,048 17,558 25,979
Operating Income 5,982 13,511 2,750 11,141
Interest Expense 7,267 11,277 7,073 6,141
(Loss)Income From Continuing
Operations (1,285) 2,234 (4,323) 5,000
Extraordinary Item, Net of Taxes - - - 1,550
Net (Loss)Income (574) (296) (3,838) 744
(In thousands)
2000 Quarters First Second Third Fourth
----------------------------------------------------------
Net Sales $39,353 $57,425 $46,950 $45,235
Gross Profit 15,802 24,444 18,290 19,486
Operating Income 7,411 14,054 8,563 10,974
Interest Expense 6,537 6,844 6,517 7,216
Income from Continuing Operations 390 3,215 914 2,218
Net Income 390 3,215 914 2,218
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for debt service and working
capital, including accounts receivable and inventory requirements. The Company
has historically financed its short-term liquidity needs with internally
generated funds and revolving line of credit borrowings. At December 31, 2001,
the Company had $62.6 million of working capital and $26.9 million of unused and
available funds under its revolving credit facility.
Cash Flows from Operating Activities. During 2001, net cash provided by
operations increased to $17.3 million, compared to $14.1 million in 2000. The
primary reason for the increase is due to the Company's use of trade payables
credit which was somewhat offset by slower receivables collections, particularly
in the last quarter of 2001.
Cash Flows from Investing Activities. During 2001 we spent $5.2 million on
capital expenditures and $73.7 million on acquisitions. This is compared to
2000, which included $6.0 million on capital expenditures and $52.6 million on
acquisitions. Net cash used in investing activities was $78.9 million and $58.5
million for the twelve months ended December 31, 2001 and December 31, 2000
respectively.
Cash Flows from Financing Activities. Net cash provided by financing activities
during 2001 was $66.1 million compared to net cash provided in financing
activities of $44.3 million in 2000. Financing activities during 2001 focused on
the Company's acquisition of Brown Jordan International and simultaneous
restructuring of the Company's Senior Credit Facility. Specifically, proceeds
for the BJI acquisition and Senior Credit Facility payoff were $201.8 million
under the Company's new Senior Credit facility and $50.9 million of equity
investment. Of these amounts, $147.3 million was used to payoff the existing
Senior Credit Facility and $105.4 million was used for the acquisition of BJI,
including payoff of funded indebtedness. This is compared to 2000 when cash was
primarily provided by proceeds from borrowings under our revolving credit
facility and to a lesser extent, our acquisition line of credit. In addition,
proceeds were provided by the issuance of the company's common stock pursuant to
acquisitions. During 2000 we used cash generated by operations to repurchase
$1.3 million of our common stock.
Our senior credit facility consists of a $165.0 million term loan. During 2001,
principal payments totaling $3.8 million were made against the term loan leaving
an outstanding balance on the loan of $161.3 million as of December 31, 2001.
Our senior credit also includes, a $60.0 million revolving credit facility, of
which $28.0 million was borrowed and $5.1 million was allocated to existing
letters of credit outstanding at December 31, 2001. As of December 31, 2001, we
had undrawn availability based on a borrowing base formula under the revolving
credit facility of approximately $26.9 million.
The senior credit facility also requires the Company to enter into an interest
rate swap agreement to fix the interest rate on at least $80 million principal
amount of variable rate debt. (see Note 7 to the Audited Consolidated Financial
Statements).
We have significant amounts of debt requiring interest and principal repayments.
The notes require semi-annual interest payments, which commenced in February
2000 and will mature in August 2007. Borrowings under the new senior credit
facility require quarterly interest payments, which commenced in June 2001.
In addition, the Company would fund any interest payments of Holdings, the
parent. These interest payments are the result of debt assumed in the
acquisition of BJI. Currently the debt service on these notes is satisfied
through the issuance of additional notes by Holdings. Should cash interest
payments be made, the Company would fund such payments through its existing
working capital or revolving line of credit. (see Note 6 to the Audited
Consolidated Financial Statements).
Our other liquidity needs relate to working capital, capital expenditures and
potential acquisitions. We intend to fund our working capital, capital
expenditures and debt service requirements through cash flow generated from
operations and borrowings under our senior credit facility.
We believe that existing sources of liquidity and funds expected to be generated
from operations will provide adequate cash to fund our anticipated working
capital needs. Significant expansion of our business or the completion of any
material strategic acquisitions may require additional funds which, to the
extent not provided by internally generated sources, could require us to seek
access to debt or equity markets.
Operating cash flows are closely correlated to demand for the Company's
products. A decrease in demand for the Company's products would impact the
availability of these internally generated funds. Further, the Company's
revolving line of credit is contingent upon the Company maintaining particular
debt covenants. Failure to comply with these covenants would impact the
availability of funds on the revolving credit line.
Our anticipated capital needs through 2002 will consist primarily of the
following:
. interest payments due on the notes and interest and principal
due under our senior credit facility,
. increases in working capital driven by the growth of our
business, and
. the financing of capital expenditures.
Aggregate capital expenditures are budgeted at approximately $5.0 million in
2002. To the extent available, funds will be used to reduce outstanding
borrowings under our senior credit facility. Management believes that funds
generated from operations and funds available under our senior credit facility
will be sufficient to satisfy our debt service obligations, working capital
requirements and commitments for capital expenditures.
The following tables set forth the Company's contractual obligations and
commitments.
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(In Thousands)