-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WF/ISQylv2iJBr4k6YGBn3lzQBxfXW+zJ6skm93k9EVryZLRKdoMpWDhaZvJ97iE FcBBV2jvGmbh7MGmLV48Cg== 0000950130-96-003792.txt : 19961007 0000950130-96-003792.hdr.sgml : 19961007 ACCESSION NUMBER: 0000950130-96-003792 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19961004 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FURNITURE BRANDS INTERNATIONAL INC CENTRAL INDEX KEY: 0000050957 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 430337683 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-13427 FILM NUMBER: 96639181 BUSINESS ADDRESS: STREET 1: 101 S HANLEY RD STE 1900 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3148631100 MAIL ADDRESS: STREET 1: 101 SOUTH HANLEY RD CITY: ST LOUIS STATE: MO ZIP: 63105 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL SHOE CO DATE OF NAME CHANGE: 19690313 S-3 1 FORMS S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- FURNITURE BRANDS INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 43-0337683 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 101 SOUTH HANLEY ROAD ST. LOUIS, MISSOURI 63105 (314) 863-1100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) ---------------- LYNN CHIPPERFIELD, ESQUIRE VICE-PRESIDENT, GENERAL COUNSEL AND SECRETARY FURNITURE BRANDS INTERNATIONAL, INC. 101 SOUTH HANLEY ROAD ST. LOUIS, MISSOURI 63105 (314) 863-1100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE OF PROCESS) ---------------- COPIES OF ALL COMMUNICATIONS TO: PETER S. SARTORIUS, ESQUIRE JOHN T. GAFFNEY, ESQUIRE MORGAN, LEWIS & BOCKIUS LLP CRAVATH, SWAINE & MOORE 2000 ONE LOGAN SQUARE WORLDWIDE PLAZA PHILADELPHIA, PENNSYLVANIA 19103 825 EIGHTH AVENUE (215) 963-5000 NEW YORK, NEW YORK 10019-7475 (212) 474-1122 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable on or after this Registration Statement is declared effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE - ----------------------------------------------------------------------------------- Common Stock, no par value.................. 13,800,000 shares $14.31 $197,478,000 $59,842
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 1,800,000 shares that the U.S. Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c), based upon the average of the high and low prices of the Common Stock, as reported on the New York Stock Exchange on September 27, 1996. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996 PROSPECTUS 12,000,000 SHARES FURNITURE BRANDS INTERNATIONAL [LOGO] COMMON STOCK -------- [LOGO] BROYHILL [LOGO] LANE [LOGO] THOMASVILLE All of the shares of Common Stock, no par value (the "Common Stock"), of Furniture Brands International, Inc. (the "Company") offered hereby are being sold by the Selling Stockholders, as defined herein. The Company will not receive any of the proceeds from the sale of the Common Stock offered hereby. Of the 12,000,000 shares of Common Stock offered hereby, a total of 9,600,000 shares are being offered hereby for sale in the United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as defined) and a total of 2,400,000 shares are being offered by the Managers (as defined) in a concurrent international offering outside the United States and Canada (the "International Offering" and, together with the U.S. Offering, the "Offerings"). The Common Stock is listed on the New York Stock Exchange under the symbol "FBN." On October 3, 1996, the last reported sale price of the Common Stock on the New York Stock Exchange was $14 5/8 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND SELLING PUBLIC COMMISSIONS(1) STOCKHOLDERS(2) - --------------------------------------------------------------------- Per Share $ $ $ - --------------------------------------------------------------------- Total(3) $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) For information regarding indemnification of the U.S. Underwriters and the Managers, see "Underwriting." (2) Before deducting expenses estimated at $ payable by the Company. (3) The Selling Stockholders have granted the U.S. Underwriters a 30-day option to purchase up to 1,800,000 additional shares of Common Stock solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Selling Stockholders will be $ , $ and $ , respectively. -------- The shares of Common Stock are being offered by the several U.S. Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about , 1996, at the office of Smith Barney Inc., 333 West 34th Street, New York, New York 10001. -------- SMITH BARNEY INC. CS FIRST BOSTON DILLON, READ & CO. INC. MERRILL LYNCH & CO. WHEAT FIRST BUTCHER SINGER October , 1996 BROYHILL LOGO [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] Fontana has combined the best Broyhill's products offer stylish designs elements of European antiques at reasonable prices, such as these and American country classics pieces from the Broyhill upholstery to make it the leading and Cherry Hill collections. collection in the American Casual category and one of the most popular designs in Broyhill's history. [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] A strong consumer advertising program has established Broyhill as the best-known brand of any full-line manufacturer. Stylish advertising featuring popular Broyhill collections appears in numerous consumer magazines such as Better Homes and Gardens, House Beautiful and HOME. Broyhill Premier offers retailers versatile and stylish collections targeted to consumers who are seeking the details and refinements usually found in products from higher-end manufacturers as demonstrated by the Center Place dining room. ---------------- IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 [LOGO OF LANE APPEARS HERE] [ARTWORK TO APPEAR HERE] [LOGO OF ACTION FURNITURE BY LANE APPEARS HERE] [ARTWORK APPEARS HERE] As the leading manufacturer of motion furniture, Action offers a variety of styles ranging from traditional to transitional and from country to contemporary. Options include fully reclining love seats, supportive sleep sofas, sofas with fully reclining end units, and modular units that can be designed to fit any shape. [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] Action Lane has introduced the Action Lane's latest addition to its new Snuggler series, which features recliner line is the new and a chair and a half design scaled innovative Premier Glider Recliner. to fit into smaller spaces than The glider mechanism has been a love seat or sofa and reinvented to offer smoother, more offers the added convenience comfortable gliding action in of a hidden twin-size bed. reclining chairs. --------------------- DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10b-6, 10b-7, and 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. PROSPECTUS SUMMARY The following is a summary of certain information appearing elsewhere in this Prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information and financial statements, including the notes thereto, contained elsewhere or incorporated by reference in this Prospectus. As used in this Prospectus, unless the context indicates otherwise, (i) the "Company" refers to Furniture Brands International, Inc. and its subsidiaries, (ii) "Broyhill" refers to Broyhill Furniture Industries, Inc. and its subsidiaries, (iii) "Lane" refers to The Lane Company Incorporated and its subsidiaries, (iv) "Thomasville" refers to Thomasville Furniture Industries, Inc. and its subsidiaries and (v) "Action Industries" refers to Action Industries, Inc., a subsidiary of Lane. Unless otherwise indicated, the information in this Prospectus assumes that the U.S. Underwriters' over- allotment option is not exercised. THE COMPANY The Company believes that it is the largest manufacturer of residential furniture in the United States. The Company markets its products under three of the best known brand names in the industry--Broyhill, Lane and Thomasville. The Company is a quality and style leader across a broad spectrum of price categories from "premium" priced home furnishings to lower priced ready-to- assemble ("RTA") furniture. The Company distributes its products through a diverse network of national, regional and local retailers, including the largest system of independently-owned dedicated retail outlets in the residential furniture industry. Management believes that the acquisition of Thomasville in December 1995 significantly enhances the Company's competitive strengths and positions the Company to increase its market share, sales and earnings. The Company is organized into three primary operating subsidiaries of similar size which target particular product and price categories as described below: Broyhill. Broyhill is a leader in the "good" and "better" price categories, which are two of the largest segments of the residential furniture market. Management believes Broyhill is the largest manufacturer of residential furniture under one brand name, and Broyhill has been rated the number one brand in the industry in terms of brand awareness by several recent consumer surveys. The Company believes that the Broyhill Fontana collection has been the best selling furniture collection in the industry for the last three years. Broyhill distributes its products through an extensive distribution network of more than 6,200 independently-owned retail locations, including approximately 330 dedicated Broyhill Showcase Galleries and approximately 425 dedicated Broyhill Furniture Centers. Lane. Lane manufactures specialty products for niche markets in the "better," "best" and "premium" price categories. Lane is the largest domestic manufacturer of cedar chests. In addition, Lane, through Action Industries, its largest operating unit, is the largest manufacturer of motion furniture and the second largest manufacturer of recliners in the United States. Lane is one of the most widely recognized brands in the residential furniture industry and has established a reputation for innovative marketing and quality designs. Lane distributes its products through an extensive distribution network of more than 16,000 independently-owned retail locations, including approximately 280 dedicated furniture galleries. Thomasville. Thomasville is the largest residential furniture manufacturer under one brand name in the "premium" price category and manufactures furniture which embodies the widely recognized "Thomasville Look" for both the "best" and "premium" price categories. Thomasville has been rated the "highest quality" brand by several recent consumer surveys. Management believes that the Collector's Cherry and the Mahogany Collection have consistently been among the best selling collections in the industry. Thomasville distributes its products through approximately 635 independently-owned retail locations, including approximately 245 3 dedicated Thomasville Galleries and approximately 80 free-standing Thomasville Home Furnishings stores, which exclusively feature Thomasville furniture. The company also produces a separate line of lower priced RTA and promotional furniture. The Company believes that in addition to its substantial size relative to most of its competitors, the Company's competitive strengths include its (i) widely recognized brand names; (ii) broad range of product offerings across all price categories; (iii) extensive distribution networks, including dedicated galleries located in independently-owned retail locations; (iv) innovative, high quality products; (v) highly efficient, low cost manufacturing capabilities; and (vi) experienced management teams. Management believes that these competitive strengths position the Company to continue to increase its market share in the highly-fragmented residential furniture manufacturing industry. GROWTH STRATEGY The Company seeks to grow both sales and profits and increase its market share by means of the following strategies: ENHANCING BRAND NAME STRENGTH. Brand name recognition is a critical factor in consumer purchases of furniture. The Company believes that consumer recognition of its brand names is a key to increasing its market share. The Company has three of the six most recognized brand names in the residential furniture industry--Broyhill, Lane and Thomasville. The Company is committed to continue to strengthen its brand names through advertising in various media including network and cable television and highly read consumer magazines such as People, Reader's Digest, Sports Illustrated, Architectural Digest and Better Homes and Gardens among several others, in addition to its dealer cooperative advertising program. EXPANDING DEDICATED DISTRIBUTION CHANNELS. Dedicated distribution outlets, such as galleries, tend to have higher sales per square foot and faster inventory turns than non-gallery locations. The Company has generated increased sales volume by distributing its products through independently-owned dedicated retail outlets. In addition, the Company believes that it strengthens its manufacturer/retailer alliances through gallery relationships. The Company continues to expand these distribution channels by attracting additional retailers in new and existing geographic markets to participate in the Company's gallery programs. Furthermore, the Company is expanding the network of free-standing Thomasville Home Furnishings stores. INCREASING SALES TO NATIONAL AND LARGE REGIONAL RETAILERS. The Company is well positioned to benefit from the increasing presence of national and large regional retailers in the residential furniture industry. According to Furniture/Today, in 1995 the top 10 furniture retailers represented 16% of total sales versus 10% in 1985. The Company's overall size, breadth of product, strength of brands and national scope of distribution enable it to service national retailers, such as J.C. Penney, Sears, Levitz and Heilig-Meyers, and key regional companies, such as Breuner's, Haverty's and Roberds, more effectively than the Company's smaller competitors. The Company intends to continue to build its relationships with these key retailers. PENETRATING NEW MARKETS. The Company is actively pursuing sales opportunities in new markets. In the United States, management is targeting key furniture retailers in important geographic territories, particularly portions of the West Coast and New England. In addition, the Company has developed a program designed to increase sales to the contract market, which includes hotels, motels and health care facilities. The Company is also actively pursuing the international export market, particularly Canada, Europe, Japan and the Middle East, where the Company believes there are significant opportunities for growth. 4 EMPHASIZING NEW AND GROWING PRODUCT AREAS. The Company emphasizes development of new high margin products in growing product areas. For example, the Company has become a leader in the fast growing motion furniture and recliner segments. The Company has also introduced a sleeper sofa incorporating a unique sleep deck designed to be more comfortable, both as a sofa and a bed, than competitive product offerings. Furthermore, the Company is currently designing innovative new products for the growing home office and home entertainment center markets. CAPITALIZING ON DEMOGRAPHIC TRENDS. Management believes that demographic trends will continue to drive long-term growth in the furniture industry. In particular, as "baby boomers" (people born between 1946 and 1964) mature to the 35-64 year age group over the next decade, they will be reaching their highest earnings power. It is currently estimated that the 35-64 year age group will increase by approximately 11 million persons by the year 2000. According to Furniture/Today, such age group includes the largest consumers of residential furniture. Furthermore, statistics show that the average size of new homes has increased in recent years, which generally results in increased purchases of furniture per home. The Company believes that it is well positioned to capitalize on these demographic trends as a result of its broad range of product offerings and widely-recognized brand names. MAXIMIZING OPERATING MARGINS. The Company's Gross Profit Management Program consists of twelve specific "building blocks" that management uses in its strategic and operational planning to maximize gross profit margins and, thereby, provide the Company with additional funds for purposes such as increased advertising and product development. These "building blocks" include continuous product profitability review, new product introductions, pricing strategies and management incentive programs. Management believes that this program has contributed to the Company achieving among the highest EBITDA (as hereinafter defined) margins of publicly-owned U.S. residential furniture manufacturing companies in recent years. Management believes opportunities exist to increase the EBITDA margins of its operating companies through continued implementation of the Gross Profit Management Program. The Company has recently initiated this program at Thomasville, from which it expects to benefit beginning in 1997. EXPANDING OPERATING COMPANY COORDINATION. The Company has historically managed its operating units on a stand-alone basis. Increasingly since the acquisition of Thomasville, the Company has concentrated on enhancing the coordination among its operating companies. As a result of this enhanced coordination, the Company has begun to achieve operating efficiencies and believes it has the opportunity to further improve operating efficiencies and results. These opportunities include (i) cost savings generated through volume purchasing; (ii) reductions in future capital expenditures through better utilization of existing capacity; (iii) complementary sales and marketing activities; (iv) joint international sourcing; and (v) shared operating experience and expertise. RECENT DEVELOPMENTS SUCCESSION. On October 1, 1996, Wilbert G. (Mickey) Holliman became President and Chief Executive Officer of the Company. Mr. Holliman was previously President and Chief Executive Officer of Action Industries, a subsidiary of the Company, which he founded over 25 years ago. Since the founding of Action Industries, Mr. Holliman built this start-up company into an industry leader, with compound sales and earnings growth of approximately 20% a year and total sales that approach $400 million annually. In addition, Action Industries has consistently been one of the most profitable operating units of the Company. Under Mr. Holliman's leadership, Action Industries entered the motion furniture business five years ago and has become the largest manufacturer of motion furniture in the United States through innovative marketing and new product introductions. The Company believes that Mr. Holliman's leadership and industry experience will enable it to continue to execute successfully its established growth strategies. 5 RECENT FINANCIAL RESULTS. The Company estimates that net sales for the three months ended September 30, 1996 will increase approximately 6% as compared to the prior period in 1995 on a pro forma basis assuming Thomasville had been acquired at the beginning of 1995. The Company also estimates that net earnings before an extraordinary item incurred in the third quarter will be $0.21 per share in the third quarter of 1996, as compared to $0.12 per share in the third quarter of 1995, a 75% increase. As a result, the Company estimates that net sales for the nine months ended September 30, 1996 will increase between 4% and 5% as compared to the first nine months of 1995 on a pro forma basis assuming Thomasville had been acquired at the beginning of 1995, and that net earnings for the period before the extraordinary item will be $0.58 per share as compared to $0.42 per share for the first nine months of 1995, a 38% increase. Each period includes charges for depreciation and amortization resulting from the asset revaluation that occurred when the Company emerged from Chapter 11 reorganization in 1992. See "Impact of 1992 Asset Revaluation (Fresh-Start Reporting)" below. In connection with the 1996 Refinancing (as defined below), the Company will incur an extraordinary charge of $7.4 million in the three months ended September 30, 1996. Additionally, the Company's order backlog at September 30, 1996 was $213.5 million, which represents a 9.4% increase over the previous year, pro forma for the acquisition of Thomasville. CREDIT AGREEMENT AND ACCOUNTS RECEIVABLE SECURITIZATION REFINANCING. On September 6, 1996, the Company completed a refinancing (the "1996 Refinancing") involving execution of a new secured credit agreement ("Secured Credit Agreement") and modifications to its accounts receivable securitization facility ("Receivables Securitization Facility"). The 1996 Refinancing will result in a substantial reduction in interest expense, which, at current debt levels, will favorably affect annual results by approximately $3.7 million, or $0.05-$0.06 per share. WARRANT REDEMPTION AND REPURCHASES. On July 30, 1996 the Company announced that its Board of Directors authorized the repurchase of the Company's outstanding Common Stock and Series 1 Warrants in a total amount up to $30 million over the next 12 months, subject to restrictions in the Company's secured credit agreement. As of September 30, 1996, the Company had repurchased a total of 3,212,392 Series 1 Warrants for an aggregate purchase price of approximately $18.7 million, and there were 2,043,131 Series 1 Warrants remaining outstanding. Additionally, in June, following a call by the Company of its Series 2 Warrants, substantially all of the outstanding Series 2 Warrants were either exercised or repurchased in negotiated transactions. The Company estimates that the foregoing repurchases will favorably affect annual results by approximately $0.02 per share. THE OFFERINGS Common Stock offered in the Offerings: U.S. Offering......... 9,600,000 shares(1) International Offering............. 2,400,000 shares Total............... 12,000,000 shares(1) Common Stock outstanding............ 61,426,281 shares(2) Use of proceeds......... All of the proceeds from the sale of the shares will be received by the Selling Stockholders New York Stock Exchange symbol................. FBN
- -------- (1) Excludes 1,800,000 shares that may be offered under an over-allotment option granted by the Selling Stockholders. See "Underwriting." (2) Excludes, as of September 30, 1996, 5,918,007 shares of Common Stock issuable pursuant to warrants or stock options, consisting of 2,043,131 shares issuable pursuant to warrants exercisable at $7.13 per share and 3,874,876 shares issuable pursuant to management stock options, 1,330,850 of which are currently exercisable. 6 Information contained or incorporated by reference in this Prospectus contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. See, e.g., "Growth Strategy" and "Recent Developments" in this Prospectus Summary, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-Growth Strategy." No assurance can be given that the future results covered by the forward-looking statements will be achieved. The Risk Factors beginning on page 10 constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect any future events or occurrences. ---------------- The Company was incorporated in Delaware in 1921. Its principal executive offices are located at 101 South Hanley Road, St. Louis, Missouri 63105-3493, and its telephone number at such location is (314) 863-1100. 7 SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The following summary consolidated historical and pro forma condensed consolidated financial data of the Company are derived from and should be read in connection with the historical consolidated financial statements of the Company (the "Consolidated Financial Statements") and Thomasville and the pro forma condensed consolidated financial information and the notes thereto of the Company, in each case included elsewhere or incorporated by reference in this Prospectus. The pro forma condensed consolidated financial and other data is presented for comparative purposes only and is not necessarily indicative of the combined results of operations in the future or of what the combined results of operations would have been had the transactions assumed therein been consummated at the beginning of the period for which the statement is presented. In addition, the pro forma condensed consolidated statement of operations does not give effect to profit improvement opportunities, if any, which may be realized by the Company as a result of the acquisition of Thomasville.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------- ----------------- 1995 1993 1994 1995 PRO FORMA(1) 1995 1996 -------- ---------- ---------- ------------ -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales.............. $980,532 $1,072,696 $1,073,889 $1,624,116 $536,240 $844,689 Costs and expenses: Cost of operations..... 685,749 752,528 760,393 1,190,142 380,130 611,540 Selling, general and administrative expenses.............. 186,205 199,333 198,321 271,423 99,380 144,772 Depreciation and amortization(2)....... 34,455 35,776 36,104 52,053 19,338 28,058 -------- ---------- ---------- ---------- -------- -------- Earnings from operations............ 74,123 85,059 79,071 110,498 37,392 60,319 Interest expense....... 38,621 37,886 33,845 52,010 17,197 25,080 Other income, net: Gain on insurance settlement(3)......... -- -- 7,882 7,882 -- -- Other.................. 1,764 1,668 3,930 4,103 2,271 1,412 -------- ---------- ---------- ---------- -------- -------- Earnings before income tax expense, discontinued operations and extraordinary item.... 37,266 48,841 57,038 70,473 22,466 36,651 Income tax expense..... 15,924 20,908 22,815 28,308 9,236 14,183 -------- ---------- ---------- ---------- -------- -------- Net earnings from continuing operations(4)......... $ 21,342 $ 27,933 $ 34,223 $ 42,165 $ 13,230 $ 22,468 ======== ========== ========== ========== ======== ======== Net earnings from continuing operations before gain on insurance settlement, net of income tax expense............... $ 21,342 $ 27,933 $ 29,463 $ 37,404 $ 13,230 $ 22,468 ======== ========== ========== ========== ======== ======== Net earnings per common share from continuing operations before gain on insurance settlement, net of income tax expense.... $ 0.41 $ 0.54 $ 0.56 $ 0.60 $ 0.26 $ 0.37(5) ======== ========== ========== ========== ======== ======== Weighted average common shares outstanding (fully diluted) (in thousands)............ 51,397 51,506 52,317 62,317 50,640 60,694 OTHER DATA: Earnings from operations............ $ 74,123 $ 85,059 $ 79,071 $ 110,498 $ 37,392 $ 60,319 Depreciation and amortization: 1992 Asset Revaluation (fresh-start)......... 16,463 16,900 15,922 15,922 8,088 8,338 Excess of cost over net assets acquired....... -- -- -- 2,644 -- 1,135 -------- ---------- ---------- ---------- -------- -------- Adjusted earnings from operations............ 90,586 101,959 94,993 129,064 45,480 69,792 Depreciation and amortization (other than fresh-start and excess of cost over net assets acquired).. 17,992 18,876 20,182 33,487 11,250 18,585 -------- ---------- ---------- ---------- -------- -------- EBITDA(6).............. $108,578 $ 120,835 $ 115,175 $ 162,551 $ 56,730 $ 88,377 ======== ========== ========== ========== ======== ========
DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- BALANCE SHEET DATA: Cash and cash equivalents............................. $ 26,412 $ 18,525 Working capital....................................... 455,036 442,116 Total assets.......................................... 1,291,739 1,270,333 Long-term debt, including current maturities.......... 723,679 583,968 Total shareholders' equity............................ 301,156 414,494
8 IMPACT OF 1992 ASSET REVALUATION (FRESH-START REPORTING) Included in the Company's statement of operations are depreciation and amortization charges related to adjustments of assets and liabilities to fair value made in 1992. These adjustments are a result of the Company's 1992 reorganization and the adoption of AICPA Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (commonly referred to as "fresh-start" reporting) and are not the result of historical capital expenditures. Fair value adjustments included the write up of property, plant and equipment, trademarks and reorganization value in excess of identifiable assets. Due to the significance of these items, management believes that it is useful to isolate their impact on the statement of operations as shown below. This information does not represent and should not be considered an alternative to net earnings, any other measure of performance as determined by generally accepted accounting principles or as an indicator of operating performance. See "Intangible Assets" in Note 3 to the Company's Consolidated Financial Statements and related notes included elsewhere in this Prospectus.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------------------------ ---------------- 1995 1993 1994 1995 PRO FORMA(1) 1995 1996 -------- -------- -------- ------------ ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Depreciation and amortization-- fresh-start............ $(16,463) $(16,900) $(15,922) $(15,922) $(8,088) $(8,338) After-tax impact on net earnings............... (12,799) (13,051) (12,470) (12,470) (6,302) (6,425) Impact on earnings per share-fully diluted.... (0.25) (0.25) (0.24) (0.20) (0.13) (0.11)
- -------- (1) Pro forma to reflect the acquisition of Thomasville and the consummation of the Company's public offering of 10,000,000 shares of common stock completed on March 1, 1996 (the "1996 Company Equity Sale") and the application of the net proceeds therefrom, as if such transactions occurred on January 1, 1995. (2) Includes $16,463, $16,900 and $15,922 for the years ended December 31, 1993, 1994, and 1995 (historical and pro forma), respectively, and $8,088 and $8,338 for the six months ended June 30, 1995 and June 30, 1996 related to the 1992 asset revaluation. See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. (3) Gain on insurance settlement related to the November 1994 fire at the Company's particleboard plant. (4) On November 17, 1994, the Company distributed the common stock of each of The Florsheim Shoe Company and Converse Inc. (which in aggregate represented the Company's "Footwear Segment") to the Company's shareholders. The financial results of the Footwear Segment are reported as discontinued operations, and as such the Company's historical results of operations were restated. (5) Had the 1996 Refinancing and the 1996 Company Equity Sale been accomplished at the beginning of 1996, earnings as shown for the six months ended June 30, 1996 would have been $0.40 per share. (6) EBITDA is defined as earnings from operations before depreciation and amortization. The Company believes that EBITDA provides useful information regarding a company's financial performance. EBITDA should not be considered in isolation or as an alternative to net earnings, an indicator of the Company's operating performance, or an alternative to the Company's cash flow from operating activities as a measure of liquidity. 9 RISK FACTORS Prospective purchasers should carefully consider the following factors, together with other information contained and incorporated by reference in this Prospectus, in evaluating an investment in the shares of Common Stock. ECONOMIC CONDITIONS The furniture industry historically has been cyclical, fluctuating with general economic cycles. During economic downturns, the furniture industry tends to experience longer periods of recession and greater declines than the general economy. The Company believes that the industry is significantly influenced by economic conditions generally and particularly by consumer behavior and confidence, the level of personal discretionary spending, housing activity, interest rates, credit availability, demographics and overall consumer confidence. These factors not only affect the ultimate consumer, but also impact retailers, the Company's primary direct customers. There can be no assurance that a prolonged economic downturn would not have a material adverse effect on the Company. See "Business." COMPETITION The residential furniture manufacturing business is highly competitive and fragmented. Because of the Company's broad product lines, its products compete with products made by a number of major furniture manufacturers. The elements of competition include pricing, styling, quality and marketing. See "Business--Competition." LEVERAGE The Company has a capital structure that contains leverage. The Company's Secured Credit Agreement consists of a reducing revolving credit facility totaling $475 million. In addition, the Company has the Receivables Securitization Facility of $225 million. As of June 30, 1996, the Company's debt totaled approximately $584 million, and the Company's debt to equity ratio on that date was 1.41:1. This substantial indebtedness could reduce the Company's ability to respond to changing business and economic conditions by impairing access to additional financing and requiring a significant portion of the Company's cash flow from operations to be used to service debt. The ability of the Company to further reduce its debt and increase its equity will be dependent upon the future performance of the Company, which will be subject to prevailing economic conditions and to financial, business and other factors, including factors beyond the control of the Company that affect its business and operations. In February 1996, in order to reduce the impact of changes in interest rates on its floating rate long-term debt, the Company entered into three-year interest rate swap agreements having a total notional amount of $300 million. RESTRICTIVE COVENANTS IN CERTAIN DEBT INSTRUMENTS The Secured Credit Agreement to which the Company is a party contains a number of covenants that restrict, among other things, the ability of the Company to incur additional indebtedness, make capital expenditures, pay dividends, repurchase capital stock, create liens, dispose of certain assets, enter into sale and leaseback transactions, or engage in mergers. In addition, under the Secured Credit Agreement, the Company is required to maintain certain interest coverage and other financial ratios. Unfavorable operating results could affect the Company's ability to pay debt service on its outstanding indebtedness or to meet its debt covenants. The indebtedness under the Secured Credit Agreement is secured by most of the assets of the Company. Among other consequences, the terms of the Secured Credit Agreement could increase the Company's vulnerability to adverse general economic conditions and could impair the Company's ability to obtain additional financing in the future and to take advantage of significant business opportunities that may arise. 10 GOVERNMENTAL REGULATIONS The Company's operations must meet federal, state, and local regulatory standards in the areas of safety, health, and environmental pollution controls. Historically, these standards have not had any material adverse effect on the Company's sales or operations. If the Company fails to comply with such regulations, the Company could be subject to liability ranging from monetary damages to injunctive action, which could adversely affect the Company. Future changes to such regulations could also have a material adverse effect on the Company. See "Business--Environmental Matters." CONTROLLING STOCKHOLDERS Apollo Investment Fund, L.P. ("Apollo") and Lion Advisors, L.P., on behalf of an investment account under management ("Lion"), which are the Selling Stockholders, together beneficially own approximately 55.1% of the outstanding Common Stock of the Company, and will still beneficially own approximately 35.6% of the outstanding Common Stock of the Company after the Offerings. Apollo and Lion are affiliated companies. By reason of their ownership of shares of Common Stock, Apollo and Lion currently have, and will continue to have after the Offerings, the power effectively to control or influence control of the Company, including in elections of the Board of Directors and other matters submitted to a vote of the Company's stockholders, including extraordinary corporate transactions. Apollo and Lion may exercise such control from time to time. A majority of the Board of Directors consists of individuals associated with affiliates of Apollo and Lion. See "Management" and "Selling Stockholders." SHARES ELIGIBLE FOR FUTURE SALE The Company, certain of its officers and directors and the Selling Stockholders have agreed not to sell any shares of Common Stock other than the shares offered hereby, for a period of 120 days following the consummation of the Offerings without the prior written consent of Smith Barney Inc., as representative of the Underwriters. After expiration of the lock-up period, the Company, such officers and directors and the Selling Stockholders may sell shares of Common Stock without regard to any such limitations. The sale of a substantial number of shares by such persons could adversely affect the market price of the Common Stock. ABSENCE OF DIVIDENDS The Company does not anticipate paying any cash dividends in the foreseeable future, and the Secured Credit Agreement to which the Company is a party restricts the payment of dividends. See "Price Range of Common Stock and Dividend Policy." ANTI-TAKEOVER PROVISIONS The Company's Restated Certificate of Incorporation contains certain provisions, including authorization to issue "blank check" preferred stock ("Preferred Stock"), prohibition of stockholder action by written consent and the requirement of 75% ("supermajority") stockholder vote to alter, amend, repeal or adopt certain provisions of the Restated Certificate of Incorporation. In addition, the Company's Restated Certificate of Incorporation contains provisions limiting the ability of any person who is the beneficial owner of more than 10% of the outstanding voting stock to effect certain transactions involving the Company unless approved by a majority of the Disinterested Directors (as defined in the Restated Certificate of Incorporation of the Company). Such provisions could impede any merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. See "Description of Capital Stock." 11 USE OF PROCEEDS All of the shares of Common Stock being offered hereby are being offered by the Selling Stockholders. The Company will not receive any of the proceeds from the sale of such shares. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is listed and traded on the New York Stock Exchange under the symbol "FBN." The following table sets forth for the periods indicated the high and low sales prices of the Common Stock, as reported on the New York Stock Exchange Composite Tape.
HIGH LOW ------ ------ 1994: Fourth Quarter (November 21 through December 31)............... $8 3/8 $6 1/8 1995: First Quarter.................................................. 7 1/4 5 3/4 Second Quarter................................................. 6 7/8 5 5/8 Third Quarter.................................................. 8 1/8 5 1/2 Fourth Quarter................................................. 9 1/4 7 1996: First Quarter.................................................. 10 1/4 8 1/4 Second Quarter................................................. 12 1/8 9 Third Quarter.................................................. 14 5/8 9 3/4 Fourth Quarter (through October 3, 1996)....................... 15 14 1/2
The price range of the Common Stock prior to November 21, 1994 has not been included because on November 17, 1994 the Company distributed to its stockholders all the stock of its former footwear subsidiaries, Converse Inc. and The Florsheim Shoe Company. November 21, 1994 was the first day of trading reflecting such distribution and prices prior to November 21, 1994 are not comparable. On October 3, 1996, the last reported sale price of the Common Stock on the New York Stock Exchange was $14 5/8 per share. As of September 30, 1996 there were approximately 3,000 holders of record of the Company's Common Stock. The Company does not anticipate paying any cash dividends in the foreseeable future, and the Secured Credit Agreement to which the Company is a party restricts the payment of dividends. Any future payment of dividends will depend upon the financial condition, capital requirements and earnings of the Company, as well as upon other factors that the Board of Directors may deem relevant. 12 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of June 30, 1996. The information in the table below is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements of the Company included elsewhere in this Prospectus.
JUNE 30, 1996 ---------------------- (DOLLARS IN THOUSANDS) Cash and cash equivalents............................... $ 18,525 ========= Secured credit agreement................................ $ 367,500 Receivables securitization facility..................... 200,000 Other................................................... 16,468 --------- Long-term debt, including current maturities........ 583,968 --------- Shareholders' equity: Preferred stock, 10,000,000 shares authorized, no par value, none issued and outstanding................... -- Common stock, 100,000,000 shares authorized, $1.00 stated value (no par value), 61,398,952 shares issued and outstanding...................................... 61,399 Paid-in capital....................................... 297,761 Retained earnings..................................... 55,334 --------- Total shareholders' equity.......................... 414,494 --------- Total capitalization.................................... $ 998,462 =========
13 SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The following selected consolidated historical financial data of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere and incorporated by reference in this Prospectus. The selected consolidated historical financial data as of December 31, 1994 and 1995, and for the years ended December 31, 1993, 1994 and 1995 are derived from the Consolidated Financial Statements of the Company, which have been audited by KPMG Peat Marwick LLP, independent certified public accountants, as indicated in the report included elsewhere and incorporated by reference in this Prospectus. The selected pro forma condensed consolidated financial data as of December 31, 1995 and for the year then ended are derived from the pro forma condensed consolidated financial information of the Company which have been examined by KPMG Peat Marwick LLP, independent certified public accountants, as indicated in the report included elsewhere in this Prospectus. The selected consolidated financial data for the six months ended June 30, 1995 and June 30, 1996 are unaudited but include all adjustments (consisting of normal recurring adjustments) which the management of the Company considers necessary for a fair presentation of the results of the periods. The results for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. In 1992, the Company was required to adopt "fresh-start" reporting principles in accordance with AICPA SOP 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," which resulted in the revaluation of all assets and liabilities to reflect the Company's estimated reorganization value.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------------------------- ----------------- 1995 1993 1994 1995 PRO FORMA(1) 1995 1996 -------- ---------- ---------- ------------ -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales.............. $980,532 $1,072,696 $1,073,889 $1,624,116 $536,240 $844,689 Costs and expenses: Cost of operations.... 685,749 752,528 760,393 1,190,142 380,130 611,540 Selling, general and administrative expenses............. 186,205 199,333 198,321 271,423 99,380 144,772 Depreciation and amortization(2)...... 34,455 35,776 36,104 52,053 19,338 28,058 -------- ---------- ---------- ---------- -------- -------- Earnings from operations............ 74,123 85,059 79,071 110,498 37,392 60,319 Interest expense....... 38,621 37,886 33,845 52,010 17,197 25,080 Other income, net: Gain on insurance settlement(3)......... -- -- 7,882 7,882 -- -- Other.................. 1,764 1,668 3,930 4,103 2,271 1,412 -------- ---------- ---------- ---------- -------- -------- Earnings before income tax expense, discontinued operations and extraordinary item.... 37,266 48,841 57,038 70,473 22,466 36,651 Income tax expense..... 15,924 20,908 22,815 28,308 9,236 14,183 -------- ---------- ---------- ---------- -------- -------- Net earnings from continuing operations............ $ 21,342 $ 27,933 $ 34,223 $ 42,165 $ 13,230 $ 22,468 ======== ========== ========== ========== ======== ======== Net earnings from continuing operations before gain on insurance settlement, net of income tax expense............... $ 21,342 $ 27,933 $ 29,463 $ 37,404 $ 13,230 $ 22,468 ======== ========== ========== ========== ======== ======== Per share of common stock--fully diluted: Net earnings from continuing operations(4)......... $ 0.41 $ 0.54 $ 0.65 $ 0.68 $ 0.26 $ 0.37(5) ======== ========== ========== ========== ======== ======== Net earnings from continuing operations before gain on insurance settlement, net of income tax expense............... $ 0.41 $ 0.54 $ 0.56 $ 0.60 $ 0.26 $ 0.37(5) ======== ========== ========== ========== ======== ======== Weighted average common and common equivalent shares outstanding-- fully diluted (in thousands)............ 51,397 51,506 52,317 62,317 50,640 60,694 OTHER DATA: Gross profit(6)........ $275,323 $ 298,712 $ 291,237 $ 399,308 $143,748 $213,779 ======== ========== ========== ========== ======== ======== Earnings from operations............ $ 74,123 $ 85,059 $ 79,071 $ 110,498 $ 37,392 $ 60,319 Depreciation and amortization: 1992 Asset Revaluation (fresh-start)......... 16,463 16,900 15,922 15,922 8,088 8,338 Excess of cost over net assets acquired....... -- -- -- 2,644 -- 1,135 -------- ---------- ---------- ---------- -------- -------- Adjusted earnings from operations............ 90,586 101,959 94,993 129,064 45,480 69,792 Depreciation and amortization (other than fresh-start and excess of cost over net assets acquired).. 17,992 18,876 20,182 33,487 11,250 18,585 -------- ---------- ---------- ---------- -------- -------- EBITDA(7).............. $108,578 $ 120,835 $ 115,175 $ 162,551 $ 56,730 $ 88,377 ======== ========== ========== ========== ======== ========
AT DECEMBER 31, ------------------- AT JUNE 30, 1994 1995 1996 -------- ---------- ----------- BALANCE SHEET DATA: Cash and cash equivalents...................... $ 32,145 $ 26,412 $ 18,525 Working capital................................ 308,323 455,036 442,116 Total assets................................... 881,735 1,291,739 1,270,333 Long-term debt, including current maturities... 426,253 723,679 583,968 Total shareholders' equity..................... 275,394 301,156 414,494
14 IMPACT OF 1992 ASSET REVALUATION (FRESH-START REPORTING) Included in the Company's statement of operations are depreciation and amortization charges related to adjustments of assets and liabilities to fair value made in 1992. These adjustments are a result of the Company's 1992 reorganization and the adoption of AICPA SOP 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (commonly referred to as "fresh-start" reporting) and are not the result of historical capital expenditures. Fair value adjustments included the write up of property, plant and equipment, trademarks and reorganization value in excess of identifiable assets. Due to the significance of these items, management believes that it is useful to isolate their impact on the statement of operations as shown below. This information does not represent and should not be considered an alternative to net earnings, any other measure of performance as determined by generally accepted accounting principles or as an indicator of operating performance. See "Intangible Assets" in Note 3 to the Company's Consolidated Financial Statements and related notes included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------ ------------------ 1995 1993 1994 1995 PRO FORMA(1) 1995 1996 -------- -------- -------- ------------ -------- -------- (DOLLARS IN THOUSANDS) Depreciation and amortization--fresh- start.................. $(16,463) $(16,900) $(15,922) $(15,922) $ (8,088) $ (8,338) After-tax impact on net earnings............... (12,799) (13,051) (12,470) (12,470) (6,302) (6,425) Impact on earnings per share--fully diluted... (0.25) (0.25) (0.24) (0.20) (0.13) (0.11)
- -------- (1) Pro forma to reflect the acquisition of Thomasville, the consummation of the 1996 Company Equity Sale and the application of the proceeds therefrom as if such transactions occurred on January 1, 1995. (2) Includes $16,463, $16,900 and $15,922 for the years ended December 31, 1993, 1994, and 1995 (historical and pro forma), respectively, and $8,088 and $8,338 for the six months ended June 30, 1995 and June 30, 1996 related to the 1992 asset revaluation. See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. (3) Gain on insurance settlement related to the November 1994 destruction of the Company's particleboard plant. (4) On November 17, 1994, the Company distributed the common stock of each of The Florsheim Shoe Company and Converse Inc. (which in aggregate represented the Company's "Footwear Segment") to the Company's shareholders. The financial results of the Footwear Segment are reported as discontinued operations, and as such the Company's historical results of operations were restated. (5) Had the 1996 Refinancing and the 1996 Company Equity Sale been accomplished at the beginning of 1996, earnings as shown for the six months ended June 30, 1996 would have been $0.40 per share. (6) The Company believes that gross profit provides useful information regarding a Company's financial performance. Gross profit should not be considered in isolation or as an alternative to net earnings, an indicator of the Company's operating performance, or an alternative to the Company's cash flow from operating activities as a measure of liquidity. Gross profit has been calculated by subtracting cost of operations and the portion of depreciation associated with cost of goods sold from net sales. Pro forma information reflects the adjustments set forth in footnote 1.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------- ----------------- 1995 1993 1994 1995 PRO FORMA(1) 1995 1996 ------ -------- -------- ------------ -------- -------- (DOLLARS IN THOUSANDS) Net sales............... $980.5 $1,072.7 $1,073.9 $1,624.1 $ 536.2 $ 844.7 Cost of operations...... 685.7 752.5 760.4 1,190.1 380.1 611.5 Depreciation (associated with cost of goods sold).................. 19.5 21.5 22.3 34.7 12.4 19.4 ------ -------- -------- -------- -------- -------- Gross profit............ $275.3 $ 298.7 $ 291.2 $ 399.3 $ 143.7 $ 213.8 ====== ======== ======== ======== ======== ========
(7) EBITDA is defined as earnings from operations before depreciation and amortization. The Company believes that EBITDA provides useful information regarding a company's financial performance. EBITDA should not be considered in isolation or as an alternative to net earnings, an indicator of the Company's operating performance, or an alternative to the Company's cash flow from operating activities as a measure of liquidity. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Prospectus. In addition, management believes that the following factors have had a significant effect on its recent financial statements. The historical financial statements of the Company presented herein do not reflect the impact of the 1996 Refinancing or the repurchases of Series 1 Warrants, which were accomplished in the third quarter of 1996. See "Financial Condition and Liquidity" herein. Acquisition of Thomasville. During the year ended December 31, 1995, the Company had two primary operating subsidiaries, Broyhill and Lane. On December 29, 1995, the Company acquired Thomasville for approximately $339 million, consisting of $331 million in cash and $8 million in assumed indebtedness. The transaction was accounted for as a purchase and, since the acquisition occurred as of the last business day of 1995, has been reflected in the Company's consolidated balance sheet. The Company's results of operations for 1995 do not include any of the operations of Thomasville. The cash portion of the acquisition of Thomasville was originally financed through funds obtained by borrowing under the Company's secured credit agreement and the Receivables Securitization Facility. On March 1, 1996, the Company completed a public offering of 10,000,000 Shares of Common Stock, generating net cash proceeds of approximately $81.3 million, which were used to repay a portion of this debt. 1994 Spin-Off Transactions. In order to focus on its core furniture operations, the Company completed a spin-off of its footwear subsidiaries in 1994. On November 17, 1994, the Company simultaneously refinanced the majority of its outstanding indebtedness and distributed to its stockholders all the stock of its former footwear subsidiaries, Converse Inc. and The Florsheim Shoe Company. Upon completion of this restructuring, the Company retained no ownership interest in or management control of the footwear businesses. Accordingly, the financial results of the footwear businesses have been reflected as discontinued operations for all applicable periods. 1992 Asset Revaluation (Fresh-Start Reporting). Included in the Company's statement of operations are depreciation and amortization charges related to adjustments of assets and liabilities to fair value made in 1992. These adjustments are a result of the Company's 1992 reorganization and the adoption of AICPA SOP 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (commonly referred to as "fresh-start" reporting) and are not the result of historical capital expenditures. The impact of such adjustments is that pro forma earnings per share is $0.20 less than it would have been without "fresh-start" reporting. See "Selected Consolidated Historical and Pro Forma Financial Information--Impact of 1992 Asset Revaluation (Fresh-Start Reporting)." 16 RESULTS OF OPERATIONS As an aid to understanding the Company's results of operations on a comparative basis, the following table has been prepared to set forth certain statement of operations and other data for fiscal 1993, 1994 and 1995 and the six months ended June 30, 1995 and June 30, 1996. The results for these periods (other than the six months ended June 30, 1996) do not include any of the operations of Thomasville.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ---------------------------------------------------- --------------------------------- 1993 1994 1995 1995 1996 ---------------- ----------------- ----------------- ---------------- ---------------- % OF NET % OF NET % OF NET % OF NET % OF NET DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES ------- -------- -------- -------- -------- -------- ------- -------- ------- -------- (DOLLARS IN MILLIONS) Net sales............... $980.5 100.0% $1,072.7 100.0% $1,073.9 100.0% $536.2 100.0% $844.7 100.0% Cost of operations...... 685.7 69.9 752.5 70.2 760.4 70.8 380.1 70.9 611.5 72.4 Selling, general and administrative expenses............... 186.2 19.0 199.3 18.6 198.3 18.5 99.4 18.5 144.8 17.1 Depreciation and amortization........... 34.5 3.5 35.8 3.3 36.1 3.3 19.3 3.6 28.1 3.3 ------ ----- -------- ----- -------- ----- ------ ----- ------ ----- Earnings from operations............. 74.1 7.6 85.1 7.9 79.1 7.4 37.4 7.0 60.3 7.2 Interest expense........ 38.6 3.9 37.9 3.5 33.9 3.2 17.2 3.2 25.1 3.0 Other income, net: Gain on insurance settlement............ -- -- -- -- 7.9 0.7 -- -- -- -- Other.................. 1.8 0.1 1.6 0.1 3.9 0.4 2.2 0.4 1.4 0.2 ------ ----- -------- ----- -------- ----- ------ ----- ------ ----- Earnings before income tax expense, discontinued operations and extraordinary item................... 37.3 3.8 48.8 4.5 57.0 5.3 22.4 4.2 36.6 4.4 Income tax expense...... 15.9 1.6 20.9 1.9 22.8 2.1 9.2 1.7 14.2 1.7 ------ ----- -------- ----- -------- ----- ------ ----- ------ ----- Net earnings from continuing operations.. $ 21.4 2.2% $ 27.9 2.6% $ 34.2 3.2% $ 13.2 2.5% $ 22.4 2.7% ====== ===== ======== ===== ======== ===== ====== ===== ====== ===== Gross profit(1)......... $275.3 28.1% $ 298.7 27.8% $ 291.2 27.1% $143.7 26.8% $213.8 25.3% EBITDA(2)............... 108.6 11.1 120.9 11.3 115.2 10.7 56.7 10.6 88.4 10.5
- -------- (1) The Company believes that gross profit provides useful information regarding a company's financial performance. Gross profit should not be considered in isolation or as an alternative to net earnings, an indicator of the Company's operating performance, or an alternative to the Company's cash flow from operating activities as a measure of liquidity. Gross profit has been calculated by subtracting cost of operations and the portion of depreciation associated with cost of goods sold from net sales.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------ --------------- 1993 1994 1995 1995 1996 ------ -------- -------- ------- ------- (DOLLARS IN MILLIONS) Net sales......................... $980.5 $1,072.7 $1,073.9 $ 536.2 $ 844.7 Cost of operations................ 685.7 752.5 760.4 380.1 611.5 Depreciation (associated with cost of goods sold)................... 19.5 21.5 22.3 12.4 19.4 ------ -------- -------- ------- ------- Gross profit...................... $275.3 $ 298.7 $ 291.2 $ 143.7 $ 213.8 ====== ======== ======== ======= =======
(2) EBITDA is defined as earnings from operations before depreciation and amortization. The Company believes that EBITDA provides useful information regarding a company's financial performance. EBITDA should not be considered in isolation or as an alternative to net earnings, an indicator of the Company's operating performance, or an alternative to the Company's cash flow from operating activities as a measure of liquidity. 17 Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Net sales for the six months ended June 30, 1996 increased to $844.7 million from $536.2 million for the six months ended June 30, 1995. The improved sales performance resulted primarily from the acquisition of Thomasville. Had Thomasville been acquired at the beginning of 1995, net sales for the six months ended June 30, 1996 would have increased 4.1% over those for the six months ended June 30, 1995. Cost of operations for the six months ended June 30, 1996 was $611.5 million, compared to $380.1 million for the six months ended June 30, 1995. The large increase was a result of the Company's acquisition of Thomasville. Cost of operations as a percentage of net sales increased from 70.9% for the six months ended June 30, 1995 to 72.4% for the six months ended June 30, 1996. This increase was due to the acquisition of Thomasville which had higher cost of operations as a percentage of net sales than the Company's other operating subsidiaries. Had Thomasville been included on a pro forma basis for the six months ended June 30, 1995, cost of operations as a percentage of net sales would have been 73.2%. Selling, general and administrative expenses increased to $144.8 million for the six months ended June 30, 1996 from $99.4 million for the six months ended June 30, 1995. The large increase was a result of the Company's acquisition of Thomasville. As a percentage of net sales, selling, general and administrative expenses were 17.1% for the six months ended June 30, 1996 compared to 18.5% for the six months ended June 30, 1995, reflecting the Company's acquisition of Thomasville. Depreciation and amortization for the six months ended June 30, 1996 was $28.1 million, compared to $19.3 million for the six months ended June 30, 1995. The large increase was a result of the Company's acquisition of Thomasville. The amount of depreciation and amortization attributable to the "fresh-start" reporting was $8.3 million and $8.1 million for the six months ended June 30, 1996 and June 30, 1995, respectively. Interest expense for the six months ended June 30, 1996 totaled $25.1 million, compared to $17.2 million for the prior year comparable period. The increase in interest expense reflects additional debt incurred for the acquisition of Thomasville. Other income, net for the six months ended June 30, 1996, totaled $1.4 million compared to $2.3 million for the six months ended June 30, 1995. For the six months ended June 30, 1996, other income consisted of interest on short term investments of $0.8 million and other miscellaneous income and (expense) items totaling $0.6 million. For the six months ended June 30, 1996, the Company provided for income taxes totaling $14.2 million on earnings before income tax expense, discontinued operations and extraordinary item, producing an effective tax rate of 38.7%, compared to an effective tax rate for the prior year comparable period of 41.1%. The effective tax rates for such periods were adversely impacted by certain nondeductible expenses incurred and provisions for state and local income taxes. Net earnings per common share from continuing operations on a fully diluted basis were $0.37 for the six months ended June 30, 1996 compared with $0.26 for the prior year comparable period. Weighted average shares outstanding used in the calculation of net earnings per common share on a primary and fully diluted basis were 59,958,162 and 60,693,945 in 1996 and 50,594,863 and 50,639,977 in 1995. Gross profit for the six months ended June 30, 1996 was $213.8 million, representing an increase of 48.7% over gross profit for the prior year comparable period of $143.7 million. The increase resulted primarily from the acquisition of Thomasville. The decrease in gross profit margin to 25.3% for the period ended June 30, 1996 from 26.8% for the comparable period for the prior year was due to the acquisition of Thomasville, which had lower gross profit margins than the Company's other operating subsidiaries. Had Thomasville been included on a pro forma basis in 1995, gross profit margin would have been 24.6% for the six months ended June 30, 1995. 18 Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net sales for 1995 were $1.07 billion, approximately unchanged from 1994. During 1995, residential furniture manufacturers' results were adversely affected by industry-wide price discounting and promotional activity in response to weaker demand for durable goods. The Company was able to maintain comparable net sales despite these conditions through new product introductions at both Broyhill and Lane and continued advertising support of its brand names. Cost of operations for 1995 was $760.4 million, compared to $752.5 million for 1994, an increase of 1.0%. The increase in cost of operations as a percentage of net sales from 70.2% in 1994 to 70.8% in 1995, was primarily the result of unfavorable overhead absorption rates reflecting the Company's effort to maintain manufacturing utilization rates at levels necessary to balance inventory with incoming orders. Selling, general and administrative expenses decreased to $198.3 million in 1995 from $199.3 million in 1994, a reduction of 0.5%. In 1995, such expenses included a $2.7 million non-cash expense related to stock options. As a percentage of net sales, selling, general and administrative expenses were 18.5% in 1995 compared to 18.6% in 1994, reflecting the Company's successful implementation of its ongoing cost reduction programs. Depreciation and amortization for 1995 was $36.1 million, compared to $35.8 million in 1994, an increase of 0.9%. The amount of depreciation and amortization attributable to the "fresh-start" reporting was $15.9 million and $16.9 million, in 1995 and 1994, respectively. Interest expense for 1995 totaled $33.9 million and reflects twelve months of interest expense on the Company's debt structure, which was substantially refinanced as of December 29, 1995. Interest expense for 1995 was not comparable to interest expense for 1994 as a result of the previous refinancing of substantially all of the Company's debt in November 1994. Other income, net for 1995 totaled $11.8 million, compared to $1.6 million in 1994. For 1995, other income, consisted of a gain on insurance settlement of $7.9 million pertaining to the November 1994 destruction of a particleboard plant, interest income on short-term investments of $2.4 million and other miscellaneous income and (expense) items totaling $1.5 million. For 1995, the Company provided for income taxes totaling $22.8 million on earnings before income tax expense, discontinued operations and extraordinary item, producing an effective tax rate of 40.0%, compared to an effective tax rate for 1994 of 42.8%. The effective tax rates for such years were adversely impacted by certain nondeductible expenses incurred and provisions for state and local income taxes. The effective income tax rate for 1995 was favorably impacted by special state income tax incentives granted in connection with the issuance of certain industrial revenue bonds on behalf of one of the Company's subsidiaries. Net earnings per common share for continuing operations on a fully diluted basis were $0.65 and $0.54 for 1995 and 1994, respectively. Net earnings per common share for continuing operations before gain on insurance settlement net of income tax expense on a fully diluted basis was $0.56 and $0.54 for 1995 and 1994, respectively. Weighted average shares outstanding used in the calculation of net earnings per common share on a primary and fully diluted basis were 50,639,000 and 52,317,000 in 1995, and 51,495,000 and 51,506,000 in 1994. Gross profit for 1995 was $291.2 million, compared to $298.7 million for 1994, a decrease of 2.5%. Gross profit as a percentage of net sales declined from 27.8% in 1994 to 27.1% in 1995, primarily as a result of lower factory utilization rates at certain of the Company's manufacturing facilities reflecting the Company's effort to balance inventories with incoming orders. 19 Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 Net sales for 1994 were $1.07 billion, representing an increase of 9.4% over net sales of $980.5 million in 1993. The net sales increase for 1994 reflected an improving U.S. economy and favorable industry conditions as well as new product offerings and marketing programs that were well received by customers. Cost of operations for 1994 was $752.5 million, compared to $685.7 million for 1993, an increase of 9.7%. The increase in cost of operations as a percentage of net sales from 69.9% in 1993 to 70.2% in 1994, was primarily the result of start-up costs at a new motion upholstery manufacturing facility, the testing of a new state-of-the-art finishing facility and the impact of an explosion and fire that destroyed a particleboard plant in November 1994, partially offset by favorable factory utilization rates. Depreciation and amortization for 1994 was $35.8 million, compared to $34.5 million in 1993, an increase of 3.8%. The amount of depreciation and amortization attributed to the "fresh-start" reporting was $16.9 million and $16.5 million, in 1994 and 1993, respectively. Selling, general and administrative expenses for 1994 were $199.3 million, representing an increase of 7.0% over selling, general and administrative expenses for 1993 of $186.2 million. Selling, general and administrative expenses as a percentage of net sales, decreased to 18.6% from 19.0%. The reduction in selling, general and administrative expenses as a percentage of net sales was attributable to the Company's emphasis on control and reduction of operating expenses, as well as a nonrecurring $2.6 million charge included in 1993 related to the Company's 1992 reorganization. Interest expense for 1994 totaled $37.9 million compared to $38.6 million in 1993. The reduction in interest expense was primarily due to refinancing the Company's long-term debt in conjunction with the November 17, 1994 spin-off distribution to shareholders of the Company's footwear segment. Other income, net for 1994 and 1993 totaled $1.6 million and $1.8 million, respectively. The Company's effective tax rate for 1994 and 1993 was 42.8% and 42.7%, respectively. The effective tax rates for such years were adversely impacted by certain nondeductible expenses incurred and provisions for state and local income taxes. Net earnings per common share from continuing operations on a fully diluted basis were $0.54 and $0.41 for 1994 and 1993, respectively. Weighted average shares outstanding used in the calculation of net earnings per common share on a primary and fully diluted basis were 51,495,000 and 51,506,000 in 1994, and 51,375,000 and 51,397,000 in 1993. Gross profit for 1994 was $298.7 million, representing an increase of 8.5% over gross profit for 1993 of $275.3 million. The increase resulted from an increase in net sales, partially offset by a reduction in gross profit margin. The reduction in gross profit margin, to 27.8% in 1994 from 28.1% for 1993, was primarily a result of start-up costs at a new motion upholstery manufacturing facility, the testing of a state-of-the-art finishing facility and the impact of an explosion and fire that destroyed a particleboard plant in November 1994, partially offset by favorable factory utilization rates. FINANCIAL CONDITION AND LIQUIDITY Liquidity. Cash and cash equivalents at June 30, 1996 totaled $18.5 million, compared to $26.4 million at December 31, 1995. For the six months ended June 30, 1996, net cash from operating activities totaled $55.9 million. Net cash used in investing activities totaled $13.1 million. Net cash used in financing activities totaled $50.7 million, including the net repayment of $139.7 million of long-term debt and the receipt of $81.3 million of net proceeds from the sale of Common Stock pursuant to the 1996 Company Equity Sale and $7.7 million from the exercise of warrants to purchase shares of Common Stock, net of repurchases. 20 Working capital was $442.1 million at June 30, 1996, compared to $455.0 at December 31, 1995. The current ratio was 3.8 to 1 at June 30, 1996, compared to 4.4 to 1 at December 31, 1995. The generation of significant operating cash flow from the decrease in working capital was due to the Company's focus on more efficient management of individual working capital components. As of June 30, 1996, long term debt, including current maturities, totaled $584.0 million compared to $723.7 million at December 31, 1995. This reduction of indebtedness of $139.7 million was funded by $42.8 million of cash flow from operations, with the remainder funded by the 1996 Company Equity Offering, warrant exercise proceeds, and the balance sheet cash. Financing Arrangements. On September 6, 1996, the Company completed the 1996 Refinancing involving execution of the Secured Credit Agreement and modifications incorporated in the Receivables Securitization Facility. The Secured Credit Agreement replaces a secured credit agreement that had been entered into in connection with the acquisition of Thomasville. The 1996 Refinancing will result in a substantial reduction in interest expense, which at current debt levels will favorably impact annual results by approximately $3.7 million, or $0.05 to $0.06 per share. Had the 1996 Refinancing and the 1996 Company Equity Sale been completed at the beginning of 1996, earnings for the six months ended June 30, 1996 would have increased by $0.03 per share. The Secured Credit Agreement is a $475.0 million reducing revolving credit facility. The interest rate on borrowings is based on selected credit ratios set forth in the Secured Credit Agreement and as of September 30, 1996 was 6.375%. The Secured Credit Agreement allows for both the issuance of letters of credit and cash borrowings. Letters of credit are limited to no more than $60.0 million. Cash borrowings are limited to the facility's maximum availability less letters of credit outstanding. As of September 30, 1996 the Company had $365.0 million of cash borrowings drawn under the Secured Credit Agreement and had excess availability of approximately $84.0 million. The Receivables Securitization Facility is a $225.0 million facility pursuant to which the Company sells interests in the trade receivables of its operating companies to a third party financial institution. The Company accounts for the Receivables Securitization Facility as long-term debt. The Company's cost of borrowing is based on a commercial paper index rate plus a program fee and as of September 30, 1996 was 6.045%. The Company estimates that it currently has $10-15 million of excess availability under the Receivables Securitization Facility. In February 1996, in order to reduce the impact of changes in interest rates on its floating rate long-term debt, the Company entered into three-year interest rate swap agreements having a total notional amount of $300 million. The Company believes that the Secured Credit Agreement and the Receivables Securitization Facility, together with cash generated from operations, will be adequate to meet liquidity requirements for the foreseeable future. Capital Expenditures. The Company maintains a significant capital expenditure program focusing on increasing manufacturing efficiency and expanding capacity as required. The Company's total capital expenditures were $15.0 million, $35.6 million, $21.1 million and $30.2 million for the six months ended June 30, 1996 and the years ended December 31, 1995, 1994 and 1993, respectively. The annual figures do not include the capital expenditures of Thomasville ($15.2 million, $14.1 million and $10.0 million for the years ended December 31, 1995, 1994 and 1993, respectively). The Company estimates that total capital expenditures will be approximately $40.0 million in both 1996 and 1997. Significant new projects during the past three years included a new upholstery manufacturing facility at Action Industries to meet the increased demand for the Company's recliners, motion furniture and sleep sofas and a state-of-the-art flat line finishing system at Lane. The capital expenditures for 1995 include $18.2 million to construct a new state-of-the- art particleboard manufacturing facility at Broyhill, which was funded by proceeds from an insurance settlement, to replace the Company's facility that was destroyed by fire in November 1994. The Company believes that as a result of the availability of excess capacity in the Lane and Thomasville manufacturing facilities, the Company will be able to pursue its growth strategy over the next several years without the necessity of making significant additional capital expenditures to expand capacity. 21 BUSINESS GENERAL The Company believes that it is the largest manufacturer of residential furniture in the United States. The Company markets its products under three of the best known brand names in the industry--Broyhill, Lane and Thomasville. The Company is a quality and style leader across a broad spectrum of price categories from "premium" priced home furnishings to lower priced RTA furniture. The Company distributes its products through a diverse network of national, regional and local retailers, including the largest system of independently-owned dedicated retail outlets in the residential furniture industry. Management believes that the acquisition of Thomasville in December 1995 significantly enhances the Company's competitive strengths and positions the Company to increase its market share, sales and earnings. The Company is organized into three primary operating subsidiaries of similar size which target particular product and price categories as described below: BROYHILL. Broyhill is a leader in the "good" and "better" price categories, which are two of the largest segments of the residential furniture market. Management believes Broyhill is the largest manufacturer of residential furniture under one brand name, and Broyhill has been rated the number one brand in the industry in terms of brand awareness by several recent consumer surveys. The Company believes that the Broyhill Fontana collection has been the best selling furniture collection in the industry for the last three years. Broyhill distributes its products through an extensive distribution network of more than 6,200 independently-owned retail locations, including approximately 330 dedicated Broyhill Showcase Galleries and approximately 425 dedicated Broyhill Furniture Centers. LANE. Lane manufactures specialty products for niche markets in the "better," "best" and "premium" price categories. Lane is the largest domestic manufacturer of cedar chests. In addition, Lane, through Action Industries, its largest operating unit, is the largest manufacturer of motion furniture and the second largest manufacturer of recliners in the United States. Lane is one of the most widely recognized brands in the residential furniture industry and has established a reputation for innovative marketing and quality designs. Lane distributes its products through an extensive distribution network of more than 16,000 independently-owned retail locations, including approximately 280 dedicated furniture galleries. THOMASVILLE. Thomasville is the largest residential furniture manufacturer under one brand name in the "premium" price category and manufactures furniture which embodies the widely recognized "Thomasville Look" for both the "best" and "premium" price categories. Thomasville has been rated the "highest quality" brand by several recent consumer surveys. Management believes that the Collector's Cherry and the Mahogany Collection have consistently been among the best selling collections in the industry. Thomasville distributes its products through approximately 635 independently-owned retail locations, including approximately 245 dedicated Thomasville Galleries and approximately 80 free-standing Thomasville Home Furnishings stores, which exclusively feature Thomasville furniture. The company also produces a separate line of lower priced RTA and promotional furniture. COMPETITIVE STRENGTHS In addition to its substantial size relative to most of its competitors, the Company believes that its focus on the following elements has contributed to its leading position in the residential furniture industry: BRAND NAME STRENGTH. According to a recent consumer survey conducted by America's Research Group and commissioned by the Company, Broyhill, Lane and Thomasville are three of the six best known brand names in the retail furniture industry. According to this survey, Broyhill was rated the number one brand in the industry in terms of consumer awareness, and Thomasville was rated the "highest quality" brand and the leading brand in the "best" price category. 22 BROAD RANGE OF PRODUCT OFFERINGS. The Company offers consumers a wide range of products from the "premium" to "RTA" price categories across virtually all residential furniture segments including: bedroom, dining room, living room, motion/recliner, stationary upholstery, occasional table and rattan/wicker. The acquisition of Thomasville has strengthened the Company's position across the "premium" and "best" price categories of the market. DEDICATED DISTRIBUTION CHANNELS. The Company distributes its products through a diverse network of independently-owned retail locations which includes approximately 855 galleries dedicated to Broyhill, Lane and Thomasville products, approximately 425 Broyhill Furniture Centers, and approximately 80 free-standing Thomasville Home Furnishings stores. The gallery concept displays products in complete room ensembles, which include furnishings, wall decor, window treatments, floor coverings, accents and accessories. According to Furniture/Today, the median sales per square foot of galleries exceeds that of non-galleries by 27%. The Broyhill Furniture Centers are participants in a gallery program developed for smaller dealers, which enables retailers to commit less area to Broyhill products than a gallery. The Thomasville Home Furnishings stores are dedicated solely to the display, promotion and sale of Thomasville products. See "Distribution." INNOVATIVE, HIGH QUALITY PRODUCTS. The Company focuses on designing innovative and stylish furniture, by regularly introducing new and updated collections and designs. For example, management believes that the Broyhill Fontana collection has been the best selling furniture collection, and the Thomasville Collector's Cherry collection has been the best selling dining room collection in the industry for the last three years. In addition, Lane has teamed up with innovative, widely recognized designers such as Mark Hampton and Dakota Jackson to design and market furniture collections. Each of these companies strives to differentiate its products with design elements that include special detailing, innovative finishes and unique hardware. Lane's Action Industries subsidiary has developed new technologies that have enhanced its position in the growing motion furniture segment, such as an innovative deck mechanism for sleeper sofas. MANUFACTURING EXPERTISE. The Company is a leader in automated furniture manufacturing. Modern state-of-the-art technology and economies of scale have made the Company a very efficient producer. The Company consistently modernizes its manufacturing facilities through capital investment. For example, Lane recently completed a state-of-the-art flat line finishing plant for more efficient production of high sheen and enhanced grain finishes and has invested in additional advanced-technology manufacturing equipment to increase productivity. In addition, Broyhill recently completed construction of a state-of-the-art particleboard manufacturing facility. EXPERIENCED MANAGEMENT TEAMS. The Company believes that an experienced, dedicated management team is a critical factor in achieving success. Effective on October 1, 1996, Wilbert G. (Mickey) Holliman became President and Chief Executive Officer of the Company. Mr. Holliman was previously the President and Chief Executive Officer of Action Industries, a subsidiary of the Company, which he founded over 25 years ago. Since the founding of Action Industries, Mr. Holliman has built this start-up company into an industry leader, with compound sales and earnings growth of approximately 20% a year and total sales that approach $400 million annually. In addition, Action Industries has consistently been one of the most profitable operating units of the Company. The management teams for each of the operating subsidiaries of the Company also have extensive experience in the furniture industry. The Chief Executive Officers of Broyhill, Lane and Thomasville have an average of more than 28 years of experience with their respective companies. GROWTH STRATEGY The Company seeks to grow in both sales and profits and increase its market share by means of the following elements: ENHANCING BRAND NAME STRENGTH. Brand name recognition is a critical factor in consumer purchases of furniture. The Company believes that consumer recognition of its brand names is a key to increasing its market share. The Company has three of the six most recognized brand names in the residential furniture industry-- 23 Broyhill, Lane and Thomasville. The Company is committed to continue to strengthen its brand names through advertising in various media including network and cable television and highly read consumer magazines such as People, Reader's Digest, Sports Illustrated, Architectural Digest and Better Homes and Gardens among several others, in addition to its dealer cooperative advertising program. EXPANDING DEDICATED DISTRIBUTION CHANNELS. Dedicated distribution outlets, such as galleries, tend to have higher sales per square foot and faster inventory turns than non-gallery locations. The Company has generated increased sales volume by distributing its products through independently- owned dedicated retail outlets. In addition, the Company believes that it strengthens its manufacturer/retailer alliances through gallery relationships. The Company continues to expand these distribution channels by attracting additional retailers in new and existing geographic markets to participate in the Company's gallery programs. Furthermore, the Company is expanding the network of free-standing Thomasville Home Furnishings stores. INCREASING SALES TO NATIONAL AND LARGE REGIONAL RETAILERS. The Company is well positioned to benefit from the increasing presence of national and large regional retailers in the residential furniture industry. According to Furniture/Today, in 1995 the top 10 furniture retailers represented 16% of total sales versus 10% in 1985. The Company's overall size, breadth of product, strength of brands and national scope of distribution enable it to service national retailers, such as J.C. Penney, Sears, Levitz and Heilig- Meyers, and key regional companies, such as Breuner's, Haverty's and Roberds, more effectively than the Company's smaller competitors. The Company intends to continue to build its relationships with these key retailers. PENETRATING NEW MARKETS. The Company is actively pursuing sales opportunities in new markets. In the United States, management is targeting key furniture retailers in important geographic territories, particularly portions of the West Coast and New England. In addition, the Company has developed a program designed to increase sales to the contract market, which includes hotels, motels and health care facilities. The Company is also actively pursuing the international export market, particularly Canada, Europe, Japan and the Middle East, where the Company believes there are significant opportunities for growth. EMPHASIZING NEW AND GROWING PRODUCT AREAS. The Company emphasizes development of new high margin products in growing product areas. For example, the Company has become a leader in the fast growing motion furniture and recliner segments. The Company has also introduced a sleeper sofa incorporating a unique sleep deck designed to be more comfortable, both as a sofa and a bed, than competitive product offerings. Furthermore, the Company is currently designing innovative new products for the growing home office and home entertainment center markets. CAPITALIZING ON DEMOGRAPHIC TRENDS. Management believes that demographic trends will continue to drive long-term growth in the furniture industry. In particular, as "baby boomers" (people born between 1946 and 1964) mature to the 35-64 year age group over the next decade, they will be reaching their highest earnings power. It is currently estimated that the 35-64 year age group will increase by approximately 11 million persons by the year 2000. According to Furniture/Today, such age group includes the largest consumers of residential furniture. Furthermore, statistics show that the average size of new homes has increased in recent years, which generally results in increased purchases of furniture per home. The Company believes that it is well positioned to capitalize on these demographic trends as a result of its broad range of product offerings and widely-recognized brand names. MAXIMIZING OPERATING MARGINS. The Company's Gross Profit Management Program consists of twelve specific "building blocks" that management uses in its strategic and operational planning to maximize gross profit margins and thereby provide the Company with additional funds for purposes such as increased advertising and product development. These "building blocks" include (a) introducing new high quality products with above average profit margins, (b) marketing products to new customers, (c) developing new markets, (d) implementing a well-defined pricing strategy to maximize the effectiveness of price increases and decreases, (e) focusing on cost control and cost reduction programs that target a minimum savings of 3% of cost of goods sold each year, (f) reviewing product and purchasing strategies, and (g) implementing other management and personnel 24 strategies. Management believes that this program has contributed to the Company achieving among the highest EBITDA margins of publicly-owned residential furniture manufacturing companies in recent years. Management believes opportunities exist to increase the EBITDA margins of its operating companies through implementation of the Gross Profit Management Program. The Company has recently initiated this program at Thomasville, from which it expects to benefit beginning in 1997. EXPANDING OPERATING COMPANY COORDINATION. The Company has historically managed its operating units on a stand-alone basis. Increasingly since the acquisition of Thomasville, the Company has concentrated on enhancing the coordination among its operating companies. As a result of this enhanced coordination, the Company has begun to achieve operating efficiencies and believes it has the opportunity to further improve operating efficiencies and results. These opportunities include (i) cost savings generated through volume purchasing; (ii) reductions in future capital expenditures through better utilization of existing capacity; (iii) complementary sales and marketing activities; (iv) joint international sourcing; and (v) shared operating experience and expertise. THE FURNITURE INDUSTRY The domestic residential furniture industry had approximately $19 billion in shipments during 1995 according to the American Furniture Manufacturers Association (the "AFMA"). According to Furniture/Today, the industry is comprised of an estimated 600 manufacturers, of which the top 10 accounted for approximately 39% of industry sales, representing an increase from 23% in 1985. The residential furniture market consists of three principal product categories: wood, upholstery and metal. Of these categories, wood is the largest, representing approximately half of total industry sales, while upholstery represents approximately 40% of total industry sales and metal and other products account for the balance. The domestic residential furniture manufacturing industry in which the Company operates is affected by the residential furniture retail industry. The retail furniture industry had approximately $37.5 billion in total revenues in 1995, according to Furniture/Today. The industry has experienced significant consolidation in the past decade. For example, according to Furniture/Today, the top 10 furniture retailers in 1995 represented a 16% market share, versus 10% in 1985. Additionally, over the past twelve months, this consolidation of the retail furniture industry has continued, as evidenced by recently announced or completed mergers and acquisitions. The access to diverse distribution channels has become increasingly important over the past decade. Home centers, mass merchants, national chains and specialty stores have emerged as increasingly important distribution channels for residential furniture manufacturers. Management believes that these retailers require suppliers that offer broad product lines combined with substantial marketing and advertising resources. In addition, the direct display of products to the consumer has become more important to residential furniture manufacturers. As a result, the "gallery" concept and other dedicated distribution outlets have become increasingly important to manufacturers because they have provided them with dedicated retail space and have historically generated greater sales per square foot than other distribution outlets. Galleries are large display areas within independently- owned retail furniture locations which are committed to the products of a single manufacturer. A gallery generally takes up a significant portion of a retailer's floor space and has complete room settings and fully accessorized displays that help customers visualize their room. In return for featuring a manufacturer's merchandise, the retailer receives layout designs, cooperative promotions and other assistance from the manufacturer. The residential furniture industry is cyclical, fluctuating with the general economy. Periods of decline, however, have been brief, with annual industry shipments declining in only four of the past twenty-four years. The Company believes furniture sales are influenced by a number of macroeconomic factors including existing 25 home sales, housing starts, consumer confidence, interest rates and demographic trends. Management believes favorable fundamental home building and demographic trends will continue to drive long-term growth in the furniture industry with AFMA expecting shipments to increase 3.1% in 1996 and 4.0% in 1997. PRODUCTS The Company manufactures and distributes (i) case goods, consisting of bedroom, dining room and living room furniture, (ii) occasional furniture, consisting of wood tables and accent items and free standing home entertainment centers and home office items, (iii) stationary upholstered products, consisting of sofas, loveseats, sectionals, chairs and (iv) recliners, motion furniture and sleep sofas. The Company's product strategy, which is enhanced by the acquisition of Thomasville, is to be the quality and style leader across a broad spectrum of price categories in the residential furniture industry from "premium" to "RTA" home furnishings. The Company believes that its products are well-positioned in terms of selection, quality and value within each of the major style categories in home furnishings including American Traditional/Country, 18th Century, European Traditional, Casual Contemporary and Oriental. The Company's positioning by price and product category are shown below.
CASE STATIONARY MOTION/ PRICING CATEGORY GOODS OCCASIONAL UPHOLSTERY RECLINER - --------------------------------------------------------------------------- Premium Thomasville Thomasville Thomasville Lane Lane - --------------------------------------------------------------------------- Best Thomasville Thomasville Thomasville Thomasville Lane Lane Lane Lane Broyhill - --------------------------------------------------------------------------- Better Lane Lane Lane Lane Broyhill Broyhill Broyhill Broyhill - --------------------------------------------------------------------------- Good Broyhill Broyhill Broyhill - --------------------------------------------------------------------------- Promotional Founders* - --------------------------------------------------------------------------- RTA CreativeInteriors*
- -------- * Previously Armstrong. BROYHILL FURNITURE INDUSTRIES Broyhill produces collections of medium price bedroom, dining room, upholstered and occasional furniture aimed at middle-income consumers. Broyhill's wood furniture offerings consist primarily of bedroom, dining room and living room furniture, occasional tables, accent items and free standing home entertainment centers. Upholstered products include sofas, sleep sofas, loveseats, sectionals and chairs, all offered in a variety of fabrics and leathers. Broyhill's residential furniture divisions produce a wide range of furnishings in colonial, country, traditional and contemporary styles. The widely recognized Broyhill trademarks include Broyhill, Broyhill Premier and Highland House. The flagship Broyhill product line concentrates on bedroom, dining room, upholstered and occasional furniture designed for the "good" and "better" price categories. The Broyhill Premier product line enjoys an excellent reputation for classically styled, complete furniture collections in the "better" price category. Highland House also manufactures upholstered products in the "better" and "best" price category. In addition, management believes that the Broyhill Fontana collection has been the best selling furniture collection for the past three years. THE LANE COMPANY Lane manufactures and markets a broad range of high quality furniture targeting the "better," "best" and "premium" price categories. Lane targets niche markets with its seven operating divisions, which participate in 26 such segments of the residential furniture market as 19th century reproductions, motion furniture, wicker and rattan, cedar chests and finely tailored upholstered furniture. Using its recently installed, state-of-the-art finishing system, Lane produces quality high sheen and enhanced grain finishes. The Lane Division of Lane is the leading manufacturer of cedar chests in the United States. It also manufactures and sells occasional living room tables, bedroom and dining room furniture, wall systems, desks, console tables and mirrors and other occasional wood pieces. The Lane Division has teamed up with widely recognized designers such as Raymond Waite, Mark Hampton, Dakota Jackson, Blake Tovin and Sandra Nunnerley, as well as design institutions such as the American Museum of Folk Art in New York, to design and market furniture collections. The Lane Division furniture is sold in the "better" and "best" price categories. Action Industries, a subsidiary of Lane, manufactures and markets reclining chairs and motion furniture in the "good," "better" and "best" price categories under the Action by Lane brand name. Motion furniture consists of sofas and loveseats with recliner-style moving parts and comfort features, wall saver recliners, pad-over chaise recliners, high-leg recliners, sleep sofas and motion sectionals. Lane's Royal Development Company designs and manufactures the mechanisms used in Action Industries' reclining furniture products. Management believes that Action Industries currently commands an approximately 14% market share position in the motion furniture and an approximately 22% market share in the reclining chair market. The Hickory Chair division manufactures and markets traditional styles of upholstered furniture, dining room chairs and occasional tables in the "best" and "premium" price categories. The Hickory Chair division has been crafting fine reproductions of 18th century furniture for over 80 years. For example, Hickory Chair offers the James River collection, which features reproductions of fine furnishings from Virginia plantations, and more recently the new Mount Vernon collection, which features reproductions from George Washington's home. The Pearson division has been manufacturing and selling contemporary and traditional styles of finely tailored upholstered furniture including sofas, love seats, chairs and ottomans for over 50 years. Pearson manufactures the Viceroy collection, which features fine furnishings from the award winning designer Victoria Moreland. Pearson furniture sells in the "premium" price category and is distributed to high end furniture stores and interior designers. The Lane Upholstery division includes two product lines, one of which is composed of contemporary and modern upholstered furniture and metal and glass occasional and dining tables, and the other of which is composed of traditional and contemporary upholstered furniture, primarily sofas, love seats, chairs and ottomans. The Venture Furniture division manufactures and markets moderately priced wicker, rattan and bamboo upholstered furniture, tables, occasional wood pieces and other home furnishings accessories. The division manufactures a line of outdoor and patio furniture featuring fast drying upholstered cushions under the name WeatherMaster, which has developed significant consumer acceptance. Hickory Business Furniture manufactures and sells a line of office furniture, including chairs, tables, conference tables, desks and credenzas, in the upper-medium price range. THOMASVILLE FURNITURE INDUSTRIES Thomasville manufactures and markets wood furniture, upholstered products and RTA/promotional furniture. Thomasville markets its products primarily under the Thomasville brand name. Management believes Thomasville products contain special design elements which embody the famous "Thomasville Look." In wood furniture, these elements include special details, high sheen finishes, original design hardware, hand selected veneers and fancy face veneer patterns and decorative carvings that are made possible by the unique manufacturing techniques that have been developed by Thomasville and the skills of its experienced employees. In upholstery, these elements include a wide range of frames, fabrics and leathers combined with fringes, cords, pillows, exposed frame finishes and seating options. 27 Management believes that Thomasville's wood products are well positioned in terms of selection, quality and value within each of the major style categories in home furnishings. In 1996, Thomasville has introduced two major new collections, Renaissance and Carlton Hall. Additionally, Collector's Cherry and the Mahogany Collection have consistently been among the most successful collections in the industry. Thomasville offers an assortment of upholstery under one brand name that targets the "best" and "premium" price categories. Upholstery is primarily marketed in three major styles: Traditional, American Traditional/Country and Casual Contemporary. Upholstery style is determined by both frame style and fabric or leather selection. Thomasville's frame assortment allows the consumer to select from over 90 different styles within the general style categories, and as much as 45% of the Thomasville fabric offering changes in a 12 month period, insuring that the latest styles are available. Thomasville's RTA/Promotional division offers assembled bedroom sets, bookcases and home entertainment centers as well as RTA furniture consisting of home entertainment centers, audio cabinets, television/VCR carts, room dividers, bookcases, bedroom and kitchen/utility furniture, microwave carts, computer desks and storage armoires. These lines are produced in highly automated facilities. Thomasville's RTA/Promotional division markets products under the CreativeInteriors and Founders brand names (previously having used Armstrong) to a variety of retailers for sale to consumer end-users and certain contract customers. DISTRIBUTION The Company's strategy of targeting diverse distribution channels such as furniture centers, independent dealers, national and local chain stores, department stores, specialty stores and decorator showrooms is supported by dedicated sales forces covering each of these distribution channels. The Company is also exploring opportunities to expand international sales and to distribute through non-traditional channels such as electronic retailers, wholesale clubs, catalog retailers and television home shopping. The Company's breadth of product and national scope of distribution enable it to service effectively national retailers such as J.C. Penney, Sears, Levitz and Heilig-Meyers and key regional retailers such as Breuner's, Haverty's and Roberds. These large retailers are commanding an increasing presence in the consolidating furniture retailing industry and management believes that the Company is better positioned than its competitors to meet their needs. Additionally, the consolidation of the retail furniture industry has made access to distribution channels an important competitive advantage for manufacturers. The Company has developed dedicated distribution channels by expanding its gallery program and the network of independently-owned dedicated retail locations, such as Thomasville Home Furnishings stores. The Company distributes its products through a diverse network of independently- owned retail locations, which includes approximately 80 free-standing stores, approximately 855 galleries and approximately 425 furniture centers. Broyhill, Lane and Thomasville have all developed gallery programs with dedicated dealers displaying furniture in complete room ensembles. These retailers employ a consistent showcase gallery concept wherein products are displayed in complete and fully accessorized room settings instead of as individual pieces. This presentation format encourages consumers to purchase an entire room of furniture instead of individual pieces from different manufacturers. As a result, galleries tend to have higher sales per square foot as well as faster inventory turns than non-gallery locations. According to Furniture/Today, the median sales per square foot of galleries exceeds that of non-galleries by 27%. The Company recognizes the importance of the gallery network to its long-term success, and has developed and maintains close relationships with its dealers. The Company offers substantial services to retailers to support their marketing efforts, including coordinated national advertising, merchandising and display programs and extensive dealer training. The Thomasville Home Furnishings stores are free-standing retail locations that exclusively feature Thomasville furniture. The Company believes distributing its products through dedicated free-standing stores strengthens brand awareness, provides well-informed and focused sales personnel and encourages the purchase of multiple items per visit. Management is currently evaluating similar opportunities to market Lane and Broyhill products. 28 Showrooms for the national furniture market are located in High Point, North Carolina and for regional markets in Dallas, Texas, Atlanta, Georgia, Chicago, Illinois, and San Francisco, California. BROYHILL FURNITURE INDUSTRIES One of Broyhill's principal distribution channels is the Broyhill Showcase Gallery Program. This program, developed over the past twelve years, involves more than 330 participating dealer locations in the United States and seven galleries in foreign countries. Each dealer in the Broyhill Showcase Gallery Program owns the gallery and the Broyhill furniture inventory. The program incorporates a core merchandise program, advertising material support, in- store merchandising events and educational opportunities for the retail store sales and management personnel. The average Broyhill Showcase Gallery consists of 7,500 square feet of display space within a 30,000 square foot store. Furniture is displayed in complete and fully accessorized room settings instead of as individual pieces. For the retailer that is currently not a participant in the gallery program, Broyhill offers the Independent Dealer Program. This concept, initiated in 1987, is designed to strengthen Broyhill's relationship with these retailers by assisting them in overcoming some of the significant difficulties in running an independent furniture business. Participating retailers in the Independent Dealer Program commit to a minimum pre-selected lineup of Broyhill merchandise and, in return, receive a detailed, step-by-step, year-round advertising and merchandising plan. The program includes four major sales events per year, monthly promotional themes and professionally prepared advertising and promotional materials at nominal cost in order to help increase consumer recognition on the local level. As part of the Independent Dealer Program, Broyhill offers the Broyhill Furniture Center Program for retailers that have committed at least 2,000 square feet exclusively to Broyhill products arranged in gallery-type room settings. The Company seeks to develop relationships with these Broyhill Furniture Center retailers, which may become participants in the Broyhill Showcase Gallery Program. This program includes all of the benefits of the Independent Dealer Program, plus additional marketing, designing and advertising assistance. THE LANE COMPANY Lane distributes its products nationally through a well established network of more than 16,000 retail locations. A diverse distribution network is utilized in keeping with Lane's strategy of supplying customers with highly specialized products in selected niche markets. This distribution network primarily consists of independent furniture stores, regional chains such as Haverty's and Art Van, and department store companies such as J.C. Penney, Sears, May Department Stores, Federated Department Stores and Dillard Department Stores. Lane has established specialty galleries with approximately 280 participating dealers. This includes approximately 175 Comfort Showcase Galleries established by Action Industries since October 1995 in connection with a newly created gallery program. Action Industries anticipates that it will continue to expand significantly its Comfort Showcase Gallery program. The Action Industries' galleries average approximately 3,500 square feet of retail space specifically dedicated to the display, promotion and sale of Action Industries' products. Lane's other gallery programs call for the display of Lane wood and upholstered furniture in settings that range from less than 3,000 to approximately 5,000 square feet. THOMASVILLE FURNITURE INDUSTRIES Thomasville products are offered at approximately 635 independently-owned retail locations, including approximately 245 Thomasville Galleries, approximately 80 Thomasville Home Furnishings stores and approximately 310 authorized Thomasville dealers. The foregoing figures reflect a review and reclassification by Thomasville of its distribution network that became effective on July 1, 1996. The Thomasville Gallery concept was initiated in 1983. Thomasville Galleries have an average 7,500 square feet of retail space specifically dedicated to the display, promotion and sale of Thomasville products. Management believes that the gallery concept results in increased sales of Thomasville products by encouraging the consumer to purchase a complete collection as opposed to individual pieces from different manufacturers. The first Thomasville Home Furnishings 29 store opened in 1988. The typical Thomasville Home Furnishings store is a 15,000 square foot independently-owned store offering a broad range of Thomasville products, presented in a home-like setting by specially trained salespersons. Thomasville's management believes that the gallery and dedicated store programs have helped create one of the most efficient distribution systems in the industry. Thomasville's RTA/Promotional division sells promotional and RTA furniture to a variety of retailers for sale to consumer end-users and certain contract customers. Promotional furniture is sold to retail chains such as Wal-Mart and Levitz, as well as independent furniture stores. Promotional furniture is also sold in the hospitality and health care markets of Thomasville's contract business. RTA customers include national chains such as Wal-Mart and Ames, catalog showrooms, discount mass merchandisers, warehouse clubs and home furnishings retailers. MARKETING AND ADVERTISING The Company continues to strengthen its valuable brand names through ongoing investment in innovative consumer advertising. The Company is one of the largest advertisers in the residential furniture industry. Advertising is used to increase consumer awareness of its brand names and is targeted to specific customer segments through leading shelter magazines and popular magazines such as Sports Illustrated, People and Reader's Digest. Each operating company uses focused advertising in major markets to create buying urgency around specific sale and location information, enabling retailers to be listed jointly in advertisements for maximum advertising efficiency and shared costs. The Company seeks to increase consumer buying and strengthen relationships with retailers through cooperative advertising and selective promotional programs. The Company focuses its marketing efforts on prime potential customers utilizing information from databases and from callers to each operating company's toll-free telephone number. Each of the operating companies also advertises selectively on television in conjunction with dealers, and Action Industries and Thomasville also use television advertising independently. BROYHILL FURNITURE INDUSTRIES Broyhill's advertising programs focus on translating its strong consumer awareness into increased sales. According to the recent consumer survey conducted for the Company by America's Research Group, Broyhill was rated the number one brand in the industry in terms of brand awareness. In addition, a survey of readers by Better Homes and Gardens found that 92.5% of people recognized the name in an aided name recognition test, and a nationwide survey by Elegant Bride magazine found that Broyhill had the highest unaided name recognition of any residential furniture manufacturer. Broyhill's current marketing strategy features a national print advertising program in addition to traditional promotional programs such as furniture "giveaways" on television game shows and dealer-based promotions such as product mailings and brochures. The national print advertising program, which consists of multi-page lay-outs, is designed to appeal to the consumer's desire for decorating assistance and increased confidence in making the decision to purchase a big ticket product such as furniture. These advertisements are run in publications such as Better Homes and Gardens, Country Living and HOME magazine, which appeal to Broyhill's customer base. Game show promotions, a long-standing Broyhill tradition, include popular programs such as Wheel of Fortune and The Price is Right. An extensive public relations campaign also exposes Broyhill products in leading magazine and newspaper editorial features. In addition, Broyhill expects to begin a regional television advertising program in 1997. THE LANE COMPANY Management believes that Lane was the first residential furniture manufacturer to institute a national advertising campaign. Lane became a well- known brand name through Lane's initial use in the 1920s of creative advertising to promote its cedar chests. Since then, Lane has continued to use advertising programs to generate consumer awareness of the Lane brand name. Through Lane's in-house advertising agency, recent programs have been developed for print campaigns in national publications such as Country Home, Country Living, House Beautiful and Architectural Digest. Action Industries is engaged in selective national and regional television advertising. 30 The Lane Keepsake program has made the Lane cedar chest one of the best- known furniture products in the industry and contributes to the high level of consumer recognition. The program enables the 1,100 participating dealers to establish early personal contact with a large number of women who are about to enter the bridal market as potential buyers of home furnishings. Information regarding a graduation gift of a miniature Lane cedar chest, available at the local participating furniture store, is sent to the parents of graduating high school women. This Keepsake program is believed to be instrumental in building consumer recognition and promoting the Lane brand name. Lane markets its products through the use of well-known designers and affiliation with institutions. For example, Lane has teamed up with widely recognized designers such as Raymond Waite, Mark Hampton, Dakota Jackson, Blake Tovin and Sandra Nunnerley, as well as design institutions such as the American Museum of Folk Art in New York, to design and market furniture collections. In 1996, Action Industries increased its advertising expenditures significantly and emphasized the use of fully integrated advertising programs. These campaigns are aimed at the promotion of selected products at coordinated times through all the various advertising channels employed by Action Industries, including shelter magazines, popular magazines and television. THOMASVILLE FURNITURE INDUSTRIES According to a recent consumer survey conducted by America's Research Group, Thomasville is consistently rated the "highest quality" residential furniture brand. Management seeks to enhance this brand identification through advertising programs. Thomasville's current campaign, featured in household magazines and periodic television commercials, emphasizes single dramatic, high quality wood and upholstery pieces to support the emphasis on higher quality. Thomasville invests in image advertising by placing advertisements in up-front positions in national household magazines, such as Better Homes and Gardens, Good Housekeeping and House Beautiful. Thomasville also utilizes focused advertising in major markets to create buying urgency around specific sale and location information, enabling retailers to be listed jointly in advertisements for maximum advertising efficiency and shared costs. To reach additional customers, Thomasville uses promotional discounts and dealer cooperative advertising support. Thomasville has two major retailer promotions, the Winter and Summer Thomasville Sales, which coincide with traditional industry sale periods and are supported by eight page color circulars and full page advertisements in USA Today. Typically, three to four million 32- to 36-page "magalogs" are mailed by retailers during these periods to draw customers to Thomasville Galleries and Thomasville Home Furnishings stores. MANUFACTURING Management believes that the Company is one of the world's most advanced producers of furniture products and a leader in automated manufacturing. The Company has sophisticated and computerized manufacturing facilities that are run by a well-trained, non-union work force. Management believes that the Company is one of the lowest cost producers in the furniture industry. In addition to cost efficiency, the high degree of automation results in substantial additional capacity, which can be accessed by implementing selected departmental second and third shifts. Management believes that the Company is well positioned to respond to an increase in demand for furniture products. As a result of the availability of some excess capacity in Lane and Thomasville manufacturing facilities, management believes that it will be able to meet its manufacturing requirements over the next several years without the necessity of making significant additional capital expenditures to expand capacity. Broyhill operates 17 finished case goods and upholstery production and warehouse facilities totaling over 5.0 million square feet of manufacturing and warehouse space. All finished goods plants are located in North Carolina. Broyhill pioneered the use of mass production techniques in the furniture industry and continues to be 31 a leader in this area by utilizing longer production runs to achieve economies of scale. Short set-up times and long production runs have allowed for a reduction of both manufacturing cost and overhead over the last five years. In 1995, Broyhill completed construction of a state-of-the-art particleboard manufacturing facility that provides a captive, cost-effective source of high quality particleboard, a primary material used in the Company's products. In 1996, Broyhill added a new upholstery manufacturing facility with approximately $25.0 million of annual production capacity. Lane operates 15 finished case goods and upholstery production and warehouse facilities in Virginia, North Carolina and Mississippi. Since the late 1980s, significant capital expenditures have been made to acquire technologically advanced manufacturing equipment which has increased factory productivity. In 1993, Lane's Action Industries subsidiary completed a new 396,000 square foot plant, located in Mississippi, which manufactures motion furniture as well as a new sleep sofa product line. This facility added approximately $100 million of annual production capacity. Lane recently installed a state-of-the-art flat-line finishing system that produces quality high sheen and enhanced grain finishes. Thomasville manufactures or assembles its products at 16 finished case goods and upholstery production and warehouse facilities located in North Carolina, Virginia, Tennessee and Mississippi, close to sources of raw materials and skilled craftsmen. Each plant is specialized, manufacturing limited product categories, allowing longer, more efficient production runs and economies of scale. During recent years, Thomasville has focused on reducing manufacturing costs by closing less efficient plants, reducing labor costs and establishing process improvement programs. The manufacturing process for Thomasville's RTA/promotional product line is highly automated. Large fiberboard and particleboard sheets are machine- finished in long production runs, then stored and held for assembly using highly automated assembly lines. Completed goods are stored in an automated warehouse to provide quicker delivery to customers. All plant operations use automated manufacturing processes and inventory management systems. Ninety percent of Thomasville's RTA/promotional products are shipped within 14 days of production. RAW MATERIALS AND SUPPLIERS The raw materials used by the Company in manufacturing its products are lumber, veneers, plywood, fiberboard, particleboard, paper, hardware, adhesives, finishing materials, glass, mirrored glass, fabrics, leathers and upholstered filling material (such as synthetic fibers, foam padding and polyurethane cushioning). The various types of wood used in the Company's products include cherry, oak, maple, pine and pecan, which are purchased domestically, and mahogany, which is purchased abroad. Fabrics, leathers and other raw materials are purchased both domestically and abroad. Management believes that its supply sources for those materials are adequate. The Company has no long-term supply contracts and has experienced no significant problems in supplying its operations. Although the Company has strategically selected suppliers of raw materials, the Company believes that there are a number of other sources available, contributing to its ability to obtain competitive pricing for raw materials. Raw materials prices fluctuate over time depending upon factors such as supply, demand and weather. Increases in prices may have a short-term impact on the Company's margins for its products. The majority of supplies for RTA and promotional products is purchased domestically, although paper and certain hardware is purchased abroad. Management believes, however, that its proximity to and relationships with suppliers are advantageous for the sourcing of such materials. In addition, by combining the purchase of various raw materials (such as foam, cartons, springs and fabric) and services, Lane and Broyhill have been able to realize cost savings. Management believes that the Company's position as the largest residential furniture manufacturer in the United States will create opportunities for additional cost savings. 32 ENVIRONMENTAL MATTERS The Company is subject to a wide-range of federal, state and local laws and regulations relating to protection of the environment, worker health and safety and the emission, discharge, storage, treatment and disposal of hazardous materials. These laws include the Clean Air Act of 1970, as amended, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act and the Comprehensive Environmental, Response, Compensation and Liability Act ("Superfund"). Certain of the Company's operations use glues and coating materials that contain chemicals that are considered hazardous under various environmental laws. Accordingly, management closely monitors the Company's environmental performance at all of its facilities. Management believes that the Company is in substantial compliance with all environmental laws. Under the provisions of the Clean Air Act Amendments of 1990 (the "CAA"), in December 1995, the Environmental Protection Agency (the "EPA") promulgated air emission standards for the wood furniture industry. These regulations, known as National Emission Standards for Hazardous Air Pollutants ("NESHAPs"), govern the levels of emission of certain designated chemicals into the air and will require that the Company reduce emissions of certain volatile organic compounds ("VOCs") by November 1997. Management is investigating and evaluating techniques to meet these standards at all facilities to which the NESHAPs standards will apply. While the Company may be required to make capital investments at some of its facilities to ensure compliance, the Company believes that it will meet all applicable requirements in a timely fashion and that the amount of money required to meet the NESHAPs requirements will not materially affect its financial condition or its results of operations. The Company has been identified as a potentially responsible party ("PRP") at a number of Superfund sites. The Company believes that its liability with respect to most of the sites is de minimis, and the Company is entitled to indemnification by others with respect to liability at certain sites. The Company also accrued a reserve for such environmental liabilities in connection with the acquisition of Thomasville. Management believes that any liability as a PRP with regard to the Superfund sites will not have a material adverse effect on the financial condition or results of operations of the Company. COMPETITION The furniture manufacturing industry is highly competitive. The Company's products compete with products made by a number of furniture manufacturers, including Lifestyle Furnishings International, Ltd. (formerly the home furnishings group of Masco Corporation), La-Z-Boy, Inc., Ladd Furniture, Inc., Bassett Furniture Industries, Inc., and Ethan Allen Interiors, as well as approximately 600 smaller producers. The elements of competition include pricing, styling, quality and marketing. EMPLOYEES As of June 30, 1996, the Company employed approximately 20,700 people. None of the Company's employees is represented by a union. BACKLOG The combined backlog of the Company's operating companies as of September 30, 1996 aggregated approximately $213.5 million, compared to approximately $195.2 million as of September 30, 1995. The backlog for September 30, 1995 has been adjusted to include the backlog for Thomasville. 33 MANAGEMENT The executive officers and directors of the Company are as follows:
NAME AGE POSITION AND PRINCIPAL OCCUPATION ---- --- --------------------------------- Richard B. Loynd........ 68 Chairman of the Board of the Company Wilbert G. Holliman, 59 President, Chief Executive Officer and Director of Jr..................... the Company Brent B. Kincaid........ 65 President and Chief Executive Officer of Broyhill K. Scott Tyler, Jr...... 56 President and Chief Executive Officer of Lane Frederick B. Starr...... 63 President and Chief Executive Officer of Thomasville David P. Howard......... 45 Vice-President, Chief Financial Officer and Treasurer of the Company Lynn Chipperfield....... 44 Vice-President, General Counsel and Secretary of the Company Steven W. Alstadt....... 42 Controller and Chief Accounting Officer of the Company Leon D. Black........... 45 Director of the Company; Officer and director of Apollo Capital Management, Inc. and Lion Capital Management, Inc. Michael S. Gross........ 35 Director of the Company; Officer of Apollo Capital Management, Inc. and Lion Capital Management, Inc. John J. Hannan.......... 43 Director of the Company; Officer and director of Apollo Capital Management, Inc. and Lion Capital Management, Inc. Joshua J. Harris........ 31 Director of the Company; Officer of Apollo Capital Management, Inc. and Lion Capital Management, Inc. Bruce A. Karsh.......... 40 Director of the Company; President of Oaktree Capital Management, LLC John H. Kissick......... 54 Director of the Company; Officer of Lion Capital Management, Inc. and advisor to Apollo Capital Management, Inc. Donald E. Lasater....... 70 Director of the Company; Retired, formerly Chairman and Chief Executive Officer of Mercantile Bancorporation, Inc. Lee M. Liberman......... 74 Director of the Company; Retired, formerly Chairman and Chief Executive Officer of Laclede Gas Company Marc J. Rowan........... 34 Director of the Company; Officer of Apollo Capital Management, Inc. and Lion Capital Management, Inc. John J. Ryan III........ 69 Director of the Company; Director of Artemis S.A. and Financiere Pinault S.A. Michael D. Weiner....... 43 Director of the Company; Officer of Apollo Capital Management, Inc. and Lion Capital Management, Inc.
Apollo Capital Management, Inc. ("Apollo Capital") and Lion Capital Management, Inc. ("Lion Capital") are affiliates of Apollo and Lion, which together beneficially own approximately 55.1% of the outstanding Common Stock of the Company. See "Selling Stockholders" below. Apollo Capital and Lion Capital are the general partners of Apollo Advisors, L.P. ("Apollo Advisors") and Lion, respectively. Apollo Advisors is the managing general partner of Apollo, AIF II, L.P. and, together with an affiliate, Apollo Investment Fund III, L.P., each a private securities investment fund. Lion acts as financial advisor to and representative of certain institutional investors with respect to securities investments. MR. LOYND was the President and Chief Executive Officer of the Company until he was succeeded by Mr. Holliman on October 1, 1996. Mr. Loynd was originally elected Vice-President and member of the Board of 34 Directors of the Company in 1987. He was named President of the Company in March 1989 and became Chief Executive Officer in November 1989 and Chairman of the Board in June 1990. Previously, Mr. Loynd was Chairman of the Board of Converse Inc. from 1982 to 1989. He is a director of Emerson Electric Company, Converse Inc. and The Florsheim Shoe Company. MR. HOLLIMAN became President and Chief Executive Officer of the Company on October 1, 1996. Previously, Mr. Holliman was employed by Action Industries for more than 25 years, having been one of the founders of that company in 1970. He was Executive Vice President of Action Industries until January 1989, when he became President and Chief Operating Officer. Mr. Holliman subsequently became President and Chief Executive Officer commencing in 1993. MR. KINCAID has served as President and Chief Executive Officer of Broyhill since 1992. Previously, Mr. Kincaid held several positions within Broyhill, including Executive Vice President (1991 to 1992), Vice President--Operations (1987 to 1991) and Vice President-Purchasing (1982 to 1987). MR. TYLER has served as Chief Executive Officer of Lane since 1991 and President of Lane since 1989. From 1987 to 1989, Mr. Tyler served as President of the Lane Division, and has been a Vice President of Lane since 1986. MR. STARR was named President and Chief Executive Officer of Thomasville in 1982. From 1977 to 1982, Mr. Starr served as Senior Vice President and General Sales Manager of Thomasville. MR. HOWARD joined the Company in July 1984 as Director of Internal Audit. He was promoted to Controller in March 1990, elected Vice-President in April 1991 and appointed Chief Financial Officer in July 1994. MR. CHIPPERFIELD has served as General Counsel of the Company since January 1993, and as Vice-President and Secretary of the Company since January 1996. From 1986 to 1993, Mr. Chipperfield served as Assistant General Counsel of the Company. MR. ALSTADT joined the Company in June 1979 as a member of the Internal Audit Department. He was named Manager, Financial Reporting and Analysis in 1990 and was elected Controller and appointed Chief Accounting Officer in 1994. CERTAIN TRANSACTIONS The Company is party to a consulting agreement with Apollo Advisors, an affiliate of the Company's controlling stockholders (the "Consulting Agreement"), pursuant to which Apollo Advisors provides corporate advisory, financial and other consulting services to the Company. Fees under the Consulting Agreement are payable at an annual rate of $500,000, plus out-of- pocket expenses. The Consulting Agreement is for a term ending December 31, 1996 and is automatically renewable for successive one-year terms unless terminated by independent members of the Board of Directors. Apollo and Lion will continue to have registration rights with respect to shares of Common Stock which will be owned by them after the Offerings. SELLING STOCKHOLDERS This Prospectus relates to 12,000,000 shares of Common Stock, one-half of which are being offered by Apollo and one-half of which are being offered by Lion (the "Selling Stockholders"). This Prospectus also relates to an additional 1,800,000 shares of Common Stock which may be offered by the Selling Stockholders solely to cover over-allotments. Assuming the Selling Stockholders sell all of such 12,000,000 shares of Common Stock (approximately 19.5% of the outstanding Common Stock as of September 30, 1996) and the U.S. Underwriters exercise their over-allotment option in full, the Selling Stockholders will thereafter beneficially own 20,181,920 shares of Common Stock (approximately 32.7% of the outstanding Common Stock 35 of the Company as of September 30, 1996). Assuming the U.S. Underwriters do not exercise their over-allotment option, the Selling Stockholders will beneficially own 21,981,920 shares of Common Stock (approximately 35.6% of the outstanding Common Stock of the Company as of September 30, 1996). Shares beneficially owned by the Selling Stockholders include 290,821 shares issuable upon the exercise of Series 1 Warrants. Pursuant to a Registration Rights Agreement dated August 3, 1992, the Company has agreed to pay the expenses of the Offerings incurred by the Company (other than underwriting discounts and commissions). The Selling Stockholders and the Company have each agreed to indemnify the other against certain liabilities which may arise from the Offerings. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no par value. The Common Stock has a stated value of $1.00 per share. As of September 30, 1996, there were 61,426,281 shares of Common Stock outstanding held of record by approximately 3,000 persons, 3,874,876 shares of Common Stock reserved for issuance upon the exercise of outstanding stock options having an average exercise price of $6.63 per share and 2,043,131 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants at an exercise price of $7.13 per share. No shares of Preferred Stock have been issued by the Company. COMMON STOCK Holders of shares of the Company's Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders and are not entitled to cumulate votes for the election of directors. Subject to preferences that may be applicable to any outstanding Preferred Stock, holders of shares of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of the Company, the holders of shares of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of Preferred Stock, if any, then outstanding. Shares of Common Stock have no preemptive, conversion or other subscription rights and there are no redemption or sinking fund provisions applicable to the Common Stock. PREFERRED STOCK The Restated Certificate of Incorporation of the Company provides that the Company may issue up to 10,000,000 shares of Preferred Stock. The Board of Directors has the authority to issue Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions, including the dividend, conversion, voting, redemption (including sinking fund provisions), and other rights, liquidation preferences, and the number of shares constituting any series and the designations of such series, without any further vote or action by the stockholders of the Company. Because the terms of the Preferred Stock may be fixed by the Board of Directors of the Company without stockholder action, the Preferred Stock could be issued quickly with terms calculated to defeat a proposed takeover of the Company, or to make the removal of management of the Company more difficult. Under certain circumstances this could have the effect of decreasing the market price of the Common Stock. Management of the Company is not aware of any such threatened transaction to obtain control of the Company. CERTAIN RESTATED CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS Transactions with Substantial Stockholders. The Restated Certificate of Incorporation of the Company contains provisions limiting the ability of any person who is the beneficial owner of more than 10% of the outstanding voting stock of the Company (a "Substantial Stockholder") to effect certain transactions involving 36 the Company unless approved by a majority of the Disinterested Directors of the Company (as defined in the Restated Certificate of Incorporation). If there are no Disinterested Directors, the transaction must be approved by the holders of a majority of the shares voting on such transaction of which the Substantial Stockholder is not a beneficial owner. Approval will also be required by the holders of a majority of the shares voting on such transaction not owned by the Substantial Stockholder, if the transaction is required to be approved by stockholders under applicable law (provided that such stockholder approval requirement will not be required if the Substantial Stockholder is the record owner of at least 90% of the outstanding Common Stock). Transactions covered by these provisions include (a) the merger or consolidation of the Company with a Substantial Stockholder, (b) the sale, exchange, mortgage, pledge, lease or transfer of assets to a Substantial Stockholder, (c) the issuance or transfer by the Company of any securities or other property to a Substantial Stockholder, (d) the reclassification of securities of the Company or the recapitalization or merger of the Company with any of its subsidiaries if the transaction would, directly or indirectly, increase the proportionate share of any class of equity or convertible securities of the Company or a subsidiary owned by a Substantial Stockholder, or (e) any other transaction with a Substantial Stockholder, including without limitation payment of compensation and management fees (but not including customary directors' fees and expense reimbursements). Covered transactions will not, however, include (1) bona fide loans by the Substantial Stockholder not exceeding $10.0 million in any 12-month period, (2) participation by the Substantial Stockholder in bona fide offerings of equity, convertible or equity-related securities by the Company to the extent required to allow the Substantial Stockholder to avoid dilution of its percentage interest in the Common Stock, (3) repurchases of securities either pursuant to certain open market transactions or on terms identical to those being offered to all other holders of the same securities, (4) the preparation and filing of registration statements with respect to securities received by any Substantial Stockholder pursuant to the Plan of Reorganization and the payment of reasonable expenses associated therewith, and (5) other immaterial transactions in the ordinary course of business. Repurchase of Stock. The Restated Certificate of Incorporation of the Company provides that, except under certain circumstances, the Company may not repurchase its stock at a price greater than the Market Price (as defined in the Company's Restated Certificate of Incorporation) or for consideration other than cash from a 5% or more stockholder who has held such shares for less than two years, unless the repurchase is authorized by a majority of all shares entitled to vote generally in the election of directors, excluding the shares held by such stockholder. No Stockholder Action by Written Consent; Special Meetings. The Company's Restated Certificate of Incorporation and By-Laws provide that stockholder action can be taken only at an annual or special meeting of stockholders, and prohibit stockholder action by written consent in lieu of a meeting. The Company's Restated Certificate of Incorporation and By-Laws provide that special meetings of stockholders can only by called (i) pursuant to a resolution adopted by a majority of the entire Board of Directors or (ii) upon the request of stockholders holding 20% or more the Company's voting stock outstanding at that time. Any call for a special meeting of stockholders must specify the matters to be acted upon at such a meeting and only those specified matters may be acted upon at such special meeting. Supermajority Vote Requirements. The Company's Restated Certificate of Incorporation contains provisions requiring the affirmative vote of the holders of at least a majority of all shares voting, excluding the shares owned by a Substantial Stockholder, to approve an Affiliate Transaction (as defined in the Company's Restated Certificate of Incorporation) and requiring the affirmative vote of the holders of at least a majority of all shares entitled to vote generally in the election of directors, excluding the shares owned by an Interested Stockholder (as defined in the Company's Restated Certificate of Incorporation), to approve a Stock Repurchase (as defined in the Company's Restated Certificate of Incorporation) from an Interested Stockholder. The Company's Restated Certificate of Incorporation contains provisions requiring the affirmative vote of the holders of at least 75% of all shares entitled to vote generally in the election of directors and, in addition, the affirmative votes of the holders of at least 50% of the shares voting, excluding the shares owned by a Substantial 37 Stockholder, to alter, amend, repeal or adopt provisions inconsistent with present provisions providing for action by stockholders only during duly called annual or special meetings and not by consent, the calling of special meeting of stockholders, defining the phrase "Substantial Stockholder" and approving Affiliate Transactions. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is KeyCorp Shareholder Services Inc. CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS The following is a general discussion of the material Federal income and estate tax consequences of the ownership and disposition of a share of Common Stock by beneficial owner of such shares that is not a U.S. person for U.S. Federal income tax purposes (a "non-U.S. holder"). For purposes of this discussion, a "U.S. person" means a citizen or resident of the United States, a corporation or partnership created or organized in the United States or under the laws of the United States or of any State or political subdivision of the foregoing, or any estate or trust whose income is includible in gross income for U.S. Federal income tax purposes regardless of its source. The discussion does not address all aspects of Federal income and estate taxation nor any aspects of state, local, or foreign tax laws. The discussion does not consider any specific facts or circumstances that may apply to particular non- U.S. holders (including insurance companies, tax-exempt organizations, financial institutions, broker dealers or certain U.S. expatriates). Furthermore, the following discussion is based on current provisions of the Code, the regulations promulgated thereunder and administrative and judicial interpretations as of the date hereof, all of which are subject to change, possibly with retroactive effect. Treasury regulations were recently proposed that would, if adopted in their present form, revise in certain respects the rules applicable to non-U.S. holders of Common Stock (the "Proposed Regulations"). The Proposed Regulations are generally proposed to be effective with respect to payments made after December 31, 1997. It is not certain whether, or in what form, the Proposed Regulations will be adopted as final regulations. Each prospective investor is urged to consult its own tax adviser as to its personal tax situation with respect to the U.S. Federal, state and local consequences of owning and disposing of a share of Common Stock, as well as any tax consequences arising under the laws of any other taxing jurisdiction. U.S. INCOME TAX CONSEQUENCES It is not currently contemplated that the Company will pay dividends on the Common Stock in the foreseeable future. If the Company were to pay a dividend in the future, such a dividend paid to a non-U.S. holder would be subject to U.S. withholding tax at a 30% rate, or if applicable, a lower treaty rate, unless the dividend is effectively connected with the conduct of a trade or business in the United States by a non-U.S. holder (and, if certain tax treaties apply, is attributable to a United States permanent establishment maintained by such non-U.S. holder). A dividend that is effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder (and, if certain tax treaties apply, is attributable to a United States permanent establishment maintained by such non-U.S. holder) will generally be exempt from the withholding tax described above and subject instead (i) to the U.S. Federal income tax on net income that applies to U.S. persons and (ii) with respect to corporate holders under certain circumstances, a 30% (or, if applicable, lower treaty rate) branch profits tax that in general is imposed on its "effectively connected earnings and profits" (within the meaning of the Code) for the taxable year, as adjusted for certain items. Under current Treasury Regulations, dividends paid to an address in a foreign country are presumed to be paid to a resident of that country (unless the payor has knowledge to the contrary) for purposes of the withholding discussed above and, under the current interpretation of the Treasury Regulations, for purposes of determining the applicability of a tax treaty rate. Under the Proposed Regulations, however, a non-U.S. holder of Common Stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification and other requirements. In the case of a foreign partnership, the certification requirement would generally be applied to the partners of the partnership. In addition, the Proposed Regulations also would require 38 the partnership to provide certain information, including a United States taxpayer identification number, and would provide look-through rules for tiered partnerships. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service (the "IRS"). Under current law, a non-U.S. holder generally will not be subject to U.S. Federal income tax on any gain recognized on a sale or other disposition of a share of Common Stock unless (i) the gain is effectively connected with the conduct of a trade or a business within the United States of the non-U.S. holder and, if certain tax treaties apply, is attributable to a United States permanent establishment maintained by the non-U.S. holder, (ii) the gain is not described in clause (i) above, the non-U.S. holder is an individual who holds the share as a capital asset, is present in the United States for 183 days or more in the taxable year of the disposition and either (a) such individual has a "tax home" (as defined for U.S. Federal income tax purposes) in the United States or (b) the gain is attributable to an office or other fixed place of business maintained in the United States by such individual, or (iii) the Company is or has been a United States real property holding corporation (a "USRPHC") for United States federal income tax purposes (which the Company does not believe that it is or is likely to become) at any time within the shorter of the five year period preceding such disposition or such non-U.S. holder's holding period. If the Company were to become a USRPHC, gains realized upon a disposition of Common Stock by a non-U.S. holder which did not directly or indirectly own more than 5% of the Common Stock during the shorter of the periods described above generally would not be subject to United States federal income tax, provided that the Common Stock is "regularly traded" on an established securities market. In case of a non-U.S. holder that is described under clause (i) above, its gain will be subject to the U.S. Federal income tax on net income that applies to U.S. persons and, in addition, if such non-U.S. holder is a foreign corporation, it may be subject to the branch profits tax as described in the preceding paragraph. An individual non-U.S. holder that is described under clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by certain U.S. capital losses (notwithstanding the fact that he or she is not considered a resident of the United States). Thus, individual non-U.S. holders who have spent 183 days or more in the United States in the taxable year in which they contemplate a sale of the Common Stock are urged to consult their tax advisers as to the tax consequences of such sale. U.S. ESTATE TAX CONSEQUENCES Shares of Common Stock owned at the time of his or her death by an individual non-U.S. holder will be includible in his or her gross estate for U.S. Federal estate tax purposes unless an applicable estate tax treaty provides otherwise, and may be subject to U.S. Federal estate tax. BACK-UP WITHHOLDING AND INFORMATION REPORTING Dividends Except as provided below, the Company must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to and the tax withheld with respect to such holder. These information reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides. In general, backup withholding at a rate of 31% and additional information reporting will apply to dividends paid on shares of Common Stock to holders that are not "exempt recipients" and that fail to provide in the manner required certain identifying information (such as the holder's name, address and taxpayer identification number). Generally, individuals are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. However, dividends that are subject to U.S. withholding tax at the 30% statutory rate or at a reduced tax treaty rate are exempt from backup withholding of U.S. Federal income tax and such additional information reporting. Broker Sales If a non-U.S. holder sells shares of Common Stock through a U.S. office of a U.S. or foreign broker, the broker is required to file an information return and is required to withhold 31% of the sale proceeds unless the 39 non-U.S. holder is an exempt recipient or has provided the broker with the information and statements, under penalties of perjury, necessary to establish an exemption from backup withholding. If payment of the proceeds of the sale of a share by a non-U.S. holder is made to or through the foreign office of a broker, that broker will not be required to backup withhold or, except as provided in the next sentence, to file information returns. In the case of proceeds from a sale of a share by a non-U.S. holder paid to or through the foreign office of a U.S. broker or a foreign office of a foreign broker that is (i) a controlled foreign corporation for U.S. tax purposes or (ii) a person 50% or more of whose gross income for the three-year period ending with the close of the taxable year preceding the year of payment (or for the part of that period that the broker has been in existence) is effectively connected with the conduct of a trade or business within the United States (a "Foreign U.S. Connected Broker"), information reporting is required unless the broker has documentary evidence in its files that the payee is not a U.S. person and certain other conditions are met, or the payee otherwise establishes an exemption. Refunds Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder may be refunded or credited against the non-U.S. holder's U.S. Federal income tax liability, provided that the required information is furnished to the IRS. UNDERWRITING Upon the terms and subject to the conditions stated in the U.S. Underwriting Agreement dated the date hereof (the "U.S. Underwriting Agreement"), each of the underwriters of the U.S. Offering named below (the "U.S. Underwriters"), for whom Smith Barney Inc., CS First Boston Corporation, Dillon, Read & Co. Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Wheat, First Securities, Inc. are acting as the representatives (the "Representatives"), has severally agreed to purchase from the Selling Stockholders the number of shares of Common Stock set forth opposite the name of such U.S. Underwriter below.
U.S. UNDERWRITERS NUMBER OF SHARES - ----------------- ---------------- Smith Barney Inc............................................... CS First Boston Corporation.................................... Dillon, Read & Co. Inc......................................... Merrill Lynch, Pierce Fenner & Smith Incorporated.................................................. Wheat, First Securities, Inc................................... --------- Total........................................................ 9,600,000 =========
Under the terms and subject to the conditions contained in the International Underwriting Agreement dated the date hereof (the "International Underwriting Agreement"), each of the managers of the concurrent International Offering named below (the "Managers"), for whom Smith Barney Inc., CS First Boston Limited, Dillon, Read & Co. Inc. Merrill Lynch International and Wheat, First Securities, Inc. are acting as lead managers (the "Lead Managers"), has severally agreed to purchase from the Selling Stockholders, the numbers of shares of Common Stock set forth opposite the name of such Manager below.
MANAGERS NUMBER OF SHARES - -------- ---------------- Smith Barney Inc............................................... CS First Boston Limited........................................ Dillon, Read & Co. Inc......................................... Merrill Lynch International.................................... Wheat, First Securities, Inc................................... --------- Total........................................................ 2,400,000 =========
40 Each of the U.S. Underwriting Agreement and the International Underwriting Agreement provides that the obligations of the several U.S. Underwriters and the several Managers to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions. The U.S. Underwriters and the Managers are obligated to take any pay for all shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The U.S. Underwriters and the Managers (collectively, the "Underwriters") initially propose to offer part of the shares offered hereby directly to the public at the public offering price set forth on the cover page of this Prospectus and part of the shares offered hereby to certain dealers at a price which represents a concession not in excess of $ per share under the price to public. The U.S. Underwriters and the Managers may allow, and such dealers may reallow, a concession not in excess of $ per share to other U.S. Underwriters or Managers, respectively, or to certain other dealers. The Representatives and the Managers have advised the Company that the U.S. Underwriters and the Managers do not intend to confirm any shares to accounts over which they exercise discretionary authority. The Selling Stockholders have granted the U.S. Underwriters an option, exercisable at any time and from time to time during a 30-day period from the date of this Prospectus, to purchase up to an aggregate of 1,800,000 additional shares of Common Stock at the public offering price set forth on the cover page hereof less underwriting commissions. The U.S. Underwriters may exercise such option to purchase additional shares solely for the purpose of covering over-allotments, if any, incurred in connection with the sales of the shares of Common Stock offered hereby. To the extent such option is exercised, each U.S. Underwriter will be obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares set forth opposite each U.S. Underwriter's name in the preceding U.S. Underwriters table bears to the total number of shares of Common Stock offered by the U.S. Underwriters hereby. The Company, certain of its officers and directors and the Selling Stockholders have agreed that, for a period of 120 days from the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock of the Company or any securities convertible into, or exercisable or exchangeable for Common Stock of the Company, or grant any options or warrants to purchase Common Stock, except in certain circumstances. The U.S. Underwriters and the Managers have entered into an Agreement between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter has agreed that, as part of the distribution of the shares offered in the U.S. Offering (i) it is not purchasing any such shares for the account of anyone other than a U.S. or Canadian Person, and (ii) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distributed any prospectus relating to the U.S. Offering outside the United States or Canada or to anyone other than a U.S. or Canadian Person. In addition, each Manager has agreed that as part of the distribution of the shares offered in the International Offering: (i) it is not purchasing any such shares for the account of any U.S. or Canadian Person, and (ii) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to the International Offering in the United States or Canada or to any U.S. or Canadian Person. Each Manager has also agreed that it will offer to sell shares only in compliance with all relevant requirements of any applicable laws. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the U.S. Underwriting Agreement, the International Underwriting Agreement and the Agreement Between U.S. Underwriters and Managers, including (i) certain purchases and sales between the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales, deliveries or distributions to or through investment advisors or other persons exercising investment discretion, (iii) purchases, offers or sales by a U.S. Underwriter who is also acting as a Manager or by a Manager who is also acting as a U.S. Underwriter, and (iv) other transactions specifically approved by the Representatives and the Lead Managers. As used herein, "U.S. or Canadian Person" means any resident or national of the United States or Canada, any corporation, partnership or other entity created or organized in or under the laws of the United States or Canada or any estate or trust the income of which is 41 subject to U.S. or Canadian income taxation regardless of the source of its income (other than the foreign branch of any U.S. or Canadian Person), and includes any U.S. or Canadian branch of person other than a U.S. or Canadian Person. Any offer of shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the relevant province of Canada in which such offer is made. Each Manager has represented and agreed that (i) it has not offered or sold and will not offer or sell in the United Kingdom, by means of any document, any shares other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent or in circumstances which do not constitute an offer to the public within the meaning of the Public Offering of Securities Regulation 1995, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares in, from, or otherwise involving, the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the shares if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom the document may otherwise lawfully be issued or passed on. No action has been or will be taken in any jurisdiction by the Company, the U.S. Underwriters or the Managers that would permit any offering to the general public of the Common Stock offered hereby in any jurisdiction other than the United States. Purchasers of the Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may be made between the U.S. Underwriters and the Managers of such number of shares of Common Stock as may be mutually agreed. The price of shares so sold shall be the public offering price as then in effect for Common Stock being sold by the U.S. Underwriters and the Managers, less all or any part of the selling concession, unless otherwise determined by mutual agreement. To the extent that there are sales between the U.S. Underwriters and the Managers pursuant to the Agreement Between U.S. Underwriters and Managers, the number of shares initially available for sale by the U.S. Underwriters and by the Managers may be more or less than the number of shares appearing on the front cover of this Prospectus. Smith Barney Inc. has from time to time performed various investment banking services for the Company, including in connection with the Company's acquisition of Thomasville, and has received customary fees in respect of such services. The Company, the Selling Stockholders, the U.S. Underwriters and the Managers have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the shares offered hereby will be passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain legal matters will be passed upon for the Selling Stockholders by Akin, Gump, Strauss, Hauer & Feld, LLP, New York, New York and for the Underwriters by Cravath, Swaine & Moore, New York, New York. EXPERTS The consolidated financial statements and financial statement schedule of the Company and subsidiaries as of December 31, 1995 and 1994, and for each of the years in the three-year period ended December 31, 1995, 42 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The pro forma adjustments appearing in the Company's pro forma condensed consolidated statement of operations for the year ended December 31, 1995, included herein have been examined by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements, schedule, and pro forma adjustments have been included and incorporated by reference herein and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, appearing elsewhere and incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Thomasville as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994, have been incorporated by reference herein, and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP refers to changes in accounting for post employment benefits, post retirement benefits and income taxes. In addition, the consolidated balance sheet of Thomasville as of December 29, 1995 and the related consolidated statement of operations for the year then ended, have been incorporated by reference herein, and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP refers to the omission, in the consolidated financial statements of the Company, of the consolidated statements of shareholder's equity and cash flows for the year ended December 29, 1995 and notes to the consolidated financial statements which are required by generally accepted accounting principles and results in an incomplete presentation. The report also refers to Thomasville's acquisition by the Company on December 29, 1995. The acquisition was accounted for under the purchase method of accounting. The accompanying consolidated financial statements do not include the effects of push down accounting. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the following Commission Regional Offices: Seven World Trade Center, 13th Floor, New York, NY 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies can be obtained from the Commission by mail at prescribed rates. Requests should be directed to the Commission's Public Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Such material can be inspected and copied at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York, 10005, on which the Company's Common Stock is listed. Such material may also be accessed electronically by means of the Commission's home page on the Internet (http://www.sec.gov). This Prospectus constitutes a part of a registration statement on Form S-3 (herein, together with all exhibits thereto, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Company and the securities offered hereby. Copies of the Registration Statement and the exhibits thereto are on file at the offices of the Commission and may be obtained upon payment of the prescribed fee or may be examined without charge at the public reference facilities of the Commission described above. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. 43 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission (File No. I-91) are incorporated by reference in this Prospectus: (1) Annual Report on Form 10-K for the year ended December 31, 1995 as amended by Form 10-K/A-1 filed February 22, 1996; (2) Quarterly reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996; (3) Current Report on Form 8-K filed January 12, 1996 as amended by Form 8-K/A-1 filed January 16, 1996, and Form 8-K/A-2 filed February 1, 1996 and Current Report on Form 8-K filed January 31, 1996; and (4) the description of the Company's Common Stock contained in its Form 8 filed with the Commission on June 29, 1992. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the Offering shall be deemed to be incorporated by reference into this Prospectus. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. These documents (not including exhibits to the documents incorporated by reference unless such exhibits are specifically incorporated by reference into the information that the Prospectus incorporates) are available without charge to each person to whom a Prospectus is delivered upon written or oral request. Requests should be directed to Furniture Brands International, Inc., 101 South Hanley Road, St. Louis, Missouri 63105-3493, Attention: Secretary (telephone number (314) 863-1100). 44 FURNITURE BRANDS INTERNATIONAL, INC. INDEX TO CONSOLIDATED AND PRO FORMA FINANCIAL STATEMENTS
PAGE ---- AUDITED CONSOLIDATED FINANCIAL STATEMENTS: Independent Auditors' Report............................................. F-2 Consolidated Balance Sheet as of December 31, 1994 and 1995.............. F-3 Consolidated Statement of Operations for the Years Ended December 31, 1993, 1994 and 1995..................................................... F-4 Consolidated Statement of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995..................................................... F-5 Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and 1995................................................................ F-6 Notes to Consolidated Financial Statements............................... F-7 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheet as of June 30, 1996........................... F-20 Consolidated Statement of Operations for the Six Months Ended June 30, 1995 and June 30, 1996.................................................. F-21 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1996.................................................. F-22 Notes to Consolidated Financial Statements............................... F-23 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Independent Auditors' Report............................................. F-25 Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1995................................................. F-26 Notes to Pro Forma Condensed Consolidated Financial Statements........... F-27
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Furniture Brands International, Inc.: We have audited the accompanying consolidated balance sheets of Furniture Brands International, Inc. (formerly, INTERCO INCORPORATED) and subsidiaries (the "Company") as of December 31, 1994 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Furniture Brands International, Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP St. Louis, Missouri January 30, 1996 F-2 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents.......................... $ 32,145 $ 26,412 Receivables, less allowances of $5,062 and $20,724 at December 31, 1994 and 1995 (Note 9)............ 202,270 276,116 Inventories (Note 6)............................... 155,031 269,677 Prepaid expenses and other current assets.......... 14,325 17,888 -------- ---------- Total current assets........................... 403,771 590,093 Property, plant and equipment: Land............................................... 11,933 16,635 Buildings and improvements......................... 111,076 166,214 Machinery and equipment............................ 115,407 206,580 -------- ---------- 238,416 389,429 Less accumulated depreciation...................... 57,023 83,023 -------- ---------- Net property, plant and equipment................ 181,393 306,406 Intangible assets (Note 7)........................... 275,767 370,307 Other assets......................................... 20,804 24,933 -------- ---------- $881,735 $1,291,739 ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 9)...... $ 16,574 $ 18,639 Accounts payable................................... 37,721 53,093 Accrued employee compensation...................... 19,771 29,020 Accrued interest expense........................... 1,652 1,304 Other accrued expenses............................. 19,730 33,001 -------- ---------- Total current liabilities...................... 95,448 135,057 Long-term debt, less current maturities (Note 9)..... 409,679 705,040 Other long-term liabilities.......................... 101,214 150,486 Shareholders' equity: Preferred stock, authorized 10,000,000 shares, no par value--issued, none........................... -- -- Common stock, authorized 100,000,000 shares, $1.00 stated value (no par value)--issued 50,076,515 and 50,120,079 shares at December 31, 1994 and 1995 (Note 10)......................................... 50,076 50,120 Paid-in capital.................................... 220,788 218,156 Retained earnings.................................. 4,530 32,880 -------- ---------- Total shareholders' equity..................... 275,394 301,156 -------- ---------- $881,735 $1,291,739 ======== ==========
See accompanying notes to consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1993 1994 1995 ----------------------------- --------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales...................... $ 980,532 $ 1,072,696 $ 1,073,889 Costs and expenses: Cost of operations........... 685,749 752,528 760,393 Selling, general and adminis- trative expenses............ 186,205 199,333 198,321 Depreciation and amortization (includes $16,463, $16,900 and $15,922 related to fair value adjustments).......... 34,455 35,776 36,104 ------------- --------------- --------------- Earnings from operations....... 74,123 85,059 79,071 Interest expense............... 38,621 37,886 33,845 Other income, net: Gain on insurance settlement (Note 15)................... -- -- 7,882 Other........................ 1,764 1,668 3,930 ------------- --------------- --------------- Earnings before income tax expense, discontinued operations and extraordinary item.......................... 37,266 48,841 57,038 Income tax expense (Note 11)... 15,924 20,908 22,815 ------------- --------------- --------------- Net earnings from continuing operations.................... 21,342 27,933 34,223 Discontinued operations (Note 4): Earnings from operations, net of taxes.................... 24,026 25,443 -- Loss on distribution, net of taxes....................... -- (15,104) -- ------------- --------------- --------------- Net earnings before extraordi- nary item..................... 45,368 38,272 34,223 Extraordinary item--early extinguishment of debt, net of tax benefit (Note 5).......... -- -- (5,815) ------------- --------------- --------------- Net earnings................... $ 45,368 $ 38,272 $ 28,408 ============= =============== =============== Net earnings per common share-- primary (Note 3): Net earnings from continuing operations.................. $ 0.41 $ 0.54 $ 0.67 Discontinued operations...... 0.47 0.20 -- Extraordinary item--early ex- tinguishment of debt........ -- -- (0.11) ------------- --------------- --------------- Net earnings per common share-- primary....................... $ 0.88 $ 0.74 $ 0.56 ============= =============== =============== Net earnings per common share-- fully diluted (Note 3): Net earnings from continuing operations.................. $ 0.41 $ 0.54 $ 0.65 Discontinued operations...... 0.47 0.20 -- Extraordinary item--early ex- tinguishment of debt........ -- -- (0.11) ------------- --------------- --------------- Net earnings per common share-- fully diluted................. $ 0.88 $ 0.74 $ 0.54 ============= =============== ===============
See accompanying notes to consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 1993 1994 1995 -------- --------- --------- (DOLLARS IN THOUSANDS) Cash Flows from Operating Activities: Net earnings................................. $ 45,368 $ 38,272 $ 28,408 Adjustments to reconcile net earnings to net cash provided by operating activities: Net loss on early extinguishment of debt... -- -- 5,815 Net earnings from discontinued operations.. (24,026) (10,339) -- Depreciation of property, plant and equip- ment...................................... 24,304 25,675 26,371 Amortization of intangible and other as- sets...................................... 10,151 10,101 9,733 Noncash interest and other expense......... 2,097 196 2,150 (Increase) decrease in receivables......... (3,237) (27,979) 165 (Increase) decrease in inventories......... (11,072) (20,553) 3,340 (Increase) decrease in prepaid expenses and other assets.............................. (714) 2,648 1,179 Increase (decrease) in accounts payable, accrued interest expense and other accrued expenses.................................. (3,866) 15,788 6,133 Increase (decrease) in income taxes........ 3,938 (17,021) 8,661 Increase (decrease) in net deferred tax li- abilities................................. 969 7,904 (211) Increase (decrease) in other long-term lia- bilities.................................. (886) (2,676) 246 -------- --------- --------- Net cash provided by continuing operations... 43,026 22,016 91,990 Net cash used by discontinued operations..... (11,993) (16,695) -- -------- --------- --------- Net cash provided by operating activities.... 31,033 5,321 91,990 -------- --------- --------- Cash Flows from Investing Activities: Acquisition of business (Note 2)............. -- -- (335,438) Proceeds from the disposal of assets......... 358 5,621 519 Additions to property, plant and equipment... (30,197) (21,108) (35,616) -------- --------- --------- Net cash used by investing activities........ (29,839) (15,487) (370,535) -------- --------- --------- Cash Flows from Financing Activities: Payments for debt issuance costs............. -- (11,455) (14,026) Additions to long-term debt.................. -- 423,000 576,000 Payments of long-term debt................... (20,940) (404,741) (286,574) Proceeds from the issuance of common stock... 42 698 201 Payments for the repurchase of common stock warrants.................................... -- -- (2,789) -------- --------- --------- Net cash provided (used) by financing activi- ties........................................ (20,898) 7,502 272,812 -------- --------- --------- Net decrease in cash and cash equivalents...... (19,704) (2,664) (5,733) Cash and cash equivalents at beginning of peri- od............................................ 54,513 34,809 32,145 -------- --------- --------- Cash and cash equivalents at end of period..... $ 34,809 $ 32,145 $ 26,412 ======== ========= ========= Supplemental Disclosure: Cash payments for income taxes, net.......... $ 11,115 $ 37,127 $ 14,386 ======== ========= ========= Cash payments for interest................... $ 38,454 $ 39,345 $ 32,010 ======== ========= =========
See accompanying notes to consolidated financial statements. F-5 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------- -------- -------- --------- (DOLLARS IN THOUSANDS) Balance December 31, 1992.............. $50,000 $225,400 $ 17,714 $ 293,114 Net earnings........................... 45,368 45,368 Common stock activity: Stock option grants and exercises (Note 10)........................... 4 988 992 Warrant exercises--282 shares........ 3 3 Foreign currency translations.......... (920) (920) ------- -------- -------- --------- Balance December 31, 1993.............. 50,004 226,391 62,162 338,557 Net earnings........................... 38,272 38,272 Common stock activity: Stock option exercises (Note 10)..... 71 615 686 Warrant exercises--983 shares........ 1 11 12 Foreign currency translations.......... 2,659 2,659 Distribution of discontinued operations to shareholders....................... (6,229) (98,563) (104,792) ------- -------- -------- --------- Balance December 31, 1994.............. 50,076 220,788 4,530 275,394 Net earnings........................... 28,408 28,408 Common stock activity: Stock option exercises (Note 10)..... 43 153 196 Warrant exercises--564 shares........ 1 4 5 Warrants purchased--1,489,422 shares.............................. (2,789) (2,789) Foreign currency translations.......... (58) (58) ------- -------- -------- --------- Balance December 31, 1995.............. $50,120 $218,156 $ 32,880 $ 301,156 ======= ======== ======== =========
See accompanying notes to consolidated financial statements. F-6 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. THE COMPANY Furniture Brands International, Inc. (the "Company") is a major manufacturer of residential furniture. During the year ended December 31, 1995, the Company had two primary operating subsidiaries, Broyhill Furniture Industries, Inc. and The Lane Company, Incorporated. On December 29, 1995, the Company acquired Thomasville Furniture Industries, Inc. ("Thomasville"). In conjunction with the acquisition, the Company refinanced its Secured Credit Agreement and amended its Receivables Securitization Facility. Substantially all of the Company's sales are made to unaffiliated furniture retailers. The Company has a diversified customer base with no one customer accounting for 10% or more of consolidated sales and no particular concentration of credit risk in one economic section. Foreign operations and sales are not material. On November 17, 1994, the Company simultaneously refinanced the majority of its outstanding indebtedness and distributed to holders of its common stock the common stock of The Florsheim Shoe Company and the common stock of Converse Inc. (which, in aggregate, represented the Company's footwear segment). Upon completion of this restructuring, the Company retained no ownership interest or management control of the footwear businesses. Accordingly, the financial results of the footwear businesses have been reflected as discontinued operations for all applicable periods. 2. ACQUISITION OF BUSINESS On December 29, 1995, the Company acquired all of the outstanding stock of Thomasville Furniture Industries, Inc. The purchase price totaled $331,200 plus the assumption of $8,000 of long-term debt. The purchase price, including capitalized expenses which approximated $4,200, was paid in cash. The transaction was accounted for as a purchase and, since the acquisition occurred as of the last business day of 1995, has been reflected in the Company's consolidated balance sheet. The Company's results of operations for 1995 do not include any of the operations of Thomasville. The total acquisition cost exceeded the estimated fair value of the net assets acquired by $105,764 with such amount being recorded as an intangible asset. The following unaudited summary, prepared on a pro forma basis, combines the consolidated results of operations of the Company for 1994 and 1995 with those of Thomasville as if the transaction occurred at the beginning of each year presented.
YEAR ENDED DECEMBER 31, ----------------------- 1994 1995 ----------- ----------- Net sales.............................................. $ 1,599,339 $ 1,624,116 Net earnings from continuing operations................ 30,963 37,422 Net earnings........................................... 41,302 31,607 Net earnings per common share--fully diluted: Continuing operations................................ 0.60 0.72 Total................................................ 0.80 0.61
The pro forma data has been adjusted, net of income taxes, to reflect interest expense and the amortization of the excess of cost over net assets acquired. Such pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of each year presented. F-7 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies of the Company are set forth below. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Name Change Effective March 1, 1996, the Company changed its name from INTERCO INCORPORATED to Furniture Brands International, Inc. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all its subsidiaries, the majority of which are wholly owned. All material intercompany transactions are eliminated in consolidation. The Company's fiscal year ends on December 31. The operating companies included in the consolidated financial statements report their results of operations as of the Saturday closest to December 31. Accordingly, the results of operations will periodically include a 53 week fiscal year. 1993, 1994 and 1995 all represent 52 week fiscal years. Cash and Cash Equivalents The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. Short-term investments are recorded at amortized cost, which approximates market. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost when acquired. Expenditures for improvements are capitalized while normal repairs and maintenance are expensed as incurred. When properties are disposed of, the related cost and accumulated depreciation or amortization are removed from the accounts, and gains or losses on the dispositions are reflected in results of operations. For financial reporting purposes, the Company utilizes both accelerated and straight-line methods of computing depreciation and amortization. Such expense is computed based on the estimated useful lives of the respective assets, which generally range from 3 to 45 years for buildings and improvements and from 3 to 12 years for machinery and equipment. Intangible Assets The Company emerged from Chapter 11 reorganization effective with the beginning of business on August 3, 1992. In accordance with generally accepted accounting principles, the Company was required to adopt "fresh-start" reporting which included adjusting all assets and liabilities to their fair values as of the effective date. The ongoing impact of the adoption of fresh- start reporting is reflected in the financial statements for all years presented. F-8 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As a result of adopting fresh-start reporting, the Company recorded reorganization value in excess of amounts allocable to identifiable assets of approximately $146,000. This intangible asset is being amortized on a straight-line basis over a 20 year period. Also in connection with the adoption of fresh-start reporting, the Company recorded approximately $156,800 in fair value of trademarks and trade names based upon an independent appraisal. Such trademarks and trade names are being amortized on a straight-line basis over a 40 year period. The excess of cost over net assets acquired in connection with the acquisition of Thomasville totaled approximately $105,764. This intangible asset is being amortized on a straight-line basis over a 40 year period. Income Tax Expense Income tax expense is based on results of operations before discontinued operations and extraordinary items. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Extraordinary Item In conjunction with the December 29, 1995 acquisition of Thomasville, the Company refinanced its Secured Credit Agreement and amended its Receivables Securitization Facility. As a result thereof, the Company charged to results of operations, as an extraordinary item, the deferred financing fees and expenses pertaining to such credit facilities. Net Earnings Per Common Share Net earnings per common share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year. The stock options and warrants outstanding (Note 10) are considered common stock equivalents. Weighted average shares used in the calculation of primary and fully diluted net earnings per common share for 1995 were 50,639,000 and 52,317,000, respectively. Reclassification Certain 1993 and 1994 amounts have been reclassified to conform to the 1995 presentation. F-9 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. DISCONTINUED OPERATIONS On November 17, 1994, the Company distributed the common stock of each of The Florsheim Shoe Company and Converse Inc. (which, in aggregate, represented the Company's footwear segment) to its shareholders. In accordance with generally accepted accounting principles, the financial results for the footwear segment are reported as "Discontinued Operations" and the Company's financial results of prior periods were restated. Condensed results of the discontinued operations were as follows:
YEAR ENDED ELEVEN MONTHS ENDED DECEMBER 31, 1993 NOVEMBER 17, 1994 ----------------- ------------------- Net sales............................... $ 676,282 $ 663,637 ========= ========= Earnings before income tax expense...... 38,706 40,047 Income tax expense...................... 14,680 14,604 --------- --------- Net earnings............................ $ 24,026 $ 25,443 ========= ========= Loss on distribution, net of taxes of $4,564................................. $ -- $ (15,104) ========= =========
The loss on distribution reflects expenses related to: the distribution of the common stock of The Florsheim Shoe Company and Converse Inc. to the Company's shareholders, including certain expenses associated with establishing the capital structure of each company; compensation expense accrued as a result of adjustments required to be made to exercisable employee stock options; interest expense on certain long-term debt defeased, net of estimated interest income to be received from the trustees; and applicable income taxes. Prior to the distribution of the common stock of The Florsheim Shoe Company to its shareholders, the Company had guaranteed certain of Florsheim's retail store operating leases. At December 31, 1995, the Company had guarantees outstanding on 101 retail store leases with a contingent liability totaling approximately $37,400. The Florsheim Shoe Company has agreed to indemnify the Company against any losses incurred as a result of the lease guarantees. 5. EXTRAORDINARY ITEM--EARLY EXTINGUISHMENT OF DEBT In conjunction with the December 29, 1995 acquisition of Thomasville, the Company refinanced its Secured Credit Agreement and amended its Receivables Securitization Facility. As a result thereof, the Company charged to results of operations $5,815, net of taxes of $3,478, representing the deferred financing fees and expenses pertaining to such credit facilities. The charge was recorded as an extraordinary item. 6. INVENTORIES Inventories are summarized as follows:
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ Finished products............................... $ 66,445 $114,857 Work-in-process................................. 36,365 51,259 Raw materials................................... 52,221 103,561 -------- -------- $155,031 $269,677 ======== ========
F-10 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. INTANGIBLE ASSETS Intangible assets include the following:
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ Intangible assets, at cost: Reorganization value in excess of amounts al- locable to identifiable assets...................... $146,063 $146,063 Trademarks and trade names................... 156,828 156,828 Excess of cost over net assets acquired...... -- 105,764 -------- -------- 302,891 408,655 Less accumulated amortization.................. 27,124 38,348 -------- -------- $275,767 $370,307 ======== ========
8. SHORT-TERM FINANCING In conjunction with the December 29, 1995 acquisition of Thomasville and related refinancing of certain long-term debt, the Company entered into a $630,000 Secured Credit Agreement which includes a $180,000 revolving credit facility. The revolving credit facility allows for issuance of letters of credit and cash borrowings. Letter of credit outstandings are limited to no more than $60,000, with cash borrowings limited only by the facility's maximum availability less letters of credit outstanding. On December 29, 1995, $71,000 in cash borrowings were outstanding under the revolving credit facility as a result of the acquisition of Thomasville. Cash borrowings from the revolving credit facility have no fixed amortization and, since the facility does not mature until December 2001, are classified as long-term debt. As part of the Secured Credit Agreement, the revolving credit facility is secured by a first priority lien on and security interest in substantially all of the Company's assets except for trade receivables. See Note 9--Long-Term Debt for further information regarding the Secured Credit Agreement. The outstanding cash borrowings under the revolving credit facility bear interest at a base rate plus 1.125% or at an adjusted Eurodollar rate plus 2.125%, depending upon the type of loan the Company executes. The "spread" or margin over the base rate and Eurodollar rate is subject to a "step-down" or reduction when the Company achieves certain financial performance ratios. At December 31, 1995, there was $71,000 of cash borrowings outstanding under the revolving credit facility, all of which are classified as long-term debt. Under the letter of credit facility, a fee of 2.125% per annum (subject to the same "step-down" as noted earlier) is assessed for the account of the lenders ratably. A further fee of 0.25% is assessed on stand-by letters of credit representing a facing fee. A customary administrative charge for processing letters of credit is also payable to the relevant issuing bank. Letter of credit fees are payable quarterly in arrears. At December 31, 1995, there were $28,300 in letters of credit outstanding under the revolving credit facility. F-11 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. LONG-TERM DEBT Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ Secured credit agreement........................ $285,000 $521,000 Receivables securitization facility............. 130,000 185,000 Other........................................... 11,253 17,679 -------- -------- 426,253 723,679 Less current maturities......................... 16,574 18,639 -------- -------- $409,679 $705,040 ======== ========
On December 29, 1995, in conjunction with the acquisition of Thomasville, the Company refinanced its Secured Credit Agreement by entering into a new $630,000 facility with a group of financial institutions. The Company also amended its Receivables Securitization Facility to increase its maximum availability to $225,000. Proceeds from these loan facilities were used to repay the existing secured credit facility and to acquire Thomasville. The following discussion summarizes certain provisions of the long-term debt. Secured Credit Agreement The common stock of the Company's principal subsidiaries, substantially all of the Company's cash, working capital (other than trade receivables) and property, plant and equipment, have been pledged or mortgaged as security for the Secured Credit Agreement. The Secured Credit Agreement contains a number of restrictive covenants and events of default, including covenants limiting capital expenditures and incurrence of debt, and requires the Company to achieve certain financial ratios, some of which become more restrictive over time. The Secured Credit Agreement consists of the revolving credit facility discussed in Note 8 and three term loan facilities with the following terms:
INTEREST RATE MARGIN DECEMBER 31, 1995 MATURITY ------------------------- BALANCE DATE BASE RATE EURODOLLAR RATE ----------------- ----------------- --------- --------------- Term loan "A" facility.. $250,000 December 29, 2001 1.125% 2.125% Term loan "B" facility.. 100,000 March 29, 2003 1.625% 2.625% Term loan "C" facility.. 100,000 March 29, 2004 2.125% 3.125%
Similar to the revolving credit facility, the "spread" or margin over the base rate and Eurodollar rate is subject to a "step-down" or reduction when the Company achieves certain financial performance ratios. Interest is payable based upon the type (base rate or Eurodollar rate) of the loan the Company executes; however, interest is payable quarterly at a minimum. At December 31, 1995, all loans outstanding under the Secured Credit Agreement were based on the Eurodollar rate. F-12 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Mandatory principal payments of the term loan "A" facility are semi-annual (last business day of June and December). Mandatory principal payments of the term loan "B" facility are semi-annual through 2001 and convert to quarterly payments beginning in March 2002. Mandatory principal payments of the term loan "C" facility are semi-annual through 2002 and convert to quarterly payments beginning in June 2003. Annual mandatory principal payments are as follows: TERM LOAN FACILITY
YEAR A B C TOTAL ---- ------- ------- ------- ------- 1996...................................... $15,000 $ 1,000 $ 1,000 $17,000 1997...................................... 20,000 1,000 1,000 22,000 1998...................................... 25,000 1,000 1,000 27,000 1999...................................... 50,000 1,000 1,000 52,000 2000...................................... 65,000 1,000 1,000 67,000 2001...................................... 75,000 1,000 1,000 77,000 2002...................................... -- 75,200 1,000 76,200 2003...................................... -- 18,800 69,750 88,550 2004...................................... -- -- 23,250 23,250
In addition to mandatory principal payments, the term loan facilities require principal payments from excess cash flow (as defined in the Secured Credit Agreement), and a portion of the net proceeds realized from (i) the sale, conveyance or other disposition of collateral securing the debt or (ii) the sale by the Company for its own account of additional subordinated debt and/or shares of its preferred and/or common stock. The revolving credit facility has no mandatory principal payments prior to its maturity date. Receivables Securitization Facility The amended Receivables Securitization Facility is an obligation of the Company which matures on December 29, 2000 and is secured by substantially all of the Company's trade receivables. The facility operates through use of a special purpose subsidiary (Interco Receivables Corp.) which "buys" trade receivables from the operating companies and "sells" interests in same to a third party financial institution, which uses the interests as collateral for borrowings in the commercial paper market to fund the purchases. The Company accounts for this facility as long-term debt. The Company pays a commercial paper index rate on all funds received (outstanding) on the facility. In addition, a program fee of 0.75% per annum on the entire $225,000 facility is payable on a monthly basis. The balance outstanding at December 31, 1995 was $185,000. The Company may increase or decrease its use of the facility on a monthly basis subject to the availability of sufficient trade receivables and the facility's maximum amount ($225,000). As of December 31, 1995, the Company had $20,474 in excess availability under the facility. Other Other long-term debt consists of various industrial revenue bonds and other debt instruments with interest rates ranging from approximately 4.0% to 9.0%. Annual mandatory principal payments are required through 2004. Other Information Maturities of long-term debt are $18,639, $23,709, $28,531, $52,800 and $252,800 for years 1996 through 2000, respectively. F-13 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. COMMON STOCK The Company's restated certificate of incorporation includes authorization to issue up to 100.0 million shares of common stock with a $1.00 per share stated value. As of December 31, 1995, 50,120,079 shares of common stock were issued and outstanding. It is not presently anticipated that dividends will be paid on common stock in the foreseeable future and certain of the debt instruments to which the Company is a party restrict the payment of dividends. Shares of common stock were reserved for the following purposes at December 31, 1995:
NUMBER OF SHARES ---------------- Common stock options: Granted................................................ 2,498,000 Available for grant.................................... 740,000 Common stock warrants.................................... 6,907,198 ---------- 10,145,198 ==========
Under the Company's 1992 Stock Option Plan, certain key employees may be granted nonqualified options, incentive options or combinations thereof. Nonqualified and incentive options may be granted to expire up to ten years after the date of grant. Options granted become exercisable at varying dates depending upon the achievement of certain performance targets and/or the passage of certain time periods. The 1992 Stock Option Plan authorizes grants of options to purchase common shares at less than fair market value on the date of grant. During 1993, an option grant of 250 thousand common shares was made by the Company at less than market value resulting in a credit to paid-in capital and a charge to compensation expense of approximately $1.0 million. Changes in options granted and outstanding are summarized as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 ------------------------ ------------------------- ------------------------ SHARES AVERAGE PRICE SHARES AVERAGE PRICE SHARES AVERAGE PRICE --------- ------------- ---------- ------------- --------- ------------- Beginning of period..... 2,500,000 $7.00 2,915,000 $7.39 2,643,000 $4.64 Granted................. 461,000 9.58 917,000 7.85 125,000 6.42 Exercised............... (4,000) 7.00 (71,250) 7.00 (43,000) 3.38 Canceled................ (42,000) 7.92 (1,117,750) 7.82 (227,000) 4.68 --------- ---------- --------- End of period........... 2,915,000 $7.39 2,643,000 $4.64 2,498,000 $4.75 ========= ===== ========== ===== ========= ===== Exercisable at end of period................. 586,750 954,750 1,346,750 ========= ========== =========
As a result of the November 17, 1994 distribution of the common stock of The Florsheim Shoe Company and Converse Inc. to the Company's shareholders, options granted to the employees of those operating companies were canceled. In addition, the exercise prices of the remaining options were adjusted to reflect the distribution in accordance with the antidilution provisions of the 1992 Stock Option Plan. As of December 31, 1995, the Company had outstanding approximately 6.9 million warrants to purchase common stock. Each warrant entitles the holder thereof to purchase one share of common stock at $7.13 per share (as adjusted for the November 17, 1994 distribution to shareholders of the Company's former footwear segment). The warrants, which expire on August 3, 1999, were issued in two series; Series 1 warrants include a five year call protection, whereas Series 2 warrants do not include such a feature. All other terms and conditions of the two series of warrants are identical. The warrants trade on the over-the-counter market. F-14 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. INCOME TAXES Income tax expense was comprised of the following:
YEAR ENDED DECEMBER 31, ------------------------- 1993 1994 1995 ------- ------- ------- Current: Federal.................................... $11,788 $10,095 $20,499 State and local............................ 3,167 2,909 2,527 ------- ------- ------- 14,955 13,004 23,026 Deferred..................................... 969 7,904 (211) ------- ------- ------- $15,924 $20,908 $22,815 ======= ======= ======= The following table reconciles the differences between the Federal corporate statutory rate and the Company's effective income tax rate: YEAR ENDED DECEMBER 31, ------------------------- 1993 1994 1995 ------- ------- ------- Federal corporate statutory rate............. 35.0% 35.0% 35.0% State and local income taxes, net of Federal tax benefit................................. 4.2 2.9 2.6 Amortization of excess reorganization value.. 6.8 5.2 4.5 Other........................................ (3.3) (0.3) (2.1) ------- ------- ------- Effective income tax rate.................... 42.7% 42.8% 40.0% ======= ======= =======
The sources of the tax effects for temporary differences that give rise to the deferred tax assets and liabilities were as follows:
DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- Deferred tax assets: Employee postretirement benefits other than pensions.............. $ 833 $ 10,954 Expense accruals.................. 6,109 9,267 Valuation reserves................ 3,027 5,147 Inventory costs capitalized....... 1,534 1,785 Other............................. 1,571 919 -------- --------- Total gross deferred tax assets......................... 13,074 28,072 Valuation allowance............... -- -- -------- --------- Total net deferred tax assets... 13,074 28,072 Deferred tax liabilities: Fair value adjustments............ (70,690) (84,263) Employee pension plans............ (6,139) (1,990) Depreciation...................... (4,441) (9,029) Other............................. (7,575) (8,350) -------- --------- Total deferred tax liabilities.. (88,845) (103,632) -------- --------- Net deferred tax liabilities.... $(75,771) $ (75,560) ======== =========
F-15 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The net deferred tax liabilities are included in the consolidated balance sheets as follows:
DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- Prepaid expenses and other current assets........................... $ 11,292 $ 14,328 Other long-term liabilities....... (87,063) (89,888) -------- -------- $(75,771) $(75,560) ======== ========
The Federal income tax returns of the Company and its major subsidiaries have been examined by the Internal Revenue Service ("IRS") through February 23, 1991. 12. EMPLOYEE BENEFITS The Company sponsors or contributes to retirement plans covering substantially all employees. The total cost of all plans for 1993, 1994 and 1995 was $5,716, $6,303 and $7,070, respectively. Company-Sponsored Defined Benefit Plans Annual cost for defined benefit plans is determined using the projected unit credit actuarial method. Prior service cost is amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. It is the Company's practice to fund pension costs to the extent that such costs are tax deductible and in accordance with ERISA. The assets of the various plans include corporate equities, government securities, corporate debt securities and insurance contracts. The table below summarizes the funded status of the Company-sponsored defined benefit plans.
DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- Actuarial present value of benefit obligations: Vested benefit obligation......... $179,006 $217,879 ======== ======== Accumulated benefit obligation.... $182,903 $222,256 ======== ======== Projected benefit obligation...... $202,148 $254,815 Plan assets at fair value........... 217,535 252,810 -------- -------- Projected benefit obligation less than (greater than) plan assets.... 15,387 (2,005) Unrecognized net loss............... 3,886 5,211 Unrecognized prior service cost..... (515) 1,267 -------- -------- Prepaid pension cost................ $ 18,758 $ 4,473 ======== ========
Net periodic pension cost for 1993, 1994 and 1995 includes the following components:
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1994 1995 -------- -------- -------- Service cost-benefits earned during the period................................... $ 4,575 $ 4,758 $ 3,544 Interest cost on the projected benefit obligation............................... 12,818 13,682 17,005 Actual return on plan assets.............. (16,863) (159) (49,272) Net amortization and deferral............. 1,377 (16,297) 31,566 -------- -------- -------- Net periodic pension cost................. $ 1,907 $ 1,984 $ 2,843 ======== ======== ========
F-16 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Employees are covered primarily by noncontributory plans, funded by Company contributions to trust funds, which are held for the sole benefit of employees. Monthly retirement benefits are based upon service and pay with employees becoming vested upon completion of five years of service. The expected long-term rate of return on plan assets was 8.0%-9.5% in 1993 and 1994 and 8.5% in 1995. Measurement of the projected benefit obligation was based upon a weighted average discount rate of 7.25%, 8.0% and 7.25% and a long-term rate of compensation increase of 4.5%, 4.5% and 4.5% for 1993, 1994 and 1995, respectively. Other Retirement Plans and Benefits In addition to defined benefit plans, the Company makes contributions to a defined contribution plan and sponsors employee savings plans. The cost of these plans is included in the total cost for all plans reflected above. In addition to pension and other supplemental benefits, certain employees and retirees are currently provided with specified health care and life insurance benefits. Eligibility requirements generally state that benefits are available to employees who retire after a certain age with specified years of service if they agree to contribute a portion of the cost. The Company has reserved the right to modify or terminate these benefits. Health care and life insurance benefits are provided to both retired and active employees through medical benefit trusts, third-party administrators and insurance companies. The following table sets forth the financial status of postretirement benefits other than pensions as of December 31, 1995. Until the acquisition of Thomasville as of December 29, 1995, postretirement benefits other than pensions were considered immaterial and not previously reported.
DECEMBER 31, 1995 ----------------- Accumulated postretirement benefit obligation: Retirees............................................ $ 9,546 Fully eligible plan participants.................... 2,094 Other active plan participants...................... 20,181 ------- Total........................................... 31,821 Plan assets at fair value............................. -- ------- Accumulated postretirement benefit obligation in ex- cess of plan assets.................................. 31,821 Unrecognized net gain................................. 85 ------- Accrued postretirement benefit obligation............. $31,906 =======
For measurement purposes, a 11.0% annual rate of increase in the cost of health care benefits for pre-age 65 retirees and 11.0% for post-age 65 retirees was assumed for 1995. For 1995, the rates are assumed to decrease gradually to 6.0% in the year 2000 and remain at those levels thereafter. Increasing the assumed health care cost trend rates by one point in each year would have resulted in an increase in the accumulated postretirement benefit obligation as of December 31, 1995 of approximately $3,098 and the net periodic cost by $6 for the year. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% for 1995. F-17 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. LEASE COMMITMENTS Certain of the Company's real properties and equipment are operated under lease agreements expiring at various dates through the year 2005. Leases covering equipment generally require, in addition to stated minimums, contingent rentals based on usage. Generally, the leases provide for renewal for various periods at stipulated rates. Rental expense under operating leases was as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1993 1994 1995 ------- ------- ------- Basic rentals..................................... $10,704 $11,553 $11,516 Contingent rentals................................ 570 385 779 ------- ------- ------- 11,274 11,938 12,295 Less sublease rentals............................. 132 54 54 ------- ------- ------- $11,142 $11,884 $12,241 ======= ======= =======
Future minimum lease payments under operating leases, reduced by minimum rentals from subleases of $616 at December 31, 1995, aggregate $36,023. Annual minimum payments under operating leases are $10,715, $7,840, $6,470, $5,005 and $2,852 for 1996 through 2000, respectively. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company considers the carrying amounts of cash and cash equivalents, receivables and accounts payable to approximate fair value because of the short maturity of these financial instruments. Amounts outstanding under the Secured Credit Agreement and Receivables Securitization Facility are also considered to be carried on the financial statements at their estimated fair values because they were entered into recently and both accrue interest at rates which generally fluctuate with interest rate trends. Amounts outstanding under the other long-term debt is considered special purpose financing as an incentive to acquire specific real estate and for settlement of certain claims. Accordingly, the Company believes the carrying amounts approximate fair value given the circumstances under which such financings were acquired. 15. GAIN ON INSURANCE SETTLEMENT On November 20, 1994, an explosion and fire destroyed a particleboard plant owned and operated by the Company. During 1995, the Company rebuilt the plant with proceeds received from the insurance settlement. As a result thereof, a gain on insurance settlement, totaling $7,882, was recorded during the fourth quarter of 1995. The gain includes all costs associated with the claim with no further expenses or liability anticipated. 16. LITIGATION The Company is or may become a defendant in a number of pending or threatened legal proceedings in the ordinary course of business. In the opinion of management, the ultimate liability, if any, of the Company from all such proceedings will not have a material adverse effect upon the consolidated financial position or results of operations of the Company and its subsidiaries. F-18 FURNITURE BRANDS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Following is a summary of unaudited quarterly information:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------- -------------- -------------- ------------- Year ended December 31, 1994: Net sales............. $ 268,753 $ 272,203 $ 254,496 $ 277,244 Gross profit.......... 74,184 75,894 71,697 76,937 Net earnings: Continuing opera- tions.............. 5,908 5,863 5,366 10,796 Discontinued opera- tions.............. 9,769 5,480 7,042 (11,952) Total............. $ 15,677 $ 11,343 $ 12,408 $ (1,156) Net earnings per com- mon share--primary and fully diluted: Continuing opera- tions.............. $ 0.11 $ 0.12 $ 0.10 $ 0.21 Discontinued opera- tions.............. 0.19 0.10 0.14 (0.23) Total............. $ 0.30 $ 0.22 $ 0.24 $ (0.02) Common stock price range (High-Low)..... $15 3/4-13 1/8 $14 7/8-12 3/8 $15 3/4-13 3/4 $14 7/8-6 1/8 ============== ============== ============== ============= Year ended December 31, 1995: Net sales............. $ 285,904 $ 250,336 $ 258,626 $ 279,023 Gross profit.......... 76,349 67,399 70,557 76,932 Net earnings: Continuing opera- tions.............. 7,743 5,487 6,196 14,797 Extraordinary item.. -- -- -- (5,815) Total............. $ 7,743 $ 5,487 $ 6,196 $ 8,982 Net earnings per com- mon share--primary: Continuing opera- tions.............. $ 0.15 $ 0.11 $ 0.12 $ 0.29 Extraordinary item.. -- -- -- (0.11) Total............. $ 0.15 $ 0.11 $ 0.12 $ 0.18 Net earnings per com- mon share--fully di- luted: Continuing opera- tions.............. $ 0.15 $ 0.11 $ 0.12 $ 0.27 Extraordinary item.. -- -- -- (0.11) Total............. $ 0.15 $ 0.11 $ 0.12 $ 0.16 Common stock price range (High-Low)..... $ 7 1/8-6 1/8 $ 6 7/8-5 3/4 $ 8 1/8-5 3/4 $ 9 1/8-7 ============== ============== ============== =============
The 1994 fourth quarter common stock price range reflects the impact of the November 17, 1994 distribution of the discontinued operations to the Company's shareholders. The Company has not paid cash dividends on its common stock during the two years ended December 31, 1995. The closing market price of the Company's common stock on December 31, 1995 was $9.00 per share. F-19 CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996 ---------------------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................. $ 18,525 Receivables, less allowance of $23,517................ 287,569 Inventories (Note 3).................................. 276,406 Prepaid expenses and other current assets............. 19,818 ---------- Total current assets................................ 602,318 Property, plant and equipment........................... 402,113 Less accumulated depreciation......................... 104,656 ---------- Net property, plant and equipment................... 297,457 Intangible assets....................................... 348,578 Other assets............................................ 21,980 ---------- $1,270,333 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt.................. $ 21,173 Accounts payable and other accrued expenses........... 135,997 Accrued interest expense.............................. 3,032 ---------- Total current liabilities........................... 160,202 Long-term debt, less current maturities................. 562,795 Other long-term liabilities............................. 132,842 Shareholders' equity: Preferred stock, authorized 10,000,000 shares, no par value--issued, none.................................. -- Common stock, authorized 100,000,000 shares, $1.00 stated value (no par value)--issued 61,398,952 shares at June 30, 1996 (Note 4)............................ 61,399 Paid-in capital....................................... 297,761 Retained earnings..................................... 55,334 ---------- Total shareholders' equity.......................... 414,494 ---------- $1,270,333 ==========
See accompanying notes to consolidated financial statements. F-20 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 1995 1996 ----------- ----------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) Net sales........................................ $ 536,240 $ 844,689 Costs and expenses: Cost of operations............................. 380,130 611,540 Selling, general and administrative expenses... 99,380 144,772 Depreciation and amortization (includes $8,088 and $8,338 related to fair value adjustments).................................. 19,338 28,058 ----------- ----------- Earnings from operations......................... 37,392 60,319 Interest expense................................. 17,197 25,080 Other income, net................................ 2,271 1,412 ----------- ----------- Earnings before income tax expense, discontinued operations and extraordinary item............... 22,466 36,651 Income tax expense............................... 9,236 14,183 ----------- ----------- Net earnings..................................... $ 13,230 $ 22,468 =========== =========== Net earnings per common share: Primary........................................ $ 0.26 $ 0.37 =========== =========== Fully Diluted.................................. $ 0.26 $ 0.37 =========== =========== Weighted Average Common and Common Equivalent Shares Outstanding: Primary........................................ 50,594,863 59,958,162 =========== =========== Fully Diluted.................................. 50,639,977 60,693,945 =========== ===========
See accompanying notes to consolidated financial statements. F-21 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 1995 1996 ------------ ------------- (DOLLARS IN THOUSANDS) Cash Flows from Operating Activities: Net earnings.................................... $ 13,230 $ 22,468 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equip- ment......................................... 14,471 22,057 Amortization of intangible and other assets... 4,867 6,001 Noncash interest expense...................... 1,191 1,234 (Increase) decrease in receivables............ 5,003 (11,453) Increase in inventories....................... (2,128) (6,729) (Increase) decrease in prepaid expenses and intangible and other assets.................. (1,059) 15,286 Increase in accounts payable, accrued interest expense and other accrued expenses........... 3,382 24,464 Increase (decrease) in net deferred tax liabilities.................................. (1,566) 526 Decrease in other long-term liabilities....... (315) (17,953) ------------ ------------- Net cash provided by operating activities....... 37,076 55,901 ------------ ------------- Cash Flows from Investing Activities: Proceeds from the disposal of assets............ 107 1,842 Additions to property, plant and equipment...... (8,314) (14,950) ------------ ------------- Net cash used in investing activities........... (8,207) (13,108) ------------ ------------- Cash Flows from Financing Activities: Additions to long-term debt..................... -- 15,000 Payments of long-term debt...................... (23,679) (154,711) Proceeds from sale of common stock.............. -- 81,292 Proceeds from the issuance of common stock...... 199 9,044 Payments for the repurchase of common stock war- rants.......................................... (1,981) (1,305) ------------ ------------- Net cash used by financing activities........... (25,461) (50,680) ------------ ------------- Net increase (decrease) in cash and cash equiva- lents............................................ 3,408 (7,887) Cash and cash equivalents at beginning of period.. 32,145 26,412 ------------ ------------- Cash and cash equivalents at end of period........ $ 35,553 $ 18,525 ============ ============= Supplemental Disclosure: Cash payments for income taxes, net............. $ 5,972 $ 14,983 ============ ============= Cash payments for interest expense.............. $ 14,609 $ 22,209 ============ =============
See accompanying notes to consolidated financial statements. F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) The financial statements are unaudited but include all adjustments (consisting of normal recurring adjustments) which the management of the Company considers necessary for a fair presentation of the results of the period. The results for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. (2) In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under SFAS No. 123, companies can either measure the compensation cost of equity instruments issued under employee compensation plans using a fair value based method, or can continue to recognize compensation cost under the provisions of Accounting Principles Board Opinion No. 25 ("Opinion No. 25") with pro forma disclosures of net income and earnings per share as if the fair value method had been applied. The Company adopted SFAS No. 123 as of January 1, 1996 and has elected to, as permitted under the statement, continue recognition of compensation costs under the provisions of Opinion No. 25 with appropriate disclosure, if material. The effect on net earnings for the six-month period ended June 30, 1996 is not material and, accordingly, no disclosure has been made. Further, based on current and anticipated use of stock options for the foreseeable future, it is not envisioned that the impact of the pronouncement would be material in subsequent periods. (3) Inventories are summarized as follows:
JUNE 30, 1996 ---------------------- (DOLLARS IN THOUSANDS) Finished products.................................. $122,049 Work-in-process.................................... 51,500 Raw materials...................................... 102,857 -------- $276,406 ========
(4) On March 1, 1996, the Company completed its offering of ten million common shares generating net cash proceeds of $81.3 million which were used to repay long-term debt. This long-term debt payment was applied in reverse order of maturity to the term loan "C" facility of the Company's secured credit agreement. (5) In February 1996, the Company entered into interest rate swap agreements with two financial institutions to reduce the impact of changes in interest rates on its floating rate long-term debt. The two agreements, having a total notional principal amount of $300.0 million, mature in three years. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement; however, the Company does not anticipate nonperformance by the counterparties. (6) On September 6, 1996, the Company refinanced its secured credit agreement. The new secured credit agreement is a five-year, reducing revolving credit facility with an initial commitment totaling $475.0 million. The revolving credit facility has no mandatory principal payments; however, the commitment is reduced to $400.0 million on September 30, 1999, $300.0 million on September 29, 2000, with remaining commitment maturing on September 15, 2001. The revolving credit facility allows for issuance of letters of credit and cash borrowings. Letter of credit outstandings are limited to no more than $60.0 million, with cash borrowings limited only by the facility's maximum availability less letters of credit outstanding. On September 6, 1996, $365.0 million in cash borrowings were outstanding under the revolving credit facility. F-23 Cash borrowings under the revolving credit facility bear interest at a base rate or at an adjusted Eurodollar rate plus an applicable margin which varies, depending upon the type of loan the Company executes. The applicable margin over the base rate and Eurodollar rate is subject to adjustment based upon certain financial performance ratios. At September 6, 1996, all cash borrowings were Eurodollar loans having an interest rate of 6.375%, which included an applicable margin of 0.875%. (7) In conjunction with the September 6, 1996 refinancing of the secured credit agreement, the Company charged to results of operations $7.4 million, net of taxes of $4.5 million, representing the deferred financing fees and expenses pertaining to such credit facilities. The charge was recorded as an extraordinary item. F-24 INDEPENDENT AUDITORS' REPORT We have examined the pro forma adjustments reflecting the transactions described in the notes to the pro forma condensed consolidated financial statements (the "Notes") and the application of those adjustments to the historical amounts in the accompanying pro forma condensed consolidated statement of operations of Furniture Brands International, Inc. (the "Company") for the year ended December 31, 1995. The historical condensed consolidated statement of operations is derived from the historical consolidated statement of operations of the Company, which was audited by us appearing elsewhere herein. The historical condensed consolidated statement of operations of Thomasville Furniture Industries, Inc. ("Thomasville") is derived from the historical consolidated statement of operations of Thomasville which was audited by us and incorporated by reference herein. Such pro forma adjustments are based upon management's assumptions described in the Notes. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included such procedures as we considered necessary in the circumstances. The objective of this pro forma condensed financial information is to show what the significant effects on the historical information might have been had these transactions occurred at an earlier date. However, the pro forma condensed consolidated statement of operations is not necessarily indicative of the results of operations that would have been attained had the above- mentioned transactions actually occurred earlier. In our opinion, management's assumptions provide a reasonable basis for presenting the significant effects directly attributable to the above- mentioned transactions described in the Notes, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns reflect the proper application of those adjustments to the historical consolidated financial statement amounts in the pro forma condensed consolidated statement of operations for the year ended December 31, 1995. KPMG Peat Marwick LLP St. Louis, Missouri September 25, 1996 F-25 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS The following pro forma condensed consolidated statement of operations reflects the acquisition of Thomasville, which was consummated on December 29, 1995, the incurrence of indebtedness by the Company in connection therewith and in connection with the refinancing of a portion of the Company's then- existing indebtedness, the sale of 10,000,000 shares of Common Stock completed on March 1, 1996 and the application of the net proceeds therefrom ($81.3 million), in each case as if each of such transactions had occurred on January 1, 1995. The pro forma condensed consolidated statement of operations should be read in connection with the historical financial statements of the Company and Thomasville presented elsewhere in this Prospectus or incorporated herein by reference. Management believes that the assumptions used provide a reasonable basis on which to present the pro forma condensed consolidated statement of operations. The pro forma condensed consolidated statement of operations is presented for informational purposes only and is not necessarily indicative of the combined results of operations in the future or of what the combined results of operations would have been if the foregoing transactions had actually been consummated as of such dates. In addition, the pro forma condensed consolidated statement of operations does not give effect to profit improvement opportunities, if any, which may be realized by the Company as a result of the acquisition of Thomasville. The pro forma condensed statement of operations has been prepared on the basis of assumptions described in the notes thereto and include assumptions relating to the allocation of the consideration paid for the Thomasville acquisition to its respective assets and liabilities based on preliminary estimates of their respective fair values. The actual allocation of such consideration may differ from that reflected in the pro forma condensed consolidated financial statements after valuations and other studies to be performed pursuant to post-closing adjustments related to the acquisition have been completed. F-26
YEAR ENDED DECEMBER 31, 1995 --------------------------------------------------- PRO FORMA THE COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............... $1,073,889 $550,227 $ -- $1,624,116 Costs and expenses: Cost of operations..... 760,393 428,497 1,252(a) 1,190,142 Selling, general and 198,321 70,661 3,600 (b) administrative (1,159)(c) expenses.............. 271,423 Restructuring charges.. -- 404 (404)(d) -- Depreciation and 36,104(k) 12,557 (257)(e) amortization.......... 2,644 (f) 1,005 (g) 52,053(k) ---------- -------- ------- ---------- Earnings from opera- tions.................. 79,071 38,108 (6,681) 110,498 Interest expense........ 33,845 12,919 5,246 (h) 52,010 Other income, net: Gain on insurance settlement............ 7,882 -- -- 7,882 Other.................. 3,930 2,049 (1,876)(i) 4,103 ---------- -------- ------- ---------- Earnings before income tax expense............ 57,038 27,238 (13,803) 70,473 Income tax expense...... 22,815 10,773 (5,280)(j) 28,308 ---------- -------- ------- ---------- Net earnings from con- tinuing operations..... $ 34,223 $ 16,465 $(8,523) $ 42,165 ========== ======== ======= ========== Net earnings from continuing operations before gain on insurance settlement net of income tax expense................ $ 29,463 $ 37,404 ========== ========== Net earnings per common share from continuing operations (fully diluted)............... $ 0.65(k) $ 0.68(k) ========== ========== Net earnings per common share from continuing operations before gain on insurance settlement, net of income tax expense (fully diluted)........ $ 0.56(k) $ 0.60(k) ========== ========== Weighted average common and common equivalent shares outstanding (in thousands) (fully diluted)............... 52,317 62,317
- -------- (a) Adjusted to reflect cost of sales based upon first-in, first-out method of accounting for inventory from the last-in, first-out method used by Thomasville in 1995. (b) Adjusted to reflect the estimated pension expense to the Company associated with the formation of the new Thomasville pension plan. (c) Adjusted to reflect the reversal of expenses incurred by Thomasville for certain of its employee benefit plans, which were discontinued at the time of the acquisition by the Company. (d) Adjusted to reflect the reversal of Thomasville's nonrecurring restructuring charge of $404 in 1995 prior to the acquisition by the Company. (e) Adjusted to reverse the amortization of Thomasville's historical excess of cost over net assets acquired for the period prior to the acquisition of Thomasville by the Company. (f) Adjusted to reflect the amortization of the excess of cost over net assets of Thomasville acquired by the Company. (g) Adjusted to reflect increased depreciation expense to the Company resulting from recording property, plant and equipment of Thomasville at estimated fair value. (h) Adjusted to reflect increased interest expense to the Company of $12,927 related to borrowings under its secured credit agreement and receivables securitization facility in connection with the acquisition of Thomasville and further adjusted to reflect reduced interest expense of $7,681 for the application of the net proceeds of the 1996 Company Equity Sale to repay a portion of such indebtedness. (i) Adjusted to reflect reduction in interest income of the Company attributable to cash used by the Company to finance the Thomasville acquisition. (j) Adjusted to record the income tax effect of all adjustments at a combined statutory rate of 38.25%. (k) Includes $15,922 related to the 1992 asset revaluation. This item resulted in a reduction of $12,470 in net earnings from continuing operations and a reduction of $0.24 per share (fully diluted) and $0.20 per share (fully diluted) in net earnings per common share and pro forma net earnings per common share, respectively. See Note 3 to the Consolidated Financial Statements of the Company included elsewhere in this Prospectus. F-27 [LOGO OF THOMASVILLE APPEARS HERE] [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] Stylish casual and exceedingly Thomasville's collection of home comfortable design leadership is fueling entertainment units meets the impressive growth in upholstery growing demand for home theater and and occasional furniture as shown by this contemporary entertainment systems. leather collection. [ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE] Shelter magazine ads like The elegant Grand Classics this featured Elysee collection collection appeals to consumers bedroom... represent the who want a more sophisticated home. Thomasville brand effectively The collection is part of a wide in more than a dozen publications. assortment of case goods in major style categories. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION PROVIDED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 10 Use of Proceeds.......................................................... 12 Price Range of Common Stock and Dividend Policy.......................... 12 Capitalization........................................................... 13 Selected Consolidated Historical and Pro Forma Financial Information..... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Business................................................................. 22 Management............................................................... 34 Certain Transactions..................................................... 35 Selling Stockholders..................................................... 35 Description of Capital Stock............................................. 36 Certain U.S. Tax Consequences to Non-U.S. Stockholders................... 38 Underwriting............................................................. 40 Legal Matters............................................................ 42 Experts.................................................................. 42 Available Information.................................................... 43 Incorporation of Certain Documents by Reference.......................... 44 Index to Consolidated and Pro Forma Financial Statements................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 12,000,000 SHARES FURNITURE BRANDS INTERNATIONAL COMMON STOCK [LOGO] BROYHILL LANE THOMASVILLE -------- PROSPECTUS OCTOBER , 1996 -------- SMITH BARNEY INC. CS FIRST BOSTON DILLON, READ & CO. INC. MERRILL LYNCH & CO. WHEAT FIRST BUTCHER SINGER - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ [INTERNATIONAL PROSPECTUS ALTERNATE PAGE] SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996 PROSPECTUS 12,000,000 SHARES LOGO COMMON STOCK -------- LOGO All of the shares of Common Stock, no par value (the "Common Stock"), of Furniture Brands International, Inc. (the "Company") offered hereby are being sold by the Selling Stockholders, as defined herein. The Company will not receive any of the proceeds from the sale of the Common Stock offered hereby. Of the 12,000,000 shares of Common Stock offered hereby, a total of 2,400,000 shares are being offered hereby in an international offering outside the United States and Canada (the "International Offering") by the Managers (as defined) and a total of 9,600,000 shares are being offered by the U.S. Underwriters (as defined) in a concurrent offering in the United States and Canada (the "U.S. Offering" and, together with the International Offering, the "Offerings"). The Common Stock is listed on the New York Stock Exchange under the symbol "FBN." On October 3, 1996, the last reported sale price of the Common Stock on the New York Stock Exchange was $14 5/8 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND SELLING PUBLIC COMMISSIONS(1) STOCKHOLDERS(2) - --------------------------------------------------------------------- Per Share $ $ $ - --------------------------------------------------------------------- Total(3) $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) For information regarding indemnification of the U.S. Underwriters and the Managers, see "Underwriting." (2) Before deducting expenses estimated at $ payable by the Company. (3) The Selling Stockholders have granted the U.S. Underwriters a 30-day option to purchase up to 1,800,000 additional shares of Common Stock solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Selling Stockholders will be $ , $ and $ , respectively. -------- The shares of Common Stock are being offered by the several U.S. Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about , 1996, at the office of Smith Barney Inc., 333 West 34th Street, New York, New York 10001. -------- SMITH BARNEY INC. CS FIRST BOSTON DILLON, READ & CO. INC. MERRILL LYNCH INTERNATIONAL WHEAT FIRST BUTCHER SINGER October , 1996 [INTERNATIONAL PROSPECTUS ALTERNATE PAGE] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION PROVIDED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 10 Use of Proceeds.......................................................... 12 Price Range of Common Stock and Dividend Policy.......................... 12 Capitalization........................................................... 13 Selected Consolidated Historical and Pro Forma Financial Information..... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Business................................................................. 22 Management............................................................... 34 Certain Transactions..................................................... 35 Selling Stockholders..................................................... 35 Description of Capital Stock............................................. 36 Certain U.S. Tax Consequences to Non-U.S. Stockholders................... 38 Underwriting............................................................. 40 Legal Matters............................................................ 42 Experts.................................................................. 42 Available Information.................................................... 43 Incorporation of Certain Documents by Reference.......................... 44 Index to Consolidated and Pro Forma Financial Statements................. F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 12,000,000 SHARES FURNITURE BRANDS INTERNATIONAL COMMON STOCK [LOGO] BROYHILL LANE THOMASVILLE ------- PROSPECTUS OCTOBER , 1996 ------- SMITH BARNEY INC. CS FIRST BOSTON DILLON, READ & CO. INC. MERRILL LYNCH INTERNATIONAL WHEAT FIRST BUTCHER SINGER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table shows the estimated expenses of the issuance and distribution of the securities offered hereby, other than underwriting discounts and commissions: Securities and Exchange Commission filing fee....................... $ 59,842 National Association of Securities Dealers, Inc. filing fee......... 20,248 Printing expenses................................................... 120,000 Legal fees and expenses............................................. 100,000 Accounting fees and expenses........................................ 100,000 Blue sky filing fees and expenses (including counsel fees).......... 5,000 Miscellaneous expenses.............................................. 4,910 -------- Total............................................................... $410,000 ========
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 ("Section 145") of the Delaware General Corporation Law permits indemnification of directors, officers, agents and controlling persons of a corporation under certain conditions and subject to certain limitations. Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer or agent of the corporation or another enterprise if serving at the request of the corporation. Depending on the character of the proceeding, a corporation may indemnify against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner such person reasonably believed to be in or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. In the case of an action by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. The Company's By-laws contain provisions for indemnification of directors, officers, employees and agents which are substantially the same as Section 145 and also permit the Company to purchase insurance on behalf of any such person against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the foregoing provision of the By-laws. The Company maintains such insurance. Certain of the directors and former directors of the Company have entered into and are the beneficiaries of indemnification agreements with the Company. These agreements provide indemnity protection for such persons which is substantially the same as that authorized by the Delaware General Corporation Law and provided for in the Company's By-Laws. The Underwriting Agreement, included as Exhibit 1 hereto, provides that each of the Underwriters will indemnify the directors and officers of the Company against certain liabilities, including liabilities under the Securities Act 1933, as amended. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES EXHIBITS 1 Form of Underwriting Agreement.* 3(a) Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4(a) to the Company's Report on Form 10-Q for the quarter ended March 31, 1993). 3(b) By-Laws of the Company (incorporated by reference to Exhibit 4(b) to the Company's Report on Form 10-Q for the quarter ended March 31, 1993). Opinion of Morgan, Lewis & Bockius LLP as to the validity of the 5 securities. 23.1 Consents of KPMG Peat Marwick LLP. 23.2 Consent of Morgan, Lewis & Bockius LLP (included in exhibit 5). 24 Powers of Attorney.
- -------- * To be filed by amendment. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan, annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the undersigned registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF ST. LOUIS, STATE OF MISSOURI ON OCTOBER 4, 1996. FURNITURE BRANDS INTERNATIONAL, INC. By: /s/ Wilbert G. Holliman, Jr. ---------------------------------- WILBERT G. HOLLIMAN, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE DATES INDICATED BELOW. SIGNATURE TITLE DATE /s/ Wilbert G. Holliman, Jr. President and Chief October 4, 1996 - ------------------------------------- Executive Officer WILBERT G. HOLLIMAN, JR. and Director /s/ David P. Howard Vice-President and October 4, 1996 - ------------------------------------- Chief Financial DAVID P. HOWARD Officer /s/ Steven W. Alstadt Controller and Chief October 4, 1996 - ------------------------------------- Accounting Officer STEVEN W. ALSTADT * Director October 4, 1996 - ------------------------------------- LEON D. BLACK * Director October 4, 1996 - ------------------------------------- MICHAEL S. GROSS * Director October 4, 1996 - ------------------------------------- JOHN J. HANNAN * Director October 4, 1996 - ------------------------------------- JOSHUA J. HARRIS * Director October 4, 1996 - ------------------------------------- BRUCE A. KARSH * Director October 4, 1996 - ------------------------------------- JOHN H. KISSICK II-3 SIGNATURE TITLE DATE * Director October 4, 1996 - ------------------------------------- DONALD E. LASATER * Director October 4, 1996 - ------------------------------------- LEE M. LIBERMAN * Director October 4, 1996 - ------------------------------------- RICHARD B. LOYND * Director October 4, 1996 - ------------------------------------- MARC J. ROWAN * Director October 4, 1996 - ------------------------------------- JOHN J. RYAN, III * Director October 4, 1996 - ------------------------------------- MICHAEL D. WEINER *By: /s/ Lynn Chipperfield --------------------------------- LYNN CHIPPERFIELD, ATTORNEY-IN-FACT OCTOBER 4, 1996 II-4 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ---- 1 Form of Underwriting Agreement.* 3(a) Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4(a) to the Company's Report on Form 10-Q for the quarter ended March 31, 1993). 3(b) By-Laws of the Company (incorporated by reference to Exhibit 4(b) to the Company's Report on Form 10-Q for the quarter ended March 31, 1993). Opinion of Morgan, Lewis & Bockius LLP as to the validity 5 of the securities. 23.1 Consents of KPMG Peat Marwick LLP. Consent of Morgan, Lewis & Bockius LLP (included in exhibit 23.2 5). 24 Powers of Attorney.
- -------- * To be filed by amendment. EX-5 2 OPINION OF MORGAN, LEWIS & BOCKIUS LLP EXHIBIT 5 OPINION OF MORGAN, LEWIS & BOCKIUS LLP October 4, 1996 Furniture Brands International, Inc. 101 South Hanley Road St. Louis, Missouri 63105 Re: Furniture Brands International, Inc.--Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel for Furniture Brands International, Inc., a Delaware corporation (the "Company"), in connection with the preparation of the registration statement (the "Registration Statement"), filed by the Company with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), relating to the public offering of up to 13,800,000 presently issued and outstanding shares of the Company's common stock, no par value (the "Common Stock"), to be sold by the entities listed as selling stockholders in the Registration Statement (the "Selling Stockholders"). In this connection, we have reviewed (a) the Registration Statement; (b) the Company's Restated Certificate of Incorporation, as amended, and By-laws, as amended; (c) certain records of the Company's corporate proceedings as reflected in its minute books; and (d) such other documents and records as we have considered necessary or desirable in connection with this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the original of all documents submitted to us as copies thereof. Our opinion set forth below is limited to the General Corporation law of the State of Delaware. Based upon the foregoing, we are of the opinion that the shares of Common Stock to be sold by the Selling Stockholders as described in the Registration Statement are duly authorized, validly issued, fully paid and non-assessable. We hereby consent to the use of this opinion as an Exhibit to the Registration Statement and to all references to our firm in the Registration Statement. In giving such consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act and the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Morgan, Lewis & Bockius LLP EX-23.1 3 CONSENTS OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Furniture Brands International, Inc.: We consent to the use of our reports included and incorporated by reference in the registration statement and to the reference to our firm under the headings "Experts" and "Selected Consolidated Historical and Pro Forma Financial Information" in the Prospectus. KPMG Peat Marwick LLP St. Louis, Missouri October 4, 1996 INDEPENDENT AUDITORS' CONSENT The Board of Directors Thomasville Furniture Industries, Inc.: We consent to the incorporation by reference in the registration statement on Form S-3 of Furniture Brands International, Inc. of our report dated January 20, 1995, except as to note 1, which is as of April 7, 1995, with respect to the consolidated balance sheets of Thomasville Furniture Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1994, which report appears in the Form 8-K/A-1 of Furniture Brands International, Inc. dated January 16, 1996 and to the reference to our firm under the heading "Experts" in the Prospectus. Our report refers to changes in accounting for postemployment benefits, postretirement benefits and income taxes. KPMG Peat Marwick LLP Greensboro, North Carolina October 4, 1996 INDEPENDENT AUDITORS' CONSENT The Board of Directors Thomasville Furniture Industries, Inc.: We consent to the incorporation by reference in the registration statement on Form S-3 of Furniture Brands International, Inc. of our report dated January 19, 1996, with respect to the consolidated balance sheet of Thomasville Furniture Industries, Inc. and subsidiaries ("Thomasville") as of December 29, 1995, and the related consolidated statement of operations for the year then ended, which report appears in the Form 8-K/A-2 of Furniture Brands International, Inc. dated February 1, 1996 and to the reference to our firm under the heading "Experts" in the Prospectus. Our report refers to the omission in the consolidated financial statements of Thomasville, of the consolidated statements of shareholder's equity and cash flows for the year ended December 29, 1995 and notes to the consolidated financial statements which are required by generally accepted accounting principles and results in an incomplete presentation. Our report also refers to Thomasville's acquisition by Furniture Brands International, Inc. on December 29, 1995. The acquisition was accounted for under the purchase method of accounting. The accompanying consolidated financial statements do not include the effects of push down accounting. KPMG Peat Marwick LLP Greensboro, North Carolina October 4, 1996 EX-24 4 POWERS OF ATTORNEY EXHIBIT 24 POWERS OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned does hereby nominate, constitute and appoint Lynn Chipperfield and David P. Howard, or either of them, as his agent and attorney-in-fact, in his name to execute on behalf of the undersigned a Registration Statement on Form S-3 to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in connection with the registration under said Act of shares of Common Stock of Furniture Brands International, Inc. (the "Company") to be sold by certain of its stockholders, the authority herein given to include execution of amendments to any part of such Registration Statement and generally to do and perform all things necessary to be done in the premises as fully and effectively in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF this Power of Attorney has been executed in counterparts by individuals listed below as of the 4th day of October, 1996. /s/ Leon D. Black /s/ John H. Kissick - ------------------------------------- ------------------------------------- LEON D. BLACK JOHN H. KISSICK /s/ Michael S. Gross /s/ Donald E. Lasater - ------------------------------------- ------------------------------------- MICHAEL S. GROSS DONALD E. LASATER /s/ John J. Hannan /s/ Lee M. Liberman - ------------------------------------- ------------------------------------- JOHN J. HANNAN LEE M. LIBERMAN /s/ Joshua J. Harris /s/ John J. Ryan III - ------------------------------------- ------------------------------------- JOSHUA J. HARRIS JOHN J. RYAN III /s/ Bruce A. Karsh /s/ Michael D. Weiner - ------------------------------------- ------------------------------------- BRUCE A. KARSH MICHAEL D. WEINER /s/ Marc J. Rowan /s/ Wilbert G. Holliman, Jr. - ------------------------------------- ------------------------------------- MARC J. ROWAN WILBERT G. HOLLIMAN, JR. /s/ Richard B. Loynd - ------------------------------------- RICHARD B. LOYND -----END PRIVACY-ENHANCED MESSAGE-----